Q1 2021 Rush Enterprises Inc Earnings Call

April 22, 2021

[music].

Okay.

Good day, and thank you for standing by and welcome to the Rush Enterprises, Inc. Reported first quarter 'twenty about 3000 in 'twenty. One earnings results. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

Ask a question during this session you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded.

And you require further assistance. Please press star zero and I would now like to hand, the conference over to your speaker, Mr. Rusty Rush, Chairman and CEO and President. Please go ahead.

Good morning, and welcome to our first quarter 2021 range Luzkhov from school.

On the golf today are Mike Mcroberts, Chief operating Officer, Steve Keller Chief financing.

Weaver Executive Vice President Jay Hazelwood Vice President.

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 and our annual report on form 10-K for the year ended December 31, 2020, and and our other filings with the Securities and Exchange Commission.

As indicated in our news release and the first quarter and we achieved revenue of $1 2 billion and net income of $45 3 billion or <unk> 79 per diluted share. We're also very proud and declared a cash dividend of <unk> 18 per common share.

And we're driven by the nationwide economic recovery and healthy activity from most market segments, we support graduate and increases in parts and service activity and healthy demand for new class eight trucks and rising used truck values contributed to our strong quarter along with our continued focus on expense management, which helped to significantly increase our net income.

Compared to the first quarter 2020.

As we look ahead, so black as rates will likely affect the availability of parts and new trucks and the next few quarters.

However, we expect supply chain constraints to begin to subside.

And the first and third quarter third quarter and for demand for trucks and aftermarket services to remain strong throughout the year. We believe our financial results will be strong in 2020, one as the economic and as the economy.

And continues to recover and business real businesses reopen and throughout the country.

And the aftermarket and our first quarter parts service and body shop revenues from $415 7 million subs and ratio was 122, 6% our aftermarket revenues decreased by two 9% compared to the first quarter 2020.

But we are seeing some pockets of strength, particularly when it comes to part sales and activity from refuse construction and public sector customers.

Service revenue is recovering at a slower pace and parts, but we continue we continue to add technicians to our dealership network and the first quarter and anticipation of increased demand later in the year.

As we look ahead, we expect supply from scratch.

It's available it day in and the industry for the next few quarters, but we are leveraging our nationwide and moved away to lessen any impact that may have we continue to focus on expanding our technician workforce and service offerings, especially contract maintenance and preventive maintenance.

We believe this will contribute to increasing aftermarket demand as the national economy continues to recover through the rest of the year.

Turning to truck sales and the first quarter, we sold 2900 and.

And 95, new class eight trucks guiding from five 4% of the total U S class eight market consumer spending and freight rates continue to be strong and customer man was widespread with particularly strong activity from over the road vocational and construction growth.

ACD research forecasts U S class eight retail sales were 249000 units and 2021 up 27, 2% from 2020.

While we expect the country's economic recovery to continue component manufacturer and supply chain issues will limit the growth and class eight truck sales and the next two quarters.

However, we do expect because of supply constraints and from production through late in the third quarter and for industry and remand remains strong and that the annual industry sales forecast as of June.

Our class four seven new truck sales reached 20, 334, 334, and the first quarter.

Accounting for three 8% and the U S market, our decline was driven by weak demand from our leasing and rental customers and foodservice growth. In addition to production shutdowns from some of the manufacturers, we represent and components supplier constraints affecting other manufacturers ACP and research forecast.

S class four seven retail sales, we do and 1500 units and 2020 one up eight 4% from 2020, we expect demand for medium duty vehicles to remain strong and.

And Youll cl<expletive> four through seven truck sales in 2021 to be relatively flat compared to 2020.

Our used truck sales reached 19 824 units from the first quarter up 23, and 5% from the same time grid and 2020 demand for used trucks remained high and the first quarter due to new truck production and the strength.

Further used truck values increased approximately 10% over the fourth quarter of 2020, we believe that demand and pricing may decrease somewhat as more new trucks are available, but we were still remains strong this year.

We are confident the volume and pricing of our inventory will meet the needs of the market.

And it is important for me to recognize our boys and providing superior service to our customers while remaining focused on protecting the health and safety of those around them and their hard work is directly contributing to our strong start to the year with that I'll take your questions.

And just finally, if you'd like to ask and all you had a question. Please press star followed by the number one on your channel. Thank you Todd that it's Tom I wanted to ask and audio question. Your first question comes from Jamie Cook.

Hi, good morning, and hope you're well.

A nice quarter I guess, a few questions Rusty first and margins and our fourth first quarter and on track and nine 4%.

Would that used truck pricing.

Or maybe if you can help me there and my third question relates to on the supply chain side, where are the shortages outside of semi and I'm trying to balance how we think about the cadence of your sales as you're saying the second and third quarter will be impacted by supply chain, but you're also talking about market share gains for <unk>.

So I'm just trying to.

Balance those two.

So I guess why don't we start there. Thank you.

Sure No problem, yes, you hit it on the head.

From a margin perspective, and the first quarter that was the largest highest used truck parts and that I can and will remember that we have that right. So decent volume and high used truck margins.

But going forward the esport margins will still remain high and maybe not quite that high supply side is probably the biggest issue.

And a decent inventory.

<unk> used trucks is across them.

And just across the whole nation is.

What limited so obviously, they will supply and demand and that's what's driven price is up I mean, if you go back to Covid God, I mean, they're up 30% to 30%, 35% from last year April of a year ago, So a lot and.

And we expect as I've said those still remain high.

And it might be difficult to keep the volume right there, but that's what drove the margins to be that high for sure.

And when you're talking about things outside of semiconductor.

It's just a myriad of things, Jamie and one day it could be one day it could be wiring harnesses one day it could be clusters.

