Q4 2020 Rush Enterprises Inc Earnings Call
Ladies and gentlemen, and today's conference is scheduled to begin momentarily. Please continue the standby.
Again the conference is scheduled to begin momentarily. Please continue to standby.
[music].
Okay.
Okay.
Right.
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 ask the recession. So ask the question during the session just press star and the number of.
And one on your telephone keypad.
And I'd now like the hands of the conference over at the our speaker today the CEO.
Oh of Rush enterprises.
Mr. Rusty Rush go ahead, Sir have a wonderful conference.
Thank you and good morning, and welcome to our fourth quarter year end 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 and say a few words regarding forward looking statements.
Certain statements, we will make to the are considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995, because these.
This 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 and 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 of $114 9 million of $2.04 per diluted share and.
And the fourth quarter net income of $41 million or 72 cents per diluted share on revenues of $1 3 billion. We also declared a cash dividend of <unk> 18 per common share and increase of 29% over the last quarter.
We are proud of the team for their hard work this year, given the tremendous channel and just say place.
Even though demand was negatively impacted by the expected downturn and the industry as well as the effects of the COVID-19 pandemic, our disciplined approach to expense management and previous investments and strategic initiatives and gradual economic recovery and the second half of the year of enable us to achieve strong financial results.
Russ drugs and as has been fully operational across the country throughout the pandemic, while we will continue to monitor the impact of the pandemic on our industry, including supply chain issues that may affect trucks and parts availability and we will continue to carefully manage expenses and take a disciplined approach to continue the investments in our long term gross debt.
And we look ahead and we expect the economy to continue and improve demand will increase throughout the market segments, we support and we believe our financial results will significantly improve in 2021.
And the aftermarket our annual parts service and body shop revenue were $1 6 billion and our annual absorption rate was the $118 seven perfect alright.
Our annual aftermarket revenues decreased by nine 2% compared to 2019. This decline was driven primarily by weak demand.
Uh huh.
From the energy sector, and COVID-19, pandemic related issues, including production shutdowns and supply chain interruptions, our previous strategic investments and technologies, including the rush care service connect and parts connect and enabled us to continue to serve customers safely throughout the year looking.
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 and 2020, and we sold 10006 hundred 70, New class eight trucks down 28, 8% over the previous year and accounting for five 5% of the total U S class eight market.
Our truck sales online.
Aligned with the market, which was impacted not only by the expected industry downturn, but also pandemic related production constraints and supply chain issues and the four core new truck demand increased due to healthy customer spending and.
Zuma spend excuse me strong construction activity and strong freight rates throughout the country.
ACD 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 the truck manufacturers of ability to meet demand through the year.
Here, we believe our class eight new truck sales in 'twenty and 'twenty one.
And we consistent with the industry.
Our class four through seven new truck sales reached 11000, and 311 units and 2020 down 21, 8% from 2019 and accounting for four 9% of the U S market or decline and can largely be attributed to the impact of the COVID-19, and particularly on the leasing and rental and commercial foodservice customers as well as for.
And shutdowns from some of the manufacturers we represent.
Our fourth quarter results were further negatively impacted by the timing of fleet deliveries ACD research forecasts U S class four through seven retail sales to reach 240 of them 500 in 'twenty and 'twenty, one up seven 5% from 'twenty and 'twenty.
Looking ahead, while positively impacted by the overall economy and some challenges will remain for medium duty trucks sales.
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 'twenty and 'twenty, one consistent with the industry.
Our used truck sales reached 7400 units and 2020 down four 4% from 2019 data protection and the French of new trucks used trucks, where and high demand and the second half of 2020, which helped strengthen and used truck values of approximately 15% higher than their lowest point earlier in the year and.
In 'twenty and 'twenty, one, we expect demand and 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 employees based on tremendous top line of this year and I am truly grateful to them from their unending dedication to our company, while protecting the health and safety of our customers co workers and communities.
With that I'll take your questions.
As a reminder to ask the question press Star and the number one on your telephone keypad.
For a moment.
Compiled the kidney of Oscar.
Our first question comes from the line of Justin Long go ahead, Sir your line is one of them.
Thanks, Good morning, and congrats on the quarter.
Thank you, Josh and I appreciate it.
