Q4 2020 Rush Enterprises Inc Earnings Call
[music].
Ladies and gentlemen on today's conference is scheduled to begin momentarily. Please continue to standby.
Again the conference is scheduled to begin momentarily. Please continue to standby.
[music].
Okay.
Okay.
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Rush Enterprises fourth quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session just press star and the.
Number one on your telephone keypad.
I would now like to hand, the conference over with your speaker today the CEO.
On a fresh enterprises, Inc.
Rusty Rush go ahead, Sir have a wonderful conference.
Thank you good morning, and welcome to our fourth quarter, you're in 2020 earnings release conference call on the call today are Mike Mcroberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, Derrek Weaver Executive Vice President, Jay Hazelwood, Vice President Controller, and Michael Goldstone, Vice President General Counsel and corporate Secretary.
Now Steve will say a few words regarding forward looking statements.
Certain statements we will make today are considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995, because these statements include risks and uncertainties. Our actual results may differ materially from those expressed or implied by such forward looking statements important factors that could cause actual results to differ materially from those expressed or implied by such forward.
Looking statements include but are not limited to those discussed on our annual report on form 10-K for the year ended December 31, 2019, and in our other filings with the Securities and Exchange Commission.
As indicated in our news release, we achieved annual revenues of $4 7 billion and net income for $114 9 million or $2.04 per diluted share.
In the fourth quarter net income of $41 million for 72 cents per diluted share on revenues of $1 3 billion. We also declared a cash dividend of <unk> 18 per common share an increase of 29% over the last quarter.
We are proud of the team for their hard work this year given the tremendous challenges they face.
Even though demand was negatively impacted by the expected downturn on the industry as well as the effects for the COVID-19 pandemic, our disciplined approach to expense management previous investments in strategic initiatives and gradual economic recovery in the second half of the year enabled us to achieve strong financial results.
Rough truck centers have been fully operational across the country throughout the pandemic, while we will continue to monitor the impact from the pandemic on our industry, including supply chain issues that may affect crooks and parts availability. We will continue to carefully manage expenses and take a disciplined approach to continued investments in our long term growth strength.
As we look ahead, we expect the economy to continue to improve demand will increase throughout the market segments, we support and we believe our financial results will significantly improve in 2021.
In the aftermarket our annual parts service and body shop revenue were $1 6 billion and our annual absorption rate was $118 7%.
Annual aftermarket revenues decreased by nine 2% compared to 2019. This decline was driven primarily by weak demand.
For.
From the energy sector, and COVID-19, pandemic related issues, including production shutdowns and supply chain interruptions, our previous strategic investments in technology, including Rush care service connect and parts connect enabled us to continue to serve customers safely throughout the year.
Looking ahead, we believe the nationwide economic recovery will drive healthy activity from a wide variety of customer segments, we expect parts and service revenues to grow gradually throughout the year and approach our 2019 levels.
Turning to truck sales in 2020, we sold 10670, new class eight trucks down 28, 8% over the previous year accounting for five five percentage of total U S class eight market.
Our drug sales online.
Aligned with the market, which was impacted not only by the expected industry downturn, but also pandemic related production constraints on supply chain issues and the for core new truck demand increased due to healthy customer spending.
Zuma spend excuse me strong construction activity and strong freight rates throughout the country.
<unk> research currently forecasts U S class eight retail sales were 243000 units from 2021, while the overall economy continues to grow particularly on housing automotive and consumer spending we are cautiously monitoring component manufacturer supply chain issues, which may limit brook manufacturer's ability to meet demand through the year.
We believe our class eight new truck sales in 2021.
It will be consistent with the industry.
Our class four through seven new truck sales reached 11311 units in 2020 down 21, 8% from 2019 and accounting for four 9% of the U S market are declining can largely be attributed to the impact for COVID-19 in particular on leasing and rental and commercial foodservice customers as well as.
Notion shutdowns from some of the manufacturers we represent on.
Our fourth quarter results for further negatively impacted by the timing of fleet deliveries ACG research forecasts U S class four through seven retail sales to reach 249500 in 2021 up seven 5% from 2020.
Looking ahead, while positively impacted by the overall economy has some challenges will remain for medium duty truck sales for.
Particularly production lead times, however, with our nationwide inventory of ready to roll trucks supporting a wide variety of customers. We believe our class four through seven new truck sales will achieve healthy growth in 2021 consistent with the industry.
Our used truck sales reached 7400 units in 2020 down for 4% from 2019.
Due to production ramps of new trucks used trucks were in high demand in the second half of 2020, which helped strengthen used truck values approximately 15% higher than their lowest point earlier in the year in.
In 'twenty and 'twenty, one we expect demand in values of used trucks to remain strong.
It should be noted that due to normal seasonal increases and employee benefits and payroll taxes, we expect general and administrative expenses to be sequentially higher in the first quarter of 2021.
Our employee base from tremendous top line for this year and I am truly grateful to them for their unending dedication to our company, while protecting the health and safety of our customers coworkers and communities.
With that I'll take your questions.
As a reminder to ask a question for <unk> and then number one on your telephone keypad.
For a moment.
Compile the Q&A roster.
Yeah.
Our first question comes from the line of Justin Long go ahead, Sir your line is open.
Thanks, Good morning, and congrats on the quarter.
Thank you I appreciate it.
So maybe to start with parts and service Rusty can you share what you're seeing in in January from a revenue perspective, and then just thinking about the quarterly growth of parts and service this year.