Dash clusters I've heard seats I think it's.

It's just across the board.

Tier two and tier three suppliers and.

And the manufacturers are managing as best they can but I think they keep getting hit with different different different issues with different suppliers and so.

And when you add the.

The freeze and the stuff down you've got hurt and the stuff coming out of Mexico and.

And even just keeping up with it and I think everybody ramping up and for all that Covid has been very difficult for tier two and tier three suppliers and I was just long and semiconductor piece of the chip fees.

But you know it's just.

From a parts perspective, and you look at our parts inventories, we've got more parks Backorder and right now that's one of the issues you run into and you can.

And see the triples, and not just their trucks and that's the triples and parts and service too. So you know I do believe that those things are in there.

Sales out they typically do.

And the chip piece could last longer and from some stuff.

And on an expert on it but I would look for most everything else I think we are the worst part of it right now.

And from what I can see here in April and May, but I do think that everybody has known about it here for a couple of months could see it coming back in February and I think youll see it.

Oh really.

Theyre getting and getting better as we get later into the summer, which would be and in the third quarter, obviously and.

Hopefully, we will catch up with it and it won't be an issue for all of that now the chip piece.

And people say to last longer and not the expert on it but.

That's what I see from it.

And basically from the other as far as market share gains will if they are building less.

Because of that or not as much we're going to get our share.

I'm going to get our share of product and I do believe I do believe our deliveries from the year going to be more backend loaded given.

Given these issues that we're having right now we're going to sell drugs, but worried about that but I think any big gains, which I expect to have more units will be more.

And the pulse of and but you never know, how it's going to affecting from day to day or week to week or month to month, but I do expect it to get cleared out and expect to deliver quite a few more trucks and the back half of the year.

On the AG side and also in the medium side for sure I don't expect to.

And you don't have the issues, we had where we had some big leasing and deliveries last year and the first quarter.

And then we didn't have any this quarter.

And so and we also have issues with one OEM.

And what's out of our production right now till we get to later in the year, so, but that's one of the reasons I think.

Memories overall will ramp up as we go through the year just not as dramatically here in Q2 as you would've expected given the shortages, but it will continue to ramp throughout the year.

Thank you I'll, let someone else get in queue.

Okay.

Your next question comes from Joel.

I Wonder if you could do your presentation over again, I Couldnt understand you and your math gone.

Yeah.

And my voice Joe.

Okay.

So I wonder if you could talk a little bit about your ability to like structurally what's what you've done to change your cost structure and the ability to keep the costs below where they've been historically.

Well you learn a lot go and Joe.

And you learn a lot and 2020 and.

Understand that we're trying to take some of the lessons we've learned and.

And and take them forward with this and into the future.

What is it doing more with less and at the same time, we will have.

And if it continues to ramp at the pace. It is we will have some expense increase.

And so parts and service.

And things without things.

To do it turning wrenches breaking up large delivering parts stocking parts doing all the things you have to do but we have goals internally and the company and we're going to spend less as we grow and we have and the past we feel we've learned a lot and we will be able to do that.

<unk> will ramp.

But they are not going to ramp.

And as steep as they have in past cycles. So we believe we can manage it that way we work.

And we put some controls in place I'm not going to get into those things at the same time, you've still got to be able and you've still got to be able to growth at PV and there's going to get people day in day care of it so but it's just a balancing act and we like to believe that we've learned a lot last year.

And that process and.

Having tighter controls and making sure and making more thorough decisions.

And investments and things that we make.

And those are all a part of it it's not just one singular thing, but it is it is aligned with only growing expenses, a certain amount depending on growth rates from the organization.

Is there anything like maybe not concrete maybe too strong of a word but anything you could share with us maybe like peak to peak.

Think SG&A will be 100 basis points lower or anything like that that we can just sort of like ballpark to think about.

Well.

And to do that.

Giving us we have and internally.

Way I would express it and I really haven't looked at it from your perspective as explained it internally to my folks, but it wouldn't make a lot of sense to us.

And from an operating perspective, I haven't really extrapolate it to do.

And as many bps and it really remember Joe you got to strip.

Away from G&A and she is going to do with truck sales.

That's not always going to be a component driven by sales. So sales grew up sales go down.

And I will go down is the G&A piece that we're focused on.

Hi.

And we will spend less of every gross profit dollar that we create but it can be but I don't want folks looking at it and a single and quarter, it's not a core thing and different times of the year.

And.

And at different times and the year.

And you spend more and I would tell you you know.

And we will spin.

40% of the growth, we create and Q2, probably from last year Q2 year over year, I think Q2 year over year was a tough year that wasn't true quarter right that was a terrible quarter of last year. So, but we will spend less of every gross profit dollar and we have internal goals.

But I'd, rather just keep them to myself right now.

Okay and then.

And they are operating numbers Gulf Joel.

And easy one for Steve and then I'll leave it for everyone else why is the share count rising and can you give us your estimate of the tax rate for the full year.

Yes, the share count Joel, especially when you comp and back to two.

2020.

Timing issue as much as anything we continue to repurchase shares.

A bulk of the shares we repurchased.

And.

2020 happened and the first quarter when the stock debt, we are opportunistic and bought heavier than.

Since that time, we've continually repurchase but not at a very high level and the and the other big differences the way you calculate diluted shares.

At this time last year, our stock was trading and the low to mid <unk> and now we're trading and the whatever upper from 45 to 50 and our diluted shares outstanding when the stock price is higher has contributed to the share count increase that and options that were exercised last year during the last.

Last few quarters, because the stock rate went up so much so.

The exercises of options and the higher price drove more diluted shares.

Going forward it should flatten out because we expect to continue to repurchase shares.

And there'll be some exercise option.