So maybe to start with parts and service Rusty can you share what you're seeing and in January from a revenue perspective, and then just thinking about the quarterly growth of parts and service this year and.
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 sort of throughout 2021.
Sure you bet.
I'll be happy to speak of that journey, and where well the acceleration and growth and parts and service has continued.
And the back half of the year and January Okay.
That said.
Still less in January of 2020.
You look back over and 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 of a little bit shy of it.
At the same time, we know you know when you think about it I was told everybody. The last year. It was like a 13 month of year right. Because it was the back two weeks of really March that Covid really took effect right. So the first quarter had a little COVID-19 effect last year, but so it was the it'll be fairly difficult what I believe will get fairly close and we start out a little light from January where we can.
Turning to see.
Celebration and our business pretty much across the board have the 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 bit.
Because we hadn't hit of Covid, yet and then we get into Q2, and obviously, you know Q2, and it's going to be up.
If all things remain the same and we continue down the path will go on and it's going to be up quite dramatically over the last year right. So.
You would average that out and.
And you would probably the viewer slightly flat to down in Q1 and Europe.
And my teams.
And over Q2 of last year, something like that mid to high teens say that in Q2, you could average the two of you see where you'd be at midyear.
The mid year, and then hopefully as we roll through midyear and we will continue to accelerate as I've said gradual acceleration.
And it looks like a lot of Q2, but it's really not what used to take this year of snapshot of this year. We expect the continued to see nice gradual acceleration, which is the way I wanted to go and whatnot.
Nice consistent growth throughout the year back where we.
<unk> operating like we do in normal times, where we can see the of.
The work of the investments that we've made in the past.
Come to fruition.
And so you know.
Hopefully as we get towards the end of the year.
We'll look for something you know.
Close to a 10% blended.
The growth rate, but they won't be and flat line okay.
Because of the weight of last year was when you cough and year over year.
Feel pretty good about where we're at.
But we feel very good about where we're at and where we're headed and the overall marketplace pretty much across the board.
Okay, that's helpful and and thinking about parts and service gross margin do you feel like 36% to 37% is the right range to be thinking about for 'twenty and 'twenty, one as well.
Yeah.
I'd like to say 36, you know when you blend and you got to remember I know everybody's going to say well if sequentially. You were up we had a couple of couple of quarters and the 30 fives.
And Q2, and three and obviously Q4 was up to 36, and if I'm not mistaken right, so blended whatsapp and sorry.
Yes, we had we had one whether it was above the 37 during the middle of the year. If yes, if you want to take it and blend it and average it a lot of and it has to do sometimes with timing of rebates and.
And other issues and also as we know it depends on the mix right. Obviously, the service margins are quite a bit higher than parts margin, so but to give you.
Just a flatline broad answer is yes, I think we can maintain 36 blended throughout the year on Friday and do a little better as we go hopefully we might have a little higher service growth rate next year parts seem to hold and better throughout the pandemic and service debt, especially in the middle of it.
So and I feel good that we are.
From the technician perspective, we had gone down and point of view.
And the pandemic and also a little bit of.
Evaluation on our part and we're going to go out of steady steadily add back of technicians and a nice steady pace.
To support the market as we go forward into the use of this year and we've seen that over the last four 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 and will service, a little faster, which is a little higher margins. So that will support the numbers if youre talking about.
Great and and last quick one for me you mentioned and the first quarter and and I know seasonally we always see some sequential pressure and in the first quarter, but is there any more color around the step up and G&A that we should be expecting and <unk>.
And without.
I would say to 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 and we have a lot of there's a lot of.
Employee benefits equity comp costs.
And Q1 and all of the taxes come back on all of your payroll taxes take effect, social security et cetera, et cetera people that are maxed out and then youre not paying and later in the year.
So those types of things of what we see.
And 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 it flattening out and maybe even going down but I also think of it the same time, you'll be seeing of higher, especially the Q2.
Counting on the better revenue growth base.
We will once you get into the middle of the year, our revenue will be far outbreak should be far exceeding our expense growth as we've talked about trying to get to you know we've had the bet.
We are basically finishing up getting everything back and reinstatement of what.
And we made the dramatic moves of the drastic moves during Q2.
And we rolled and most of that and the back half of the year that quarter of the year.
So you know.
We should as we get through Q1, I would hopefully see.