It's probably going to be all over the place given the comp. So so can you give us a little bit more color about what you're expecting for throughout 2021.
Sure you bet.
I'll be happy to speak about James well the acceleration in growth in parts and service has continued.
It was in the back half of the year in January Okay.
That said.
Still less in January of 2020.
You look back over as you said you wanted to look at it quarterly as you look back over last year, we know what it was a little bit lumpy to say the least.
You know I would expect.
The first quarter should be maybe not quite back all the way with last year's first quarter, a little bit shy of it.
At the same time, we know you know when you're thinking about it I always told everybody that last year. It was like a 13 month year right. Because it was the back two weeks is really March that Covid really took effect right. So the first quarter had a little COVID-19 effect last year, but so it was a it'll be a fairly difficult what I believe will get fairly close we start out a little light from January where we can.
Turning to see.
Celebration and our business pretty much across the board happy later to go through geographically what it looks like but at the same time, we are seeing continued growth and acceleration again, our comp back last year is going to be a little tough because we hadn't had COVID-19. Yet then we get into Q2, and obviously Q2.
It's going to be up.
If all things remain the same and we continue down the path, we're going it's going to be up quite dramatically over the last year right. So.
Would average that out.
Thanks, you would probably we were slightly flat to down in Q1 in Europe.
High teens.
Over Q2 of last year, something like that mid to high teens say that in Q2, you know you could average day to see where you'd be at year end.
Mid year, and then hopefully as we roll through mid year, and we will continue to accelerate as I've said gradual acceleration.
And it looks like a lot in Q2, but it's really not what used to take this year a snapshot of this year, we expect to continue to see nice gradual acceleration, which is the <unk>.
Hey, I wanted to go.
Nice consistent growth throughout the year back where we were back operating like we do in normal times.
You can see the the work of the investments that we've made in the past.
Come to fruition.
So hopefully as we get towards the end of the year.
We will look for something close to a 10% blended.
Growth rate, but they won't be flatlined.
Because of the way last year was when you cough for year over year.
We feel pretty good about where we're at.
But we feel very good about where we're at and where we're headed in the overall marketplace pretty much across the board.
Okay. That's helpful in thinking about parts and service gross margin do you feel like 36% to 37% is the right range to be thinking about for 2021 as well.
I'd like to say 36, you know when you blend it you got to remember I know everybody's going to say well.
Actually you are up we would add a couple of tougher quarters in the 30 fives.
In Q2, and three and obviously Q4 was up to 36% if I'm not mistaken right. So blended let's say from sorry.
Yes, we had we had one whether it was above the 30 sales during the middle of the year. If yes, if you want to take it in blended in average at a lot of it has to do sometimes with timing of rebates.
And other issues and also as we know it depends on the mix right. Obviously service margins are quite a bit higher than parts margin, so but to give you just.
Flatline broad answer is yes, I think we can maintain 36 blended throughout the year on Friday for a little better as we go hopefully we might have a little higher service growth rate next year parts seem to hold in better throughout the pandemic and service did especially in the middle of it.
And I feel good that we're.
From a technician perspective, we had gone down quite a few of them during the pandemic and also a little bit.
Evaluation on our part and we're going to drive a steady steadily add back technicians at a nice steady pace.
To support the market as we go forward into this year and we've seen that over the last for months or so, but that's what we've been doing so hopefully we'll be able to continue that throughout the year.
Bring back a little service, a little faster, which is a little higher margin. So that will support the numbers that youre talking about.
Great and then last quick one for me you mentioned in the first quarter and I know seasonally we always see some sequential pressure in the first quarter, but is there any more color around the step up and G&A that we should be expecting in <unk>.
Without.
I would say it would be in line with historical is on we don't want to get into the exact number zone, but I mean, you can look back historically, we have a lot on.
Employee benefits equity comp costs are high.
In Q1 on all the taxes come back on all your payroll taxes take effect right, social security et cetera, et cetera people that are maxed out and then youre not paying on later in the year.
So those types of things are what we see.
In Q1, historically and it's no different this year than the past. So there will be a step up and then I think you'll see flattening out and maybe even going down but I also think at the same time, you'll be seeing a higher especially in Q2 cash.
On a better revenue growth base.
We will once you get into the middle of the year, our revenue will be for outbreaks should be far exceeding our expense growth as well.
Talked about trying to get to you know we've added back.
We are basically finishing up getting everything back to reinstatement.
We made a dramatic moves or drastic moves during Q2.
We rolled into most of that in the back half of the year that quarter on the year.
So you know.
We should as we get through Q1, I would hopefully see.
Nice.
Margin retention to the bottom line and then back into the business, especially if we can continue to grow them.
I think we will.
Great I'll leave it at that I appreciate the time.
You bet.
Our next question comes from the line of Jamie Cook.
Your line is open.
Hi, good morning, a nice quarter.
I guess a couple questions Rusty first on your prepared comments and on and the press release. He noted supply chain risk you know a couple of times I'm. Just wondering if you can elaborate on where you see that sort of concentrated to what degree it limits production.
In 2021 are on their forecasts out there and is there potential linked into cycle and then my second question to you I'm understanding your energy business is quite depressed for you guys right now I'm just wondering if that's a potential tailwind in 2021 to your earnings if you could comment on.
On you know sort of what you're seeing on that front. Thank you.
I'll take them in reverse order.
Yeah.
Would we love are we counting on energy.