Exercise of options that will probably offset that somewhat but it should be landing and this 57 or so percent range and 67 million share range that you saw us post this quarter on the tax.

Again, the rate was low in Q1 and was 20% and that probably.

<unk> Q1 earnings about.

Three to four cents over what they would normally be throughout the rest of the year. The rest of the year, our tax rate will be and the 24 and 5% range.

And without getting into all the detail. That's also related to some permanent differences between book and tax income that are discrete to the first quarter, mainly again around.

Option vesting and share Best Equity Award vesting.

And stock price, but for the rest of the quarter you need to forecast about 24, 5% from the tax rate for the rest of the year I'm, sorry, and each quarter.

Awesome. Thank you very much.

And again, if you'd like to ask a question. Please press star one and your next question comes from Justin long.

Thanks, and good morning.

Our adjusted.

I was wondering rusty if you could give us a sense for how parts and service revenue trended on a month to month basis.

Throughout the quarter and and maybe an update on April as well just because weather clearly impacted February so just wanted to get a better understanding of and how the business was trending ex weather and then for the full year I think you've talked about parts and service.

Approaching 2019 levels on the last earnings call is that still up and your expectation.

And again, it's a fair expectation.

It has been ramping up starting with January except we did have a dip in February and weather related but prior to the weather week everything was trending up and two so what are you sort of jump over that week and it trended up again in March and so far.

Two thirds of the way through April is trending up over March so and as I said.

It's not dramatic but it is gradual it's going the right direction and we expect it to continue to.

Especially as we get into these warmer weather months.

You know as we get and these warmer weather months, where you tend to have a lot of other things that are conditions and things like air conditioners things like that.

That break so we typically normally have arise just seasonality.

Given during the summer months so yes.

We do believe that.

And this trend will continue and especially you know.

And with all of the miles are being put on trucks out there right now is a lot of miles being revenue so equipments getting.

And they haven't been as much new equipment and so there's a lot of equipment being driven and worked so I don't see any reason, while we wont continue moving forward and get some were really close to that 2019 level right. Remember we started we were a little bit off of last year, but really flat. If you just took out the weather we.

<unk>.

But that was off of the prior year, because it really COVID-19 have been really didnt take effect over the last two weeks of March last year, So and 19.

Our amped up all the way through September and then we have some some fall off.

And the last quarter of the year I expect it to go the other direction.

And continue that way throughout the year. This year. So we feel very good about debt we feel good about the initiatives that we've still got out there.

Not just happened for US we believe we have directors direct correlation between the investments that we've made over the last four or five years and the results.

And just through the Covid and the results and we'll even curious through this year and the growth that we will see and this year and going forward. So we're excited about debt our folks are doing an outstanding job and the field.

Working.

And managing through that right now.

Great and what.

You said at the end was actually my next question on the parts and service initiatives I know last year with the pandemic.

Probably all hands on deck and dealing with the challenges of that and can you just update us on where you stand in terms of implementing parts and service initiatives and what inning are we in and that process and.

Now that we're hopefully reopening the economy.

Across the country should we expect to see more of a benefit from those initiatives and 2021 and 2022.

No question.

And without getting into specific customers.

I have specific customers and my mind that we've been able to capture with those initiatives.

Even though with the labor and the even during the Covid here and.

I was out this week myself and last week, we were doing presentations with folks and myself out there and there seem to be a thirst for some of the things that we can supply or we can give them the market given the given the network. We've got the most expansive network out there and with the investments that we made and these initiatives.

To answer your question, we might be top half of the fourth.

Do you want to ask what inning.

Through the first three but we're not into the second quarter.

Baseball game, and we're just getting into and I really really believe that and I think our numbers will bear that out going forward I mean, and I believe and over the next couple of years I think we've got and.

And the next couple of years given.

Our regulations that will be coming into play and the truck business and with the growth and the economy that everybody expects to see over the next couple of years.

I think we're going to be in great shape with the investments we've made.

Moving forward and just.

I think I think customers are going to desire.

And the things that we can provide that differentiate us from other folks.

Great I'll leave it at that congrats on the quarter.

Thanks.

And your next question comes from Andrew Open.

Hey, Matt how are you.

Very good and this drove and very good.

Congratulations to you and the team on a great quarter.

More about the same and it is made with thanks Sandra.

Just a question a lot of questions have been answered.

And just talk a little bit more about the end markets.

The pace of recovery.

And.

Maybe you can book and geography and tell us.

Which regions look stronger and which end markets look stronger.

And specifically and also would love to hear your views historically within parts and services.

And fracking has been a big.

Alright, and meaningful components been debt for a while.

And as kinds of lifestyle, so sort of two part question.

Sure.

Well.

We said would be to go geographically the coasts are both doing well.

California surprisingly more than other states and surprises me, how well it's done.

Florida is doing outstanding, Texas, West, Texas, having a difficult time and I'll reference back how difficult. They are still still very successful just not to the levels and we were Oklahoma is going well.

Seeing as we move up.

Midwest.

Midwest is coming back a little slower, but it is coming back scavo and that area around and Illinois seems to be picking up our Ohio stores seem to be picking up also so well, let me and I'll.

And I'll be in the same any okay, but they are as states reopen and get back to work, they're all we're seeing and across the board just probably the coast had been the strongest Florida and California.

And Dallas has done real well and the North Texas area. So those areas, maybe a little better and the others, but everyone every region seems to be picking and we don't have one it's really lagging just summer and different innings of theirs.

Pick it up.

And markets again, we're seeing true construction and refuse continues and but the over the road business.

And just screaming and that's what that's what all was driving all these sales.

And as the over the road market.

It's pretty broad based construction and revenue for US has continued to do well.

I would tell you that you would ask for that Frac.

And what.