Nice.
Margin retention to the bottom line in the back ends of 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 from.
Your line is open.
Hi, good morning, and nice quarter.
And I guess of couple of questions Rusty first on your prepared comments and and and the press release you noted the 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 of limits production in 'twenty and 'twenty one of our ore of the forecast out there and is there potential.
Lengthens the cycle and then my second question to you and understanding the energy business is quite depressed for you guys right now I'm just wondering if that is the potential tailwind and 2021 of your earnings if you could comment on.
And you know sort of what youre seeing on that front. Thank you.
I will tell you of in reverse order.
Yes.
When we look are we counting on energy.
No, we're not counting but if we sort of changed the company as you know over the last four 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 and Jamie.
And I can tell you that we've seen of better obviously, everybody knows the price of oil has been stable and the rising a little bit.
But that's pretty AP and the Saudis and.
Held back on the supply and Thats allowed on the price of my mind to get there.
Are we seeing I've seen and do we have anything and that number is not really I would tell you there's a little bit of activity out there, which is better than the zero that we had but it is so slight.
I was the sit here and tell you, we werent, even 2% of our parts and service.
No activity on the sales side, okay on the capital goods, but.
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 lessens the right okay, so but.
There is a little bit of we see a little bit of movement out there, but I am not counting on it and it gets to sickle, but if the answer to your question if we got it.
Bob and be a little bit of a tailwind. So we'll just have to watch it because I just think it's very simple.
And given the price of oil and the reasons why it has risen in my mind, and obviously consumption has gone up to the economies around the world and picked up consumption is going up also so I don't want and I don't want to do is just on the size, but at the same time.
We'll just have to watch and see if it would be nice.
And would be nice if there was but I'm not I'm not going to prognosticate on.
On a forecast out there right now, but it will be and will be so yes, you are.
Basic waste and would it be of tailwind and a span of what it can be picked up.
Now the suppliers.
And now we'll talk and yeah suppliers okay.
I didn't know the what little I knew about chips.
[laughter] of a few months ago.
Probably less than anyone you know if I had to figure out of trucks.
Drugs, two drugs and drugs used to live of their own world right.
Very well and a lot here lately I've learned more and then I thought I would but everything we deal with.
The poster.
Both the DB whatever.
Everything's got chips and the only got a few manufacturers and the one they fall down somewhere and you get into <unk>.
CERN the.
Net sub tier three supplier may be affecting the tier two suppliers.
Two of the Oems and different ways.
I know everybody is scrambling just like you read about the automotive and everywhere else and not the same exact chip and are always the same.
And we'll make them all so I have concern out there and.
And it goes around the.
The ramp up period is the fastest and 30 years when you look at the acceleration of what happened with trucks here.
We've had big volatile markets that go up but not that fast and a lot of the lead times on some of the stuff from 2025, and 30 weeks, even when you get into the steel and other things outside of the chips. So I've just got concerns now this doesn't dampen.
And in my mind the season, not a bad thing, Okay, I don't think it dampens demand.
I think the demand and is there and you start getting 5% GDP and free subs from the next year.
That's going to tell you where your demand is going to come from.
And the growth and growth and 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. The early fault not the.
I think we're good at current levels, but the order intake has been so strong that as folks ramp up.
And 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 and just stresses the whole supply chain not just on drugs I think from my perspective everywhere theres going to be stressed so the <unk>.
<unk> catches up with it and by the way, it's not just the ramp up I mean, I look around my business and until just the last few weeks the shoe.
The employees from the Covid.
We had more of in November and December and 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 and the order intake demands I don't know.
And we can meet the will meet and it'll just stretch it out which to me the X little better thing, Okay. I don't think the demand going the way.
Is the supply chain issues or is it just concentrated and chips or do you see risk are you seeing I guess any other you know I think theres I think theres other risks and Theres No question I mean, when you and I don't like things out of here I've heard of things as we try and net Zambia.
And we explore like oxygen and Mexico for example, and tanks because they said put it on hospitals I don't even know what that means I've heard other things I just saw.
So all of 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 of that that may put some constraints because I know the manufacturers all manufacturers and not just one all manufacturers are right raising bill rates. So as they raise the 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 the whole goods and nobody goes on vacation and they just go buy and go buy bicycles and watch the proceedings.