No, we're not counting but we've sort of changed the company as you know over the last for years, we used to be quite dependent upon it we have evolved at the same that don't make we would love to have some energy tailwind. Thanks Amy.
I can tell you that we've seen a better obviously everybody knows the price of oil has been stable on a rising a little bit.
But that's pretty APM saudis.
Held back on supply and Thats allowed on the price on my mind.
Sure.
Are we seeing I've seen Inc. We have anything on that number is not really I would tell you there's a little bit of activity out there, which is better than zero that we had but it is so slight that.
I wish to sit here and tell you, we werent, even 2% of our parts and service.
No activity on the sales side on the capital goods.
Slide starting rumblings of a little bit of activity, but if we were.
Less than 2% last year, which we were of our parts and service revenues and gross profit.
We're still lessons.
Okay. So, but there is a little bit we see a little bit of movement out there, but I am not counting on it.
Through cycle, but if the answer to your question if we got it.
Bob would be a little bit of a tailwind. So we'll just have to watch it because I just think it's very simple.
Given the price of oil and the reasons why has risen in my mind, and obviously consumption has gone up to as economies around the world and picked up consumption is going up also so I don't want I don't want to do is just on the size, but at the same time.
We'll just have to watch and see.
Would be nice.
It would be nice if there was but I'm not I'm not going to progress the cash.
Forecasts out there right now, but it will be on will be so yes, you are.
Basic question would it be a tailwind in a span of what it can be picked up.
Okay suppliers now will talk suppliers okay.
I didn't know any what little I knew about chips.
A few months ago.
Probably less than anyone you know if I had to figure out from.
Drugs, two drugs drugs used to live on their own world right.
It very well a lot here lately I've learned more on that I thought I would but everything we deal with.
Toaster.
Both DB whatever.
Everything's got yet you only got a few manufacturers in the water fall down somewhere.
Get into zone concern.
That sub tiers for each supplier may be affecting the tier two suppliers to the Oems and different ways.
I know everybody is scrambling just like you read about the automotive and everywhere else not the same exact given are always the same.
People make them all so I have concern out there.
And it goes around does the ramp up period is the fastest in 30 years. When you look at the acceleration of what happened with trucks here.
We've had big volatile markets go up but not that fast okay. In a lot of the lead times on some of this stuff from 2025 and 30 weeks, even when you get into steel and other things outside of chips. So I've just got concerns now this doesn't dampen.
In my mind, it's not a bad thing, Okay, I don't think it dampens demand.
I think the demand is there and you start getting 5% GDP free subs from the next year.
That's going to tell you where your demand is going to come from.
The growth and growth in domestic product, but.
I think we'll catch it I think there may be I think the supply side, we'll get to it.
Just the ramp so fast we may be looking later in the summer okay to early fall to not that.
I think we're good at current levels, but the order intake has been so strong that as folks ramp up.
It's not one person on one thing in particular, just the overall demand because it's not just the truck business is the demand for goods across the country and so it just stresses the whole supply chain not just on drugs I think from my perspective everywhere theres going to be stress. So.
<unk> catches up with it and by the way, it's not just the ramp up I mean, I look around my business until just the last few weeks.
<unk> employees from Covid.
We had more in November and December when we had the whole since March.
I mean, theres just been a lot of stress points here.
And so I just feel that there may be.
Some a little bit of scratching out of what the demand the order intake demands.
So we can meet you will meet them it'll just stretch it out which for me is actually little better thing. Okay. I don't think the demand going away.
Is the supply chain issues or is it just concentrated in chips or do you see risk are you seeing I guess any other you know I think theres I think theres. Other risks. There is no question I mean, when you and I don't like things out here I've heard things as I have in that channel.
Time to explore like oxygen in Mexico for example in tanks, because they said put it on hospitals I don't even know what that means I've heard other things I just think it's.
The other day about rubber Okay. You start talking about tires, I think is going to continue to accelerate and be broader okay. I do think we'll catch it I guess.
And I'm not an expert on this but we need to be cognizant that that may put some constraints because I know the manufacturers all manufacturers not just one all manufacturers are right raising bill rates. So as they raise buildings that just continues to put more stress in other parts of the economy demand.
Similar type things to build their products. The demand is just huge it's across the board for a whole goods nobody goes on vacation. They just go buy bicycles.
Simple somewhat receipts and refrigerators.
Our Tvs Xboxes and it's that way inside of our industry supporting that because freight demand is so strong.
And we just it's going to take a bit to catch this is my opinion okay.
I'm not an expert by any stretch, but that's what I see is.
As I look out there and talk to people in other businesses to not just in the process, we will catch it but I think it's going to be I think you'll see it hit things were not things I haven't thought about today.
<unk>.
You know dash. So all of those types of things are going to be under stress.
Because and its not just as you've seen on the automotive guys are doing.
Youre going to finding on costs I do believe we'll catch it but I believe we might be.
Believe I believe the Oems.
There'll be able to ramp production I, just don't know for sure they're going to ramp production everybody is doing it is it enough to meet demand at the levels. It should keep backlogs you know at a decent level I don't know about that's why don't.
That's why.
I'm not sure.
That makes any sense, what I'm talking about.
That's helpful. Just one more question and I'll get back in queue. This strength in the margin that the new and used truck margins on a quarter of the eight 7%.
What was that gains on used truck sales I'm just trying to understand.
The margin of error, that's why it was a solid solid new drug margins, but at the same time record used truck margins okay. Okay.
Gross margin was.
It was the best quarter, we've ever had.
So everybody says well what about sustainability.