It may be up slightly.

As we see consumption going up.

And I realized we're going to be zero carbon one day, but for now we're not going to get there today and so as we see that continued rise in oil consumption go up and it'll be interesting to watch the back half.

The year, we haven't seen it we're not forecasting any big rise and.

And then.

A big jump and rigs and stuff like that working but it wouldn't surprise me. If this economy continues to heat up and the global economy follows.

And what better and consumption goes up it Wouldnt surprise me to see that happen, but I don't notice this year, maybe next year and 'twenty two.

And here in 'twenty, one but.

And that's not in our numbers now the numbers Youre seeing that's one way and of that most proud of and if you look back and the organization five years ago and you compare it and now is how we were driven so much by LNG.

And how little of R.

And our results are driven by oil and gas and how much more diversified and we are.

Across across the whole organization. So if it did it would just be bonuses.

I can tell you that we'd be very happy to take it and we could get some pick up and oil and gas, but so far we haven't seen it not projected and our and our future right now, but if it does happen and is considered a bonus.

And just another question so I think looking back.

Moving beyond a decade I figure systems and.

And you sort of focus on software and things like telematics has always been sort of part of your secret sauce operations.

And sort of enable you to take advantage of the scale that you have.

And a lot of talk about people accelerating their digital efforts.

And that's part of Covid.

Can you just talk about you know.

I'll have a system.

Liberate during COVID-19 and what lessons, you've learned about sort of systems and software and sort of driving the digital backbone of the organization going forward. Thank you.

You bet. There is no question, Andrew I mean.

Theres two different you talked about data right and that goes back to our S&P system and so.

Painstaking to do.

Years ago, but with that data, we have taken that data and put it with.

And extrapolated that David and learn how to use it and turn it into revenue.

Whether it's through our and our whole rush care for all the programs and I'm not going to get into all of those on the call and be happy to.

But that would take a little bit.

And while but are connected.

Connectivity with customers showed well throughout the Covid time without that I'm not sure. We can produce I know, we couldn't and produce the results that we produce if we didn't have that.

Tools that we have to connect with customers outside of touch right.

During this last year and we wouldn't produce the results we have parts connect service connect and always different things that we have and other things that we have underneath underneath the umbrella of rush here.

But I'm not going to go through all eight or nine of them here, while we're on this earnings call but.

You are correct. When you say those investments are shining and you can see it and the numbers and it's an easy way for me to tell you is it's in the numbers.

And it's in the numbers of what were doing currently and I am very proud of the efforts of everyone in the organization and over the last decade.

Two.

And to implement these tools and then to take those tools and front.

And revenue right and that's.

What we've seen happen and we're super excited about where we're going and where we're going on and other things.

And didn't do right now other investments that's one of the things we're here and the position. We're at right. Now you can look at the balance sheet and we're considered cash Nick organization has and the lack of debt, we don't have debt outside of leasing and lease trucks and.

And four plants. So the investments we're going to continue to make the investments to stay on top of it.

And try to stay on the leading edge and I bleeding edge, leading edge of technology.

Going forward there.

We will help and continuing to drive revenue.

Especially on the parts and service side of our business.

Congratulations and thanks, a lot thank you and.

Andrew.

And you do have a follow up question from Joel.

Hi, everybody must be on vacation today.

And.

On the last on the last call you mentioned that you think that this cycle could be more of a three year upturn and I Wonder if you could if you could update us on that and give us some reasons why you think that.

Well first of all I think so for goods and let's go back to the carb regulations are going to take and can employ a 'twenty four right.

I think youre going to see.

And we're going to be some scrambling.

Around <unk>.

Firstly I think the regs are coming in too soon and I don't think were ready for the stringent and rigs that theyre going to bring and I don't know how many states are tied up yes. It could be up to 15, if all those stay stagnant and that would be 30% from the market.

We have customers and those states that will be scrambling.

<unk> trucks prior too because from what I understand and the space even diesel will go up a very large I don't have the hard on revenue anywhere between 12, and 20 plus thousand dollars. Okay.

On diesel engines to meet those restrictions and I don't think people know yet I.

And I think it's a little bit I think it's a little fast. Thank these regulations will be and put in a little fast and should be more.

2027.

The EPA is that right now.

And that could all change we are going to change and obviously and.

And government so let's see how that all goes but that was the number one thing they showed truck sales will be there the other part.

Enemy and.

And then part of this year and make it tempered a little bit with suppliers right.

And a lot but.

But if the economy stays strong it's always the best driver is.

And for drug sales and the economy. So if it stays strong.

And tied in with the 24 regulations coming on with GARP et cetera.

Believe that should be for the next two and a half years.

Fairly.

Truck markets and I think I don't think I'm the only one out there was projected net.

And so there would be my answers for you Joe.

Okay, and then any early any early things youre hearing about.

Navistar that would like for you to get ready will they be more aggressive on parts or.

They rebrand.

And that will help the value of your franchises anything early that you guys are picking up debt you can.

Just your business strategy.

No I don't see anything right now this early.

And thats sort of a wait and see I know, we're excited about it I think the stability and and brings from a long term perspective the day.

Ability to get for technology.

And the breadth the global the global view and we'll be able to.

The scale, but don't have from a technology perspective will be great I don't have anything specific like parts or things like that this early there that'll be something that will play out I think.

As you know.

And they take over I don't see something earlier I do believe there have been ebb and collaborating for a couple of three years working on stuff anyway, and I think that's just only going up and has been accelerating and behind the scenes and we're just excited.

Debt.

Net new ownership coming onboard and the ability and will give the navistar group to continue to force down the path that they've already been go ahead, and now, but maybe even accelerating in the future.

Alright, great. Thank you so much.

You bet Joe.

Scott.