And refrigerators.
Our Tvs Xboxes and it's that way inside of our industry supporting that because brake demand is so strong and.
And we just it's going to take a bit to catch. This is my opinion. Okay. There's this I'm not an expert by any stretch, but that's what I see as I as I look out there and talk to people and other businesses 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.
Plus.
You know dash of all of those types of things are going to be under stress because and it's not just us you've seen all of the automotive guys are doing and I.
Youre going to find and across where I do believe we'll catch it but I believe we might be and I.
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 and a decent level I don't know about that's why I don't know.
And that's what are the ones that.
I'm not sure and then.
That makes any sense, what I'm talking of.
That's helpful. Just one more question and I'll get back in queue, the strength and the margin the the new and used truck margins and 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 the supply side on US right now I've got the lowest inventory of used trucks out of ahead here.
I wish I had more of like enrollment of I'd say that but.
You know used truck demand when we shut down factories for a couple of months and then slowly ramping back up.
And you know.
And the start and ramping back up on the summer and then the order of boom and freight.
Blow through the roof spot freight market is up 30, 35% demand is there, but can't get new trucks, new truck inventory of gets taken down on the used drugs right behind it and so people to meet that freight demand and that was after well guess, what I've explained the Scott reduced oil supply and demand right. So.
And your margins go up people are scrambling for product you were able to get better margins.
And so as what we get paid to do people.
People do and so.
And that's what happened so do I am sure.
And I asked me of used truck going forward question and I look for us to remain solid and less of that in my role and a minute ago on my notes.
And for used drug remained solid and don't know the 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 small.
Okay, Alright, thank you I'll, let someone else get a question and Nick.
Yes, Matt.
Thank you. Our next question comes from the line of Andrew Open go ahead Sir.
Hi, good morning Rusty.
Well, good morning and stroke.
And you there.
And you hear me.
Can you hear me and I lost you know I can't I lost you there for a minute body and I'm sorry about that.
And a lot of stuff on the news about the sort of new technologies for trucks.
Or is a hydrogen and maybe can you talk about what youre seeing.
And this will impact the industry and the next three to five years, maybe and <unk>.
Maybe even give us some thoughts about longer term projections. Thank you.
You bet well this could you think I ramble.
Get rid of your rigs to get of Ramble here, Okay, I'm going to I've been trying to get my head around this myself you know obviously.
And this next decade is going to be the biggest disruptor decade, I've seen in my career and Greg.
And with everything going on from a political perspective from a climate perspective from a from every hitting the hit from every angle, where we had a pretty so last decade from 10 to 20 after going through all the stuff and we went from 2000 2000, and Tim you know everybody just drove up fuel mileage and 10 to 20 with amount of lot of.
Government regulation here it goes.
And.
As most folks no cash.
<unk> has issued a 2024 and then of goal for 2030 also right. The rest of the EPA has the 2027 of initiative out there.
So this is where the I don't have time to go into all of it with the political driver is going to be huge from there.
And from our requirements from.
Emission requirements right.
We all know we're hearing about Evs every day.
Day right everybody is really the and hear about hybrids as well this is not and 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 of the political.
Issues and the good driving.
The environmental protection stuff with the coming out of California, which right now is past the 2024 right now and New Jersey is the only state this aligned with California from the 24 of emissions. Their 24 of emissions demands are similar and so you got to understand there is to understand what's going to happen.
And with the.
From a propulsion or from an engine perspective as we go forward. The 27, the EPA and right now even though it's not finalized.
And to the 24, and saying we got to have knocking down the greenhouse and Knox right.
I would tell you that what will happen.
It's going to be the driven a lot by market segments. Okay.
And as we go forward.
As it ramps up we still don't have it.
And there's always people out testing and right now do not get carried away with bank and there are big fleets running up and down the highway work flow.
Electric fleets, there are not remember barriers to entry infrastructure.
Super Technology battery weight all of 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 there are demands put on it will come it will be in the more of those types of it will be for share and your class four and five right I got to believe and and your class six and seven.
Class eight.
Just on from it's not going to be and the truckload side anybody that thinks that we're going to be running and five years of electronic or electric vehicles, they're going to be running long haul has another thought.
And the other thing coming and 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 distances like debt 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 and the long haul.
Class eight.
