Q1 2024 Rush Enterprises Inc Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Rush Enterprises First Quarter 2024 Earnings Results Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rusty Rush, Chairman, CEO, and President. Please go ahead.

Good day, and thank you for standing by welcome to the Rush