And there are no further questions at this time.

Alright, well, thank you, ladies and gentlemen, and we will speak to you and July with these second quarter results.

That does conclude today's call you may now disconnect.

Yeah.

[music].

Good day, and thank you for standing by and welcome to the Rush Enterprises, Inc. Reported first quarter 'twenty thought 2021 earnings results.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded if you require further <expletive>istance. Please press star zero and I like to hand, the conference over to your speaker, Mr. Rusty Rush Chairman.

CEO and President. Please go ahead.

Good morning, and welcome to our first quarter 2020 One earnings release conference call on the Golf day, our microwave Roberts, Chief operating Officer, Steve Keller Chief Financial Officer.

We were 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.

As indicated in our news release and the first quarter and we achieved revenues of $1 2 billion and net income of $45 3 billion or <unk> 79 per diluted share. We're also very proud and declared a cash dividend of <unk> 18 per common share.

Results were driven by the nationwide economic recovery and healthy activity from most market segments, we support gradual increases and parts and service activity and healthy demand for new cl<expletive> eight trucks and rising used truck values contributed to our strong quarter along with our continued focus on expense management, which helped us to significantly increase our net income.

And when compared to the first quarter of 2020.

As we look ahead sublicense rates will likely affect the availability of parts and new trucks and the next few quarters. However, we expect supply chain constraints to begin to subside late in the first third quarter and the third quarter and for demand for trucks and aftermarket services to remain strong throughout the year, we believe our financial results will be.

Strong and 2021 and the economic if the economy continues to recover and business real businesses reopen throughout the country.

And the aftermarket and our first quarter parts service and body shop revenues before and $15 7 million and structure ratio was 122, 6% our aftermarket revenues decreased by two 9% compared to the first quarter 2020, but we are seeing some pockets of strength, particularly when it comes to part sales and activity from refuse construction.

Should and public sector customers.

Service revenue recovering and a slower pace and parts, but we continue we continue to add technicians to our dealership network and the first quarter and anticipation of increased demand later in the year.

As we look ahead, we expect supply constraints back parts available it day in and the industry for the next few quarters, but we are leveraging our nationwide inventory less and any impact that may have and will continue to focus on expanding our technician workforce and service offerings, especially contract maintenance and preventive maintenance and we believe this will contribute.

And to increasing aftermarket demand as the national economy continues to recover through the rest of the year.

Turning to truck sales and the first quarter, we sold 20 909.

995, new cl<expletive> eight trucks guidance from five 4% of the total U S cl<expletive> eight market consumer spending and freight rates continue to be strong and customer demand was widespread with particularly strong activity from over the road vocational and construction growth.

ACD research forecasts U S cl<expletive> eight retail sales were 249000 units and 2021 of 27, 2% from 2020.

And while we expect the country's economic recovery to continue component manufacturer and supply chain issues will limit the growth and cl<expletive> eight truck sales and the next two quarters. However, we do expect to supply constraints and truck production to improve late in the third quarter and for industry demand remains strong and at the annual industry sales force.

Cash as of June.

Our cl<expletive> four seven new truck sales reached 20, 334, 334, and the first quarter accounting for three 8% and the U S market.

Our decline was driven by weak demand from our leasing and rental customers and foodservice customers and addition to production shutdowns from some of the manufacturers, we represent and components supplier constraints affecting other manufacturers.

And research forecasts U S class four through seven retail sales reached 291500 units in 2020.

And one up eight 4% from 2020, and we expect demand for medium duty vehicles to remains strong and for our annual class four through seven truck sales in 2020, one to be relatively flat compared to 2020.

Our used truck sales reached 19 824 units from the first quarter.

Up 43, and 5% from the same time grid and 2020 demand for used trucks remained high and the first quarter due to new truck production and strengths further used truck values increased approximately 10% over the fourth quarter of 2020, we believe that demand and pricing may decrease somewhat as more new trucks are we.

But we were still remains strong this year.

We are confident the volume and pricing of our inventory will meet the needs from the market.

And it is important for me to recognize our boys and providing superior service to our customers while remaining focused on protecting the health and safety of those around them and their hard work has directly contributed to our strong start to the year with that I'll take your questions.

At this time, if you'd like to ask and audio a question. Please press star followed by the number one on your channel. Thank you Todd that is star one to ask and audio question.

Your first question comes from Jamie Cook.

Hi, good morning, hope you're well.

And nice quarter, I guess, a few questions Rusty first and margins and our fourth first quarter.

And on truck and nine 4%.

Was that used truck pricing.

Or mix or if you can help me there.

My question relates to <unk>.

Apply chain side, where are the shortages outside of semi and I'm trying to balance how we think about the cadence of your sales as you are saying the second and third quarter will be impacted by supply chain, but you're also talking about market share gains for right now I'm just trying to.

Balance those two.

So I guess why don't we start there. Thank you.

Sure No problem, yes, you hit it on the head.

From a margin perspective, and the first quarter that was the large highest used truck parts and that I can ever remember that we have that right. So decent volume and high used truck margins.

Expect going forward the east front margin will still remain high and maybe not quite that high supply side is probably the biggest issue.

And a decent inventory.

<unk> used trucks is across them.

And just across the whole nation is and some.

What limits and so obviously, they will supply and demand and that's what's driven price is up I mean do you.

Go back to Covid.

They're up 30% to 30%, 35% from last year April of a year ago, So alive and expect as I've said those still remain high.

And it might be difficult to keep the volume right there, but that's what drove the margins to be that high for sure.

And when you're talking about things outside semiconductors.

Just a minute and thanks, Jamie and one day and can be one day, it can be and wiring harnesses one day it could be clusters dash.

Dash clusters efforts seats and thank you.

It's just across the board with you.