And I don't want to get into all of the different percentages I've talked to a lot of folks a lot of manufacturers of lateral.
And I've got to tell you that actually tomorrow acte as the report coming out and it's and independent report and kidney and ICT of an electric on alternative fuels report coming out tomorrow, but if anybody all of it wont pick one up subscribe to it I would suggest you do it and said well put together I've talked to the book seems to be well put together without ulterior motives.
So from an independent view of that he's got coming out tomorrow actually and I think it is going to give you a pretty good overview of it but talking multiple folks.
Electric is going to be there, but it's going to see it and the segments where the.
Belongs and as we get to it so.
And look for it to take over like if I was to look out state of 2030 and class eight maybe 12% 13% of the market and.
24, it might be three per cent of the market now if you go to the class four and five you're going to see the by 'twenty four it might be of quarter of the market, 26% and these are just from talking to people everybody's estimates because it takes you can wish and want everything he forgot, but just because you want on electric.
Can you grid supported the grid.
And the Greg Cant and you Gotta go on and work with the electrical.
Slide some folks and they say they think it's like well I can hear and rod just plug it in all of <unk>.
There are so many other things and.
All of it's not like just pull it up to the pump and fill it up with diesel boats. It's not another thing you're probably going to see is I think natural gas and especially R&D renewable natural gas I think youre going to see an uptick and that as we get into the mid decade. Okay. I think there's going to be and opportunity for R&D and if people really the study of RG legacy as the.
The claim this thing out there and you remember the electric still got 50% of goldblatt coal burn and at plants. Okay.
And that make electricity. So you know what I mean class six and seven.
It will probably move up into the <unk> and.
And the next four to five years, you might have 10 and 12% of it.
And by 'twenty, four and not now not 'twenty, one not 'twenty to that point of view, probably and we get into 'twenty four and it will 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 and eight just because of applications and think about the electric.
Certain applications not just long all of and electric I don't think it's going to work. Good book there were good and refuse.
And the work that we know and work and buses, we know what's going to work and that type of stuff and medium products that run around town.
And I'm going to work on our dump truck sitting on the job site.
And the other and not moving and waiting for three or four hours I mean, there's just certain applications, whether it's weight sensitive of 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.
And I would tell you of hydrogen is a little ways out there. Okay. That's even further out of 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 think of Matt, but hybrid and spur of the route.
All of the application of hydrogen and you're talking 10 to 15.
Year's I think just I mean, not big they don't want have hydrogen trucks testing and we don't have them now and 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 elaborate and they need to make flex with the hydrogen right at the end of the day when you get in dollars and I just remember on I'm not of technical expert, but I'm doing my best to keep up with it and while adding a little bit of a practicality of the things I think that's what I'm pretty decent at the.
The little Brightcove gallery of things when the wishes and wants of folks and everybody out there trying to sell and put their own horn I just think the all fuels.
They're going to be and 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 and 24 and 2007 and theyre going to raise the price of diesel dramatically the price of engine.
And I don't mean, the price of fuel fuel is driven by something else with the price of engines are going to go up dramatically.
And to meet the requirements of the government I'm talking more of in 2006, and 10 and all of those okay.
The costs were going to go because of the frequent systems and the demands that are going to be put on the diesel engine. Okay. Instead of all of it.
For the electric and everything else, but I know and.
You can get into payback periods and all of that I don't have time on this call again the allowance.
I've learned a little bit of recommend.
And get that report.
Because I think you are.
It sounded 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 the hydrogen but that's out there it's going to continue to be and the news, but at the same time I do believe Youre talking 10 to 20 years of electric quicker market segment driven youre.
Youre not going to be able to use it in every segment, but technology still has thrived battery you know the.
Battery storage and usage and cost weighted and 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 everybody says will cost of kind of come down and they are going to come debt, but theres going to be of demand is also going to drive cost up and certain ways.
Those of things to be sorted out as we go through this next decade, and I, probably have rambled long enough.
And probably not true 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.
And I'm going to be seven diesel trucks, and 2035 folks okay.
And especially in the class a long haul I don't see it taking that over the other applications as I said will be where you really pick it up at but not in certain applications and.
So I'll leave it at that.
I could probably go on longer but probably the top line.
And as long as I've got you going I'll ask a follow up any of them.
The cost on the economy.