Well supply side on US right now I've got the lowest inventory of used trucks.
I wish I had more like enrollment I would say that.
You know used credit demand when we shut down factories for a couple of months and then slowly ramping back up.
You know starting ramping back up on the summer then the order boom.
Blow through the roof spot rate spot market is up 30, 35% demand is there, but can't get new trucks, new truck inventory gets taken down on used drugs right behind it and so people to meet that freight demand that was out there. We will get as was explained has got reduced total supply demand right. So.
Oh your margins go up people are scrambling for product you were able to get better margins.
So is what we get paid to do people.
People do it so.
That's what happened so do I am sure.
On a asking their used truck going forward question I look for us to remain solid as I said a minute ago on my notes.
For used drug remained solid don't know volumes can get there because the supply side is a little tight right now, but at least for the foreseeable future.
It doesn't go forever as we all know.
But for now used should remain fairly strong.
Okay, Alright, thank you I'll, let someone else get a question.
Yes, Matt.
Thank you. Our next question comes from the line of Andrew Open go ahead Sir.
Hi, good morning Rusty.
Well good morning stroke.
You there.
Can you hear me.
Can you hear on that lawsuit no I cant I lost you there for a minute body, yeah, sorry about that.
On a lot of stuff on the news about sort of new technologies for trucks.
Or is a hydrogen on maybe can you talk about what youre seeing.
This will impact the industry in the next three to five years maybe.
Maybe even give us some thoughts about longer term projections. Thank you.
You bet well this could you think got ramble.
Get ready or things you could get a ramble here, okay, I'm going to I've been trying to get my head around this myself you know obviously.
This next decade is going to be the biggest disruptor decade I've seen in my career.
With everything going on from a political perspective from a climate perspective from a from every hidden hit from every angle, where we had a pretty so last decade from 10 to 20 after going through all the stuff that we went through from 2000 2010, you know everybody just drove up <unk> 10 to 20 with not a lot of governor.
Regulation here.
<unk>.
You know as most folks know.
Carb has issued a 2024 and then our goal for 2030 also right. The rest of the EPA has a 2027 initiative out there.
So this is where the.
Don't have time to go into all of it with the political driver is going to be huge from from.
From a requirement from emission requirements right.
We all know we're hearing about evs.
Day, right everybody's really we'd hear about hybrids as well. This is not an add water and stir issue technology has not arrived at what people believe and want demand to be that being said.
As we go forward I guess, the best way I could describe it dealing with all the political issues that are driving it.
Environmental protection stuff, we're coming out of California, which right now is passed for 2020 for right now New Jersey is the only state this aligned with California for their 'twenty for emissions their 'twenty for emissions demands are similar for you got to understand there is to understand what's going to happen.
From a propulsion or from an engine perspective as we go for the 27 EPA right now even though it's not finalized is similar to the 20 for saying we got to have not being down on the greenhouse and Knox right.
I would tell you that what will happen.
It's going to be driven a lot by market segments. Okay.
<unk> as we go forward.
Ramps up we still don't have.
There's always people out testing them right now do not get carried away with thinking they're big fleets running up and down the highway for electric electric fleets. There are not remember barriers to entry infrastructure.
To put technology battery weight. All these other things these are going to be wrapped around E. B is it going to be best suited for operations that return to base on a nightly or.
Every day and have set mileages, okay. If I was to look at it.
And as we go forward.
Our demands put on it will come it will be in a more of those types. It will be for sure on your class four and five right I got to believe and in your class six and seven.
Class eight.
Just on from it's not going to be in the truckload side anybody that thinks that we're going to be running in five years electronic or electric vehicles. There are going to be running long haul has another thought.
The other thing coming that's not going to be the case. The technology does not is not suited technology is not suited to run over the road for long distance is like that too much weight batteries that were just not there and I don't think long term, even looking at 15 years I don't believe that it will be in the long haul.
On class eight.
I don't want to get into all the different percentages I've talked to a lot of folks a lot of manufacturers on waterworks.
And I've got to tell you that actually Tomorrow, Acts's report coming out and it's an independent report and kidney and ACC have an electric for alternative fuel report coming out tomorrow, but if anybody Ottawa pick one up subscribe to it I would suggest you do so well put together I've talked on the books seems to be well put together without altera your modems.
So from an independent view I know he's got coming out tomorrow actually I think it is going to give a pretty good overview of it but talking multiple folks.
Electric is going to be there, but it's going to fit in the segments where it.
Belongs in as we get to it so.
Look for it to take over like if I was to look out say to 2030 and class eight maybe 12% 13% of the market.
24, it might be 3% of the market now if you go to class four and five you're going to see that by 'twenty for it might be a quarter of the market, 26% and these are just from talking to people everybody's estimates because it takes you can wish you'd want everything we got but just because you want on electric.
Can you grid supported.
Greg can you Gotta go on and work with the electrical.
Slide some folks I say, they think it's like well I can hear you just plug it in.
There are so many other things.
<unk>, it's not like just pull it up for the pump and fill it up with diesel boats. It's not another thing you probably going to see is I think natural gas and especially R&D renewable natural gas I think youre going to see an uptick in that as we get into the mid decade. Okay. I think there's going to be an opportunity for for R&D. If people really the studied on RG <unk>.
Claim this thing as you remember electric still got 50% of goldblatt coal burning plants. Okay.
They make electricity. So you know what I mean classic.
Class six and seven.
It will probably move up into that.
The next four to five years, you might have 10% to 12%.