Tier two and tier three suppliers and.

The manufacturers and managing as best they can but I think they keep getting hit with different different different issues with different suppliers. So you know.

And when you add the.

And the freeze and the stuff down and you've got hurtful stuff coming out of Mexico.

And even just keeping up with it and I think everybody ramping up and for all that Covid has been very difficult for tier two and tier three suppliers and I was just on the semiconductor piece and with Jefferies.

But.

From.

Our parts perspective, and you look at our parts inventories, we've got more parts Backorder and right now that's one of the issues you run into and you can see the triples, and not just from trucks and actually tripled from parts and service too. So I do believe that those things will and ourselves out they typically do.

And the chip base could last longer and from some set by brand and I'm not an expert on it but I would look for most everything else I think we are the worst part of it right now.

And from what I can see here in April and May, but I do think that everybody has known about it here for a couple of months to see it coming back in February and I think youll see it.

Really.

And again.

Better as we get later into the summer, which would be and and the third quarter, obviously and.

Hopefully, we will catch up with it and it won't be an issue for all of that now the chip and different people will say to last longer and I'm not the expert on it but.

What I see from it.

Basically from the other as far as market share gains.

They are building less.

Because of that or not as much we're going to get our share.

Moving to get our share and product and I do believe I do believe our deliveries for the year is going to be more backend loaded given.

Given these issues at revenue right now, we're going to sell drugs and not worry about that but I think any big gains, which I expect to have more units will be more.

And the three and four then and Q2 I expect Q2 is still flat to slightly up from Q1 slightly not a lot was slightly up and a lot has to do with the shortages. Okay. I don't have my finger on the pulse of rum and my finger on the pulse of and which you never know how it's going to affect you from day to day or week to week or month to month, but I do.

And to get cleared out and expect to deliver quite a few more trucks and the back half of the year.

On the AG side and also in the medium side for sure I don't expect to.

And all.

The issues, we had where we had some big leasing and deliveries last year and the first quarter.

And then we didn't have any this quarter.

And so and we also have issues with one OEM.

And what's out of our production right now until we get to later in the year, so, but that's one of the reasons I think.

Memories overall will ramp up as we go through the year just not as dramatically here in Q2 as you would've expected given the shortages, but they will continue to ramp throughout the year.

Thank you ill, let someone else get in queue.

Okay.

Your next question comes from Joel Jeffrey.

I Wonder if you can do your presentation over again, I Couldnt understand you and your math gone.

Yeah.

And my voice, Joe you know it.

Yeah.

So I wonder if you can talk a little bit about your ability to like structurally what's what you've done to change your cost structure and the ability to keep the costs below where they've been historically.

Well you learn a lot go and Joe.

You learn a lot and 2020 and.

Understand that we're trying to take some of the lessons we've learned and.

And and take them forward with this and into the future.

And what is it.

Doing more with less and the same that we will have.

And if it continues to ramp at the pace. It is we will have some expense increase.

And so parts and service.

Trucks and things without thanks.

Turning wrenches, breaking up large delivering large stocking bars and doing all the things you have to do but we have goals internally and the company and we're going to spend less as we grow and we have in the past.

We feel we've learned a lot and moving it will be able to do that.

Expenses will ramp but.

But they're not going to ramp.

And as steep as they have in past cycles. So we believe we can manage it that way we've learned a lot and we put some controls in place and I'm not going to get into those things at the same time, you've still got to be able and you've still got to be able to grow at PV and just going to get people day in day care of it so but it's just a balancing act and we like to believe and we learned a lot last.

At year.

During that process, and we have entitled controls and making sure and making more thorough decisions on investments and things that we make on.

And those are all part of and it's not just want to seniors range, but it is it is aligned with only growing expenses are certainly depending on growth rates from the organization.

Is there anything like maybe not concrete maybe too strong of a word but anything you can share with us maybe like peak to peak, we think SG&A will be a 100 basis points lower or anything like that but we can just sort of like ballpark to think about.

Well.

And to do that.

Giving us and we have it internally, but the way I would express it and I really haven't looked at it from your perspective and explain it internally to my folks, but it wouldn't make a lot of sense to us from.

And operating perspective, I haven't really extrapolate it to do.

This meant EPS and it really remember Joe you got to strip away.

Away from G&A and she is going to do with truck sales okay.

We're always going to be a component driven by sales so sales growth sales go down.

And I'll go down and it's the G&A piece that we're focused on.

Yeah.

We'll spend less of every gross profit dollar that we create but it can be but I don't want folks looking at it and a singular quarter, it's not a core strength and different times of the year.

And at different times of the year.

And you spend more and I would tell you you know.

And we will spin.

40% of the growth, we create and Q2, probably from last year due to year over year, I think and for Q2 year over year was a tough year that was the true quarter that was a terrible quarter of last year, So, but we will spend less of every gross profit dollar and.

We have internal goals, but I'd, rather just keep them to myself right now.

Okay and then.

Their operating numbers go zone.

And easy one for Steve and then I'll leave it for everyone else why is the share count rising and can you give us your estimate of the tax rate for the full year.

Yes, the share count Joel, especially when you comp and back to two.

2020, it's a timing issue as much as anything we continue to repurchase shares. However, a bulk of the shares we repurchase and.

<unk> 2020 happened and the first quarter when the stock debt, we are opportunistic and bought heavier than.

Since that time, we've continually repurchase but not at a very high level and the and the other big differences the way you calculate diluted shares each year and.

Last few quarters because of the stock rate went up so much so.

Exercises of options and the higher price drove more diluted shares.

Going forward it should flatten out because we expect to continue to repurchase shares.

And there'll be some exercise option.