Oh Boy you try and.
And do you think on the site.
And you know me well.
Well alright.
Let's talk the talk.
Automation and Theres five stages of it remember everybody thinks of let's say autonomous, but theres, 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 or just with the <unk>.
Laura two samples with Navistar and you've got Whammo out there and you got always and park I mean, there is there is there is.
And Theres autonomous being worked on as we speak there of 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.
And 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 kind of happened.
There are areas there are being run right now and testing no question about it but does that cover of the country now.
And 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 and my mom.
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 the technology going forward that you will get a level or maybe in three to five years and some areas, which that means there is still a driver in the cat and he doesn't have to be right behind the wheel.
And here's some classes recipe and so I'm.
Not okay, but there's a guy on the GAAP, but he may be working on its books or ease of doing this stewards of that but he's not behind the wheel. The whole time, I think youre going to get that within five years, or so and but remember they are still going to the legislation and on things.
Passed to allow the full autonomy level five driverless.
And I'm not so sure of how far down the road.
And get there.
One of your.
One of the answer is probably but look we haven't even got and automotive cars all the way there yet and people are much.
The natural human being watching and 80000 and found vehicles on the road with no driver in the spring.
And the newsmaker right and trying to get out of the way. Okay. So there's a lot of per section two.
Get through from that perspective, even wherever technology gets too simple.
Dealing with once we get out there, but I do believe as I said, you'll get into the lower levels of it there's no question.
As we go forward and there are.
The large fleets, they're wanting to.
And why because whats the big cost drivers right. So you know that and.
And what's the big here of all the time, it's driver so theyre warning because even if they don't get the full autonomy.
And the skill set required would be less and Basel and 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 a while.
But I think youre going to get different levels of it maybe sooner the ebay 345 years down the road when we got into the Legislative piece first and it also you got any of the wells 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 and Gamestop.
Okay.
Well it depends on when I put it in and are pulled it out how well it did debt.
And that's true.
Wondering.
If we can go on a little bit of a different direction and and just talk about some of the lessons you guys of learning around like flexibility on the cost structure, because that's pretty amazing.
The $1 billion decline in revenues and your net income was down 25 million and.
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 kind of round in 2020. Thank you.
Well I think I've mentioned on the last call I learned more than my stubborn all of you know what asked all of our Cook right.
And it was an interesting year, but it was very learnings or was it a hard year and are hurtful year and a lot of ways for everyone, yes, but at the same time.
Lessons are supposed to be learned and those types of environments.
No.
Let me and I will take it down a little further deeper.
So let's look at the fourth quarter, let's look at year over year of Q4, how about debt.
Revenues.
Flat.
Maybe class eight truck sales up a couple of months.
Medium all four of 500, if I remember and I'm going off pretty <unk>.
Flat and use.
The 4% off of a little parts and service of six or seven.
Let me see net income of 41 cents and 72 cents.
I think we're learning something here so.
And we learned anything we're going to do a better job.
And by the way he 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 and feel pretty good about it and 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.
And right now it was a little muddy and the quarter and a lot of ways, we hadn't reinstatement and we get I gave out extra money you know of all the employees and thankfully very thankful that the 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 your cost of the quarters.
Year over year. The biggest change was net earnings so regardless of the May look a little money inside of there obviously expenses were very much of a whole lot better and in line.
They should be and so I feel really good about that and I and that's part of the goal inside the organization.
I mean.
And he will speak to some of the speak to some of the things we've implemented July of sports guests, we got salary caps on rush now.
So.
You know if you grow revenue you can grow your salaries and pretty simple and it's going to be kind of some spec number. So there's other I don't want you to it but theres 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 the other but.
But we can do a better job and what we have done historically and sometimes it's hard for you all of the seat don't look at it and the quarters look at it and the year and we'll get it and our results to the quarters can float and 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.
And we'll show that and as we go forward look I think you know the truck business itself. If you look out there and that's.
And I can't.
Sales of the truck sales ought to be pretty good. The next three years, Okay 24 of them worry about when we get to it and we started implementing all of the so all of these other costs and stuff and the products and its technologies and change it but I won't tell you over 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 the parts and service business with the initiatives that have not we have not we've not squeezed at all out of there and theyre not to fruition and not and we're continuing to invest and spend money and other ways and I'm not going to talk about okay.