By a 24 not now not 'twenty, one 'twenty two point of view, probably when we get into 'twenty for and then probably move up on the <unk> by the time, you get to 2030, but youre not going to see that across class eight youre not don't believe you're going to see the same numbers in Asia, just because of applications think about electric.
Certain applications not just long haul with electric I don't think its going to work good for there were good revenues.
Good we know on working buses, we know what's going to work in that type of stuff and medium products that run around town.
It's not going to work on our dump truck sitting on a job site.
On the other and not moving any waiting for three or four hours I mean, there's just certain applications, whether it's weight sensitive for this or that but it's going to be difficult for a while to get to know when you ask about hydrogen.
Folks say that hydrogen is the answer for long haul okay.
To tell you a hydrogen is a little ways out there. Okay. That's even further out electric is closer to us even though it's not going to overtake the whole market as I said, everybody is a little bit out there thinking that but hydrogen for the route.
The application of hydrogen you're talking 10 to 15.
Yes, I think just I mean, not because they don't want have hydrogen trucks testing them or don't have an alum running them, but infrastructure is huge around that and cost.
Fuel cost and other cost there's still a lot of on hydrogen is just really a luxury but maybe you can make for <unk> with hydrogen right at the end of the day when you get in and I, just remember on I'm not a technical expert, but I'm doing my best to keep up with it while adding a little bit of a practicality of the clients I think that's what I'm pretty decent net.
On a little brighter for Gallagher things when wishes and wants to focus on and everybody out there trying to sell their own horn I, just think that all fuels.
They're going to be in play for the next 20 years. Okay. We're not just also on 2030 like they want everybody wants to do zero emissions I get that and also these demands we're putting in 'twenty for in 2007, theyre going to raise the price of diesel dramatically the price of engine.
And I don't mean, the price of fuel sales driven by something else with the price of engines are going to go up dramatically.
To meet the requirements of the government I'm talking more than 2000.
And all of those okay.
Costs were going to go because of the frequent systems and the demands that are going to be put on the diesel engine. Okay.
The cheaper than electric and everything else, but I know and.
You can get into payback periods and all that I don't have time on this call again, though I would.
I've learned a little bit on recommended.
Get that report.
Because I think you are.
It looks like a pretty good report.
Snippets that I've been getting from it from an independent view as you just try to get your arms around where we're headed so is hydrogen but that's out there it's going to continue to be in the news, but at the same time I do believe Youre talking 10 to 20 years.
Quicker market segment, driven youre on.
Not going to be able to use it in every segment, but technology still has thrived battery.
Battery storage and usage and weighted in density and then youre going to run into problems with lithium or whatever for batteries being controlled by certain countries I'm not going to get into all of it there's going to be don't make it simple cost to kind of come down and they are going to come down, but theres going to be a demand is also going to drive costs up in certain ways.
So those are things to be sorted out as we go through this next decade.
We have rambled long enough.
I'm, probably not sure number one expert, but I've tried to give a little bit of color diesel is not going away I don't care, what they tell you, they're still going to be seven diesel trucks and 2035 folks okay.
Especially in class a long haul I don't see it taking that over other applications as I said will be where you really pick it up at but not in certain applications.
So I'll leave it at that.
Go on longer.
We've talked long enough.
As long as I've got you going I'll ask a follow up.
On the economy.
Oh Boy you track you.
Do you think on the site.
You know me well.
Well.
Let's talk talk.
Automation theres five stages of it remember everybody. Thanks for let's say autonomous boom, there is a truck and theres nobody right right well I don't think it works quite like that there are stages and by the way there's a lot of folks as you know back largest revenue.
For two samples with Navistar and you've got Whammo out there you got always Mark I mean, there is there is there is.
Autonomous being worked on as we speak there are trucks running up and down the highway in certain states.
He had been running now for a while being tested with different levels of autonomous.
I do believe.
But first of all.
There is going to need to be some more state laws and regulations passed to allow it to okay that that's going to happen for us.
There are areas there are being run right now on testing no question about it but does that cover the country now.
50 states now theres going to have to be legislation passed first and foremost before you can really add autonomous trucks.
But youre not going to see level five in my mind.
Because level by it means there is nobody in the GAAP.
I don't see that happening for a while I do think.
You will get some legislation and you will have a technology going forward that you will get level for maybe three to five years in some areas, which that means there is still a driver in the cat he doesn't have to be right behind the wheel I'm on it.
Here's science classes recipe.
Not okay, but there's a guy on the GAAP, but he may be working on these books are he's doing this for he's doing that but he is not behind the wheel. The whole time, I think youre going to get that within five years or so but remember they are still going to be legislation on things.
Passed to allow that full autonomy level five driverless.
I'm not so sure how far down the road will it get there.
I don't know what the answer is probably but look we haven't even gotten automotive cars all the way there yet and people are much.
The natural human being watching an 80000 vehicles on the road with no driver for it.
Newsmaker, right and trying to get out of way. Okay. So there's a lot of perception to get through from that perspective, even wherever technology gets to be dealing with once we get out there, but I do believe as I said, you'll get into the lower levels of it Theres no question.
As we go forward.
There are large fleets, they're wanting to.
For why because whats the big cost drivers right. So what's.
What's the big here all the time, it's driver so theyre warning because even if they don't get the full autonomy.
The skill set required would be less and possibly the skill set the risk required now from a driver perspective.
So.
I hope that helps I think we're going to get somewhere I wouldn't look at full autonomous for awhile.