Exercise of options that will probably offset that somewhat but it should be landing and this 57 or so percent range and 57 million share range that you saw us post this quarter on the tax.

Again, the rate was low in Q1 and was 20% debt probably that boosted Q1 earnings about <unk>.

And three to four cents over what they would normally be throughout the rest of the year. The rest of the year, our tax rate will be and the 24, 5% range.

And without getting into all the detail. That's also related to some permanent differences between book and tax income that are discrete to the first quarter, mainly again around.

Investing and share based equity award vesting.

And stock price, but for the rest of the quarter you need to forecast about 24, 5% from the tax rate for the rest of the year Im sorry, each quarter.

Awesome. Thank you very much.

And again, if you'd like to ask a question. Please press star One your next question comes from Justin long.

Thanks, and good morning.

Our adjusted.

So I was wondering rusty if you could give us a sense for how parts and service revenue trended on a month to month basis and.

Throughout the quarter and and maybe an update on April as well just because weather clearly impacted February so just wanted to get a better understanding of and how the business is trending ex weather and then for the full year I think you've talked about parts and service revenue approaching 2019 levels on the last earnings call.

Is that still a fair expectation.

And again, it's a fair expectation.

And it's been ramping up starting with January except we did have a dip and February weather related but prior to the weather week everything was trending up and so we're just sort of jump over that week and it trended up again in March and so far this two thirds the way through April is trending up over March.

And as I said.

And that's dramatic but it is gradual it's going the right direction and we expect it to continue to.

Especially as we get into these warmer weather months.

As we get and these warmer weather months, where you tend to have a lot of.

Other things that we know are conditions and things like air conditioners things like that.

And that break so we typically normally have arise just seasonality.

Just given during the summer months so yes.

We do believe that.

And this trend will continue and especially.

And with all the miles that are being put on trucks out there right now is a lot of miles being driven so equipments gift.

And they havent been and we get as much new equipment and so there's a lot of equipment being driven and work. So I don't see any reason, while we wont continue moving forward and getting somewhere really close to that 2019 level right. Remember we started we were a little bit off of last year, but really flat as you just took out.

And whether week.

But that was off of the prior year, because it really COVID-19 related and take effect and the last two weeks of March last year, So and 19 we.

Ramped up all the way through September and then we have some look some fall off.

And the last quarter of the year I expect it to go the other direction.

And continue that way throughout the year. This year. So we feel very good about debt we feel good about the initiatives that we've still got out there. It's not just happened for US. We believe we have directors direct correlation between the investments that we've made over the last four or five years and the results that have cash.

And just through the Covid year, and the results and even curious through this year and the growth that we will see and this year and going forward. So we're excited about debt and there are folks who are doing an outstanding job and the field.

Working.

And managing through that right now.

Yeah.

Great and.

And she said at the end was actually my next question on the parts and service initiatives I know last year with the pandemic.

Probably all hands on deck and dealing with the challenges of that and can you just update us on where you stand in terms of implementing parts and service initiatives. What inning are we in and that process and now that we're hopefully reopening the economy.

Across the country should we expect to see more of a benefit from those initiatives and 2021 and 2022.

No question and.

Without getting into specific customers.

I have specific customers and my mind debt, we've been able to capture with those initiatives or just.

And even over the labor and the even during the Covid here and.

I was out this week myself and last week, we were doing presentations with folks and myself out there and there seem to be thirst for some of the things that we can supply or we can give the market given the given the network. We've got the most expansive network out there and with the investments that we made and these initiatives.

The answer to your question we might be.

And with the fourth.

Do you want to ask what inning we're in.

Through the first three but we're not into the second quarter.

Baseball game, and we're just getting into and I really really believe that and I think our numbers will bear that out going forward, I mean, and I believe and the next.

Couple of years, I think we've got and outstanding.

Couple of years given.

Regulations that will be coming into play and the truck business and with the growth and the economy that everybody expects to see over the next couple of years.

And I think we're gonna be and Brexit with the investments we've made.

Moving forward and just I think I think customers are going to desire and.

And the things that we can provide to differentiate us from other folks.

Great I'll leave it at that congrats on the quarter.

Thanks.

And your next question comes from Andrew Open.

Hey, Matt how are you.

Very good and this drove and very good.

Congratulations to you and the team on a great quarter.

More about the same and it is made and thanks Andrew.

Just a question a lot of questions have been answered.

And just talk a little bit more about the end markets.

The pace of recovery is.

And.

Maybe you can look at geography and tell us.

Which regions look stronger and which end markets look stronger.

And specifically and also would love to hear your views historically was on parts and services.

And fracking has been a big.

Alright, and meaningful components been debt for a while.

And as signs of life, there so sort of two part question.

Sure.

Well.

We said we'd go geographically the coasts are both doing well, California surprisingly, even though they have more than other states. It surprises me how well it's done.

Florida is doing and outstanding, Texas, West, Texas, having a difficult time and I'll reference about bad debt.

We're still still very successful just not to the levels and we were Oklahoma is going well, we're seeing as we move up from.

From the.

Midwest and it's coming back a little slower, but it is coming back to Chicago and that area around and Illinois seems to be picking up our Ohio stores seem to be picking up also so well.

And I'll be in the same any okay.

And as states reopen and get back to work, they're all we're seeing and across the board just probably the coast had been the strongest Florida, California.

It seemed and Dallas has done real well and the North Texas area. So those areas, maybe a little better and the others, but everyone every region seems to be picking and we don't have one it's really lagging just summer and different innings of there is a big enough.

And markets again, we're seeing true construction and refuse continues and but the over the road business.

Screening and that's what that's what all was driving all of these sales.

And as the over the road market, but we're also it's pretty broad based construction and revenue for us.

<unk> continued to do well.

I would tell you that you had asked for that Frac and Frac.