To support the growth of the future. So you know I mean, and I would tell anybody to look at the balance sheet and look at the cash with the balance sheet with the situation wherein we're set up to continue to invest and continue to grow and do what we've done and also do it better with the knowledge that we got from last year and I don't know.
You wanted me to the boxes.
Let me go on and I get excited about it but I truly believe that.
We were a leaner company and I think we're on.
We're not alone out there, but I think what we learn is of the.
The us is be able to look back two years and say hey, we walk the talk but I can sit here and talk it all I want and what is up to us to execute and Dalton and I'll end up showing up and the numbers hopefully as we go forward.
Oh, that's great can you give us a little bit of a sense of your.
Your best guess kind of of free cash flow in 'twenty and 'twenty one and.
And the just the thinking around your 100 million share repurchase and you're going to do that at all.
More front end loaded or is that is that more of a longer multi year rollout.
Well, we've added a proof of that you know I cant I feel good about what our company is going to do but I can't control markets and market corrections. So you know we want to make sure that we're set up but theres and overall.
We're going and we've been nibbling at at and mine, we're going to probably accelerate debt.
But 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 the market correction and not a rush correction.
And are 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 and I can answer and renewing it.
Our free cash flow and I know it gets masked and the cash flow statement, but if you 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.
And I'll call it a 175% of $200 million next year.
And kind of piggybacking on rest of these answer on share repurchase of our guideline is to try to return about 40% of that the shareholders of free cash flow and Thats, 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.
And when you do all of 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 two of share repurchase and if we see and opportunity to actually repurchase more than that because of the market correction. We've got plenty of dry powder to do that yes. The balance sheet still holds a lot of cash.
The numbers, we still we're still spend a lot of cash even returning to that so and.
And the balance sheet is holding a lot of cash right now so.
And we feel.
And we feel compelled to continue because I don't you're going to say well what about acquisitions I don't have a lot of big ones. Unfortunately, I wish that good and we.
We're continuing to look but where the market is strong as it is I don't know how and went on.
And what what opportunities will be out there and given the breadth of our network already and.
And when you're the largest for four of five manufacturers already it becomes a little bit more difficult.
Well, having a lot of cash and the beautiful thing right. Thank you very much.
You bet.
Yes, I mean, if you really look and just to piggyback on that real quick let me first set of ma'am.
Is the really about other than a couple of small items and the only debt, we got as lease trucks and floor plan and we don't really consider that debt.
Lease drugs.
And because we got on 8000, plus the 85 of 100 plus unit leasing bleakness just.
Tagged and asset and we always have gain on sale would run it conservatively on the floor plan and we turn it three or four times of year. So it's just the trade payable to us.
So we feel like our balance sheets and good shape.
Okay Man.
For once.
Thank you.
We do have the one more question left from Brian Weinheimer.
Go ahead please.
Hi, good morning.
Good morning, Brian and I already Buddy.
Terrific.
On the 12 in the basement, but that's okay.
As the pause do it and how does your boss stood up correct.
Wonderful.
And your regard.
All right and the only mindset all of the almost of Gabelli.
And that certainly will.
Question for you on a couple of questions lease and rental customers.
Had called this out.
And area that had been weak what are you seeing there.
Yeah.
We're seeing strong lease and rental again.
And.
We started off of the year strong I mean, typically and you get separated from lease and the rental.
And did we deal with you know when we have so.
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 and not necessarily my lease and rent of 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 and no question. They were way off from leasing companies last year. They arent coming back this year, they can't stay out of the market and they've got a turned net right.
And you get things roll up so yes, the lease and rental companies are back into the market the much stronger this year.
And then they were the last year.
And our lease and rental business.
And was quite resilient last year I was very proud of the effort of our lease and rental guys.
And of course, it wasn't a record year. It was of Greg you're on to the situation and what we dealt with as I look out there right now and typically we used to always say you get the Christmas.
This is the old school and Youre 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 the rental perspective, and our lease business I'm sure we'll continue to grow.
And it's slightly we don't grow as fast we only grow three or four five points of year, but we expect that to continuously go forward and we run it brought the concern, but we run it very profitably and all markets now, especially over the last five years, they really they really tuned the game up over the last five years, our folks out of them.