But I think youre going to get different levels of it maybe sooner than ebay free for five years down the road, but we've got to get through the legislative piece for US to also you got to get as low as fast that will allows us things.
I hope that helps.
Thank you for their thoughtful answer on both counts, thank you and great quarter.
Thank you Andrew I appreciate that.
Thank you Sir.
The next question comes from the line of Joel.
Go ahead please.
Hey, guys I Hope you didn't put your $500 bonus in Gamestop.
Okay.
Well it depends on when I put it in a pulled it out how well it did.
Yeah, that's true.
Wondering.
If we can go on a little bit of a different direction and just talk about some of the lessons you guys are learning around like flexibility on the cost structure, because that's pretty amazing.
$1 billion decline in revenues in your net income was down $25 million and so I just wonder how you guys are thinking about holding on to some of that and what are some of the things that you've learned in 2020. Thank you.
Well I think I've mentioned on the last call I learned more than my.
My stubborn on.
All right.
It was an interesting year, but it was very learning was it a hard year in a hurtful ear in a lot of ways for everyone, yes, but at the same time lessons are.
Used to be learned in those types of environments. So.
Let me.
I will take it down a little further deeper.
So let's look at the fourth quarter I, just look at year over year Q4, how about that.
Revenues for.
Flat.
Maybe class eight truck sales up a couple on.
Medium off for 500, if I remember on I'm going off pretty flat for us.
4% off a little parts and service off six or seven.
Let me see net income 41 sense from 72 cents.
I think we're learning something here so.
We learned anything we're going to do a better job.
And by the way you May look and say well your G&A was up this this and that and you know we strip assets I'd tell you to look at the results you can tell feel pretty good about it and I feel good about where we're going to be headed.
You know what.
With the what we have learned about how we can manage.
And right now it was a little money in the quarter and a lot of ways. We hadn't reinstatement, we get I gave out extra money for all employees and thankfully very thankful for their hard work and dedication throughout the year I did this and I did that but at the same time I go back to what I, just talked about and that was the results when you cough for quarters.
Year over year. The biggest change was net earnings so regardless of how it may look a little money inside of there obviously expenses were very much a whole lot better than in line.
They should be and so I feel really good about that and that's part of the goal inside the organization.
I mean.
He will speak to some of that speak to some of the things we've implemented just live sports guests, we got salary caps on rush now.
So.
You know if you grow revenue you can grow your salaries, it's pretty simple, it's going to be tied to some spec number. So there's other I don't want to do it but there's other things that we learn that we're implementing not saying, we won't add and take care of business and do this that and yes.
But we can do a better job than what we have done historically and sometimes it's hard for you all to see don't look at it in the quarters look at it in a year and we'll get it on our results this quarter can flow fluctuate and things going on especially as I've been doing ranch statements and this that and the other but I feel very very good and I think you'll see the results.
We will show that as we go forward look I think you know the truck business itself. If you look out there.
And I can't for.
<unk> sales for truck sales ought to be pretty good in the next three years. Okay 20 for we'll worry about when we get to it and we started implementing all with all these other costs and stuff into products and as technologies change it but I won't tell you for the next three years you got to feel good about that side of it and I feel very good about where we're at.
Feel very good about what we're going to do with our parts and service business with the initiatives that have not we have not we've not squeezed at all out of there not to fruition and we're continuing to invest and spend money in other ways and I'm not going to talk about okay.
To support the growth of the future.
You know I mean, I would tell anybody to look at the balance sheet looking for cash.
The balance sheet situation, wherein we're set up to continue to invest and continue to grow and do what we do.
And also do it better with the knowledge that we got from last year and I don't know.
Wondering if you just bought interest you.
You get me go on I get excited about it but I truly believe that.
We're.
We were a leaner company.
We're not we're not alone out there, but I think what we learn is up to us to be able to look back two years and say hey, we walked the talk I can sit here and talk it all I want what is up for.
For us to execute and I'll end up showing up on the numbers hopefully as we go forward.
Oh, that's great can you give us a little bit of a sense of your.
Best guess kind of a free cash flow in 2021.
And then just the thinking around your 100 million share repurchase you're going to do that all.
More front end loaded or is that is that more of a longer multiyear rollout.
Well, we've got it approved for that I can't I feel good about what our company is going to do but I can't control markets and market corrections. So you know we.
I want to make sure that we're set up but there is an overall.
We're going we've been nibbling at in mind, we're going to probably accelerate that some.
More on a consistent basis as we go throughout the year at the same time.
We will have powder there, we believe that we're being just because of a market correction not a rush correct.
Something that we're doing we feel very good about our strategic plan and that's why we continue to buy on it and we will probably accelerate that somewhat.
Cash flow, Steve or I can answer for annuities.
Our free cash flow and I know it gets matched on the cash flow statement. Let me just look with the number we printed at the end of the year, even in a year like 'twenty. We grew our cash considerably entering the year with $312 million that we will continue free cash flow was going to be.
Call it 175% to $200 million next year.
And kind of piggybacking on rusty's answer on share repurchase.
Our guideline is to try to return about 40% of that to shareholders a free cash flow. That's our capital allocation guidelines, but that includes both the dividend, which we just raised considerably actually we've doubled it from a year ago quarter.
When you do all the split adjusted it was nine a year ago.
And its 18th since now so that's going to eat cash and then the.
The balance of that 40% of free cash flow, we would expect to deliver through a share repurchase and if we see an opportunity to actually repurchase more than that because of our market correction. We've got plenty of dry powder to do that yes. The balance sheet still holds a lot of cash.