And what.

It may be up slightly.

No.

We see consumption going up.

And I realize we're going to be zero carbon one day, but for now we're not going to get there today and so as we see that continued rise in oil consumption go up and it'll be interesting to watch the back half.

The year, we haven't seen it we're not forecasting any big rise and.

And then.

A big job and rigs and stuff like that working but it wouldn't surprise me. If this economy continues to heat up and the global economy follows.

Somewhat better.

Consumption goes up it Wouldnt surprise me to see that happen, but I don't notice. This year, maybe next year and 'twenty two not here in 'twenty one but.

<unk> net.

Not in our numbers now and the numbers you're seeing that's one thing that I'm most proud of and if you look back and the organization five years ago and you compare it to know is how will how we were driven so much by LNG and how little of our.

And our results are driven by oil and gas and how much more diversified and we are.

Across across the whole organization. So if and then it would just be bonuses.

I can tell you that we'd be very happy to take it and we could get some pickup and oil and gas, but so far we haven't seen it not projected and our and our future right now, but if it does happen. It is considered a bonus.

And just another question so I think looking back.

Moving beyond a decade.

And your systems and.

And you sort of focus on software and things like telematics has always been sort of part of your secret sauce operations.

And sort of enable you to take advantage of the scale that you have.

And then a lot of talk about people accelerating their digital efforts.

Aqua outflows and that's part of Covid.

Can you just talk about you know.

How have your system delivered during COVID-19 and what lessons you've learned about sort of systems and software and sort of driving the digital backbone of the organization going forward. Thank you.

You bet. There is no question, Andrew I mean.

Theres two different you talked about data right and that goes back to our S&P system and so.

Painstaking to do.

Years ago, but with that data, we have taken that data and put it with.

And just graduated and David learn how to use it and turn it into revenue.

And whether it's through our and our whole rush care for all the programs and I'm not going to get into all those on the call and be happy to.

But that would take a little bit.

And while what are our connectivity with customers showed well throughout the COVID-19 time without that I am not sure. We can produce I know, we couldn't and produce the results. We produced if we didn't have that.

Tools that we have to connect with customers outside of touch right.

During this last year and we will produce the results we have parts connect service connect all these different things that we have and other things that we have underneath underneath the umbrella of rush here.

I'm not going to go through all eight or nine of them here, while we're on and on those.

And this earnings call, but.

You are correct. When you say those investments are shining and you can see it and the numbers and as an easy way for me to tell you is it's in the numbers is endless.

And the numbers and what we're doing currently and I'm very proud of the efforts of everyone in the organization and over the last decade too.

And to implement these tools and then to take those sales and rental.

And the revenue and that's.

What we've seen happen and we're super excited about where we're going and where we're going on and other things.

And didn't do right now other investments that's one of the things, we're here and a position where Ed.

Now you can look at the balance sheet and we're consuming cash net organization has and the lack of debt, we don't have debt outside of leasing and lease trucks and.

And four plants. So the investments we're going to continue to make the investments to stay on top of it and <unk>.

To stay on that leading edge and I bleeding edge, leading edge of technology.

Going forward, there will hopefully will help and continuing to drive revenue.

And the parts and service side of our business.

Congratulations and thanks, a lot and thank you Andrew.

And you do have a follow up question from Joe and Paul.

Hi, everybody must be on vacation today.

Well first of all by mix and hope it goes and let's go back to the Carb regulations are undertaking employ a 'twenty four right.

I think youre going to see.

And I was going to be some scrambling.

Firstly I think the regs are coming in too soon and I don't think we're ready for the stringent and rigs and they're going to bring and I don't know how many states are tied up yes. It could be up to 15, if all the space tag on that would be 30% from the market.

We have customers and those states they will be scrambling.

Purchase trucks prior too because from what I understand and the space even diesel will go up a very large I don't have the hard and our revenue numbers anywhere between 12 and 20 plus thousand dollars.

Okay.

Diesel engines to meet those restrictions and I don't think people know yet.

And it gets a little bit I think it's a little fast and these regulations are being put in oil and fast and should be more.

2027.

The EPA is that right now, but that's true.

And that could all change we are going to change and obviously and.

And the government so let's see how that all goes but that was the number one day.

And they showed truck sales will be there the other part and the economy and the.

And then.

Part of this year may get tempered a little bit with suppliers.

And a lot but.

But if the economy stays strong it's always the best driver is.

For drug sales and the economy, so if it stays strong.

And tied in with the 24.

Elections, coming on with GARP et cetera.

And believe that we should be for the next two and a half years fairly.

Credit markets and I think I don't think I'm the only one out there was projected net.

And so there would be my answers for you Joe.

Okay, and then any early any early things youre hearing about.

Navistar that would like for you to get ready will they be more aggressive on parts.

Will they rebrand.

And then that will help the value of your franchises anything early that you guys are picking up that you can.

Adjusted your business strategy.

No I don't see anything right now this early.

And thats sort of a wait and see I know, we're excited about it I think the stability and and brings from organic perspective.

The ability to get for technology.

The brand the global look a global view and it will be.

And we will.

And the scale that they would have from a technology perspective will be great I don't have anything specific like parts or things like that this early there that will be something that will play out I think.

Yes.

As I take over I don't see something earlier I do believe.

We have been collaborating for a couple of three years working on stuff anyway and.

And there's only going to and has been accelerating behind the scenes and we're just excited.

Debt.

Alright, great. Thank you so much.

You bet Joe.

Scott.

And there are no further questions at this time.

Alright, well, thank you, ladies and gentlemen, and we will speak to you and July with these second quarter results.

Yes.

That does conclude today's call you may now disconnect.

Q1 2021 Rush Enterprises Inc Earnings Call

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