A bit of very pleased with the results of our lease and rental business over the last five years, and and don't think thats going to change as we go forward.
Yeah, that's the.
Great.
Going back to the cash question Youre sitting on quite a bit of a bit what's the M&A environment potential free to grow.
Obviously, I know you can't grow the.
And the pack of our part of your business, but other brand yes.
And it's tough man.
And the market gets a lot and all of us.
Going back you were told me and March April of that Oh Boy was rub and 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 of dried up pretty quickly. So I would tell you that right now.
And when I look at yes, and I got it and anything real and big no not really but that doesn't mean something won't show up I mean.
You know, we're still we've still got a JV up in Canada. The first part of 'twenty, two we will consolidate debt to <unk>.
On the degree.
But other outside of that a couple of little things, but nothing really big but I can say and I would tell you of a heads up anyway. So.
And I've never told you begin with.
When the Mailman tags, Iraq, and I get it Inc. The gun and I'm not going to date.
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 the clip coupons and.
So instead of the taken take of buyouts, Okay, and I'd, rather keep clipping coupons and you've got a pretty good runway and as I've said earlier it looks like there's a pretty good three year runway out there for the for the.
Truck market.
Given the changes that are coming and the back half of the decades, and theyre going to demand a lot more costs and products and when you've got the economy.
And you start running 5% and 3% per a couple of years here.
Haven't seen that Brooks, and it's pretty old and on a pre book since those things and stuff, but I don't remember when.
That.
And that usually bodes well.
From.
The product business.
Go with it.
Yes, the last one any any change of behavior from customers now that.
And we'll be wrapping up the navistar likely and the next two months.
I think the acceptance.
The one thing and you don't hear that we used to hear say four five years ago.
You know you had debt issue long term viability just wiped off the board Okay that gets taken care of the other pieces I see some of their announcements youll see.
Some of the alignments, whether it be with general Motors and the other day and working on hydrogen with freight ton and they've already been working collaborating together over the last couple of three years.
Alex and I think youll be coming to market is not like it just started.
And as they were collaborating anyway on stuff and they've already taken advantage of purchasing and doing more and more of that so from a customer perspective. It just.
And just makes a stronger outlook for the organization and.
And we feel very good about it actually they are building the new plant down here in San Antonio right now so.
There is a lot of it is I think they've got a lot of good things just like all of ours.
And one thing I don't know is my our suppliers of all right Matt.
And there are factors I feel very good about the folks we represent across the board right now and so.
And that was driving it and a better shape they've ever been and impact of Arthur always in great shape. So we feel good about both going forward and also all of our media room suppliers.
A little hiccup here or there but on.
And sometimes on the supply side on the mediums out of couple of Oems.
But I do believe that'll all get ironed out and it will work.
Very good.
Excellent well good talking to you and best of luck this year too and good luck side of the fairways and good luck part of the stairs out of the basement.
And we're getting there.
Okay.
Thank you.
And we do have another one from del Tin.
The answer Mr tips, and 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 of gonna 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 and 23.
I think most of the Joel just has to do with the economy right now and.
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 started to spend it and the government stimulus and.
And everything else in the open.
And of sector.
Lot of gift, thereby trucks, okay, and they're not we're not back the star Trek and being the of Scotty.
And until we figure that out of 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 on the.
The driver side of the shortages.
I realize there is distribution changes going on and everybody sees the 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 and driving home on their vehicles. So it is just creating further demand across the board.
And the changes in distribution and.
And you know with GDP and up like it is going to be and all of those other factors I think it's just that demand is out there.
And that's what and I believe and I just.
Don't see I mean, I could be wrong, I mean, something.
<unk>.
And I have my own overall concerns about.
How much money you can give away and we're not going to get and all of that and I'm not holding that kind of share right now.
But I have my own concerns one day.
But I do still believe the outside of some big National.
Deal with drives and.
National economic and I got it.
Recession, or something like that which I don't see now of concerns longer term about that book.
It's just going to bode well for truck sales across the board and Thats.
You don't we don't see demand and Z free it up I mean freight is still up and 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.
And there's nothing there's nothing I see out there and it 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 it's been a while since we talked to the last absence was the Q4 release, we will talk to you and a couple of months.
Well it looks like so thank you very much of your participation. This morning, we appreciate it.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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