Numbers.
We're still spend a lot of cash even returning to that so.
And the balance sheet is holding a lot of cash right now so.
We feel.
We feel compelled to continue.
You're going to say well what about acquisitions I don't have a lot of big ones. Unfortunately, I wish I could.
We're continuing to look but where the market is strong as it is I don't know how that went on.
On what what opportunities will be out there and given the breadth of our network already in Europe.
The largest for four or five manufacturers already it becomes a little bit more difficult zone.
Well, having a lot of cash for the beautiful thing right. Thank you very much.
You bet.
Yeah.
Yes, I mean, if you really look at it just to piggyback on that real quick let me first say that map is.
Really about other than a couple of small items. The only debt we got as lease trucks from for players, we don't really consider that.
Lease drugs.
Because we got on 8000, plus 8500, plus unit leasing bleakness just.
Tagged to an asset and we always have gain on sale, we're running conservatively on the floor plan and we turn it three or four times a year. So it's just the trade payable to us.
So we feel like our balance sheet is in good shape.
Okay Man.
For once.
Thank you.
We do have one more question left from Brian Weinheimer.
Go ahead please.
Hi, good morning.
Good morning, Brian how are you Buddy.
Terrific.
On <unk> 12 in the basement, but that's okay.
As you saw us do it how does your boss stood up correct.
Wonderful.
On your regard.
Alright, and only mindset Oh don't Mr. Gabelli.
Certainly well.
Question for you on a couple of questions lease and rental customers.
Had called this out.
An area that had been weak what are you seeing there.
Yeah.
We're seeing strong lease and rental again.
Net.
We started off the year strong I mean, typically you separated from lease and the rent.
Did we deal with you know when we had.
Go back to when Covid hit because you had some of your foodservice businesses things like that when I called it out on the call I was talking about customers buying vehicles earlier, not necessarily my lease and rental which one are you referring to what my sales are remodeling some rental business.
Both.
Oh of course, you would.
Lease and rental purchases for next year have accelerated no question. They were way off from leasing companies last year. They arent coming back this year. They can't stay on the market they've got a turned net right.
You get things roll up so yes, the lease and rental companies are back into the market much stronger this year.
Then they were for last year.
Our lease and rental business.
<unk> was quite resilient last year I was very proud of the effort of our lease and rental guys.
Well of course, it wasn't a record year. It was a great year under the situation on what we dealt with as I look out there right now typically we used to always say you get the Christmas.
This is the old school in your rental goes down.
Utilization rates go down or it Hasnt gone down here. It appears right at the moment, so and thats indicative of the overall economy right.
The utilization is in good shape.
From a rental perspective in our lease business I'm sure we'll continue to grow.
It's slightly we don't growth for us, we only grow three or four five points a year, but we expect that to continue as we go forward we run it for us.
But we run it very profitably in all markets now, especially over the last five years, they really it really tuned for game up over the last five years, our folks out.
I've been very pleased with the results of our lease on the whole business over the last five years and don't think Thats going to change as we go forward.
Yeah, that's great.
Going back to the cash question Youre sitting on quite a bit a bit what's the M&A environment potential for you to grow.
Obviously, I know you can't grow.
The <unk> are part of your business, but other brands.
It's tough man.
When the market gets a lot.
Going back you were told me in March April I thought Oh Boy was rub on my hands together licking, our chops I thought it was going to get a chance right well then accelerated back up so fast that the opportunities out there dried up pretty quickly. So I would tell you that right now.
And when I look at yes, I got it.
The real big no not really but that doesn't mean something won't show up.
You know, we're still we've still got a JV up in Canada for as part of 'twenty, two we will consolidate that for.
To some degree.
But other outside of that a couple of little things, but nothing really big that I can say I would tell you if I have something anyway. So.
Yes.
I've never told you begin with.
When the Mailman tags Iraq, Inc.
To begin with so but I would tell you it's.
We're out there looking.
But with the market acceleration like what we've had a lot of books like clip coupons.
So instead of taking a buyout, okay and I'd, rather keep clipping coupons and you've got a pretty good runway, but as I've said earlier it looks like it was a pretty good three year runway out there for the for that.
Truck market.
Given the changes that are coming in the back half for the decades that are going to demand a lot more cost in products and when you've got the economy.
You start running 5% and 3% for a couple of years here.
Haven't seen that since pre open on free since.
But I don't remember when.
That.
That usually bodes well.
For the truck business.
So with it.
Yes, the last one any any change in behavior from customers now that.
We'll be wrapping up navistar likely in the next few months.
I think the acceptance.
The one thing you don't hear that we used to hear say for five years ago.
You had that issue long term viability just wiped off the board Okay that gets taken care of the other pieces I see some of their announcements you'll see.
Some of the alignments, whether it be with general motors, the other day working on hydrogen.
Freight tonne they borrow.
Already been working collaborating together over the last couple of three years.
And I think youll be coming to market is not like it just started.
Because they were collaborating anyway on stuff and they've already taken advantage of purchasing doing more and more of that so from a customer perspective.
Just.
It just makes a stronger outlook for the organization.
We feel very good about it actually they are building a new plant down here in San Antonio right now so.
No.
There's a lot of it is I think they've got a lot of good things just like on cars.
One thing I don't know us by our suppliers.
Manufacturers I feel very good about the folks we represent across the board right now and so.
And that was driving us in a better shape they've ever been an impact overall is in great shape. So we feel good about both going forward and also all our media room suppliers they got low.
Hiccup here or there but on.
Sometimes on the supply side on the medium side a couple Oems.
I do believe that'll all get ironed out and it will work.
Feel very good.
Excellent well good talking to you.
Best of luck this year to add good luck on this fairways.
Good luck, finding those stairs out of that basin.
So we're getting there.
Okay.
Thank you for it.
We do have another one from Joe Okay.
Yes, Sir Mr tips, you get one more chance.
But I just wondered if you can give us a little bit of a sense of whats behind your.
Next three years are going to be strong and the industry is that sort of a more.
More of a gradual pre buy.
Ahead of ahead of all of these new zero emission standards or anything else on there.
Oh, I think youll see some of that in 'twenty three.
I think most of it Joel just has to do with the economy right now.
The pace is running at and you know I mean.
Yes.
People took whatever income they have they stopped traveler when's. The last time you went anywhere.
And then they decided to spend it on the government stimulus.
And everything else.
Good sector, well, that's got to get thereby trucks, okay. They're not we're not back to Star Trek and beat me up Scotty So on until we figure that out trucks are going to be the way the things are delivered and that being said.
And then you've got you've still got demands for on the driver side with shortages.
I realize there is distribution changes going on and everybody sees Amazon trucks running around town, but at the same time, that's actually created more truck drive it's driven for more trucks, because nobody goes to the malls to buy it okay driving home on their vehicles. So it is just creating further demand across the board.
And changes in distribution.
You know with GDP being up like it is going to be.
All of those other factors I think it's just that demand is out there.
And that's what I believe and I just.
Don't see I mean, I could be wrong, I mean, something.
<unk>.
I have my own overall concerns about.
How much money you can give away, but we're not going to get on all of that I'm not holding back on show right now.
But I have my own concerns one day.
But I do still believe that outside of some big national.
Deal with drives.
National economic.
Recession, or something like that which I don't see now concerns longer term about that but.
Just going to bode well for truck sales across the board.
We don't see demand Z free it up I mean for a still strong.
And I don't think people put as many miles as they used to because distribution dynamics and Shane I don't put as many miles on trucks et cetera, et cetera, so, but it takes more trucks to get it done that makes any sense. So.
Okay.
Theres nothing Theres nothing I see out there that says it's going to be bad over the next couple of three years. Okay. That's all okay great.
There are no further questions. Sir you May proceed.
All right well great well since then it's been a while since we've talked for the last absence with Q4 release, we will talk to you on a couple of months.
Well it looks like so thank you very much for your participation. This morning, we appreciate it.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yes.
[music].
Okay.
Yes.
Sure.
[music].
Yes.
Okay.
[music].
Great.
[music].
Okay.
[music].
On the.
[music].
Sure.
[music].
Yes.
Yeah.
[music].
Yes.
Yes.
[music].
Yes.
Yes.
Yes.
Moving forward.
[music].
Yes.
Sure.
[music] zone.
Good day.
[music].
Yes.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Yes.
[music].
Moving forward.
[music].
Sure.
Sure.
[music] zone.
Yeah.
[music].
Okay.
Yes.
[music].
Yes.
Okay.
[music].
Sure.
Yes.
Yes.
For those.
[music].
Okay.
[music].
Yes.
Yes.
Yes.
[music].
Yes.
[music].
Yes.
[music].
Yeah.
[music].
Yeah.
[music].
Moving on.
[music].
Yes.
Okay.
Yeah.
[music].
Yes.
Yes.
Yes.
[music].
Okay.
Okay.
[music].
[music].
Yeah.
[music].
Okay.
[music].
Yes.
Okay.
Yes.
[music].
On this.
[music].
Yes.
[music].
Yes.
[music].
Yes.
[music].
Yes.
Yes.
Yes.
Okay.
Moving forward.
[music].
Yes.
Yeah.
[music].
Yes.
[music].
Yeah.
Yes.
[music].
Yes.
Yes.
[music].
During the day.
[music].
Yes.
[music].
Yes.
[music].
Okay.
Yes.
Okay.
Moving forward.
[music].
Moving.
Yes.
[music].
Yes.
Okay.
[music].
Yes.
Yes.
Yes.
Low.
Sure.
On.
Sure.
Okay.
Yes.
Yes.
[music].
Yes.
Okay.
Right.
[music].
Yeah.
Sure.
Yes.
[music].
Yes.
For us.
[music].
Yes.
[music].
From.
[music].
Moving on.
[music].
Yes.
[music].
Total number.
Okay.
[music].
Okay.
[music].
<unk>.
[music].
Yes.
[music].
Sure.
[music].
Okay.
[music].
Yes.
Yes.
Yes.
[music].
Okay.
[music].
Moving.
[music].
Yes.
[music].
Okay.
[music].
Yes.
Yes.
Okay.
Moving forward.
[music].
Sure.
[music].
Sure.
Yes.
[music].
Sure.
[music].
Yes.
Yes.
[music].
Yes.
Yes.
Yes.
Okay.
Moving forward.
[music].
Okay.
[music].
Okay.
[music].
Yes.
Yes.
For those.
[music].
Okay.
Right.
Yes.
[music].
Yes.
[music].
Yeah.
From.
[music].
Moving on.
[music].
Yes.
[music].
Total number.
Okay.
[music].
Okay.
[music] zone.
Yeah.
[music].
For.
[music].
Okay.
Okay.
[music].
Yes.
[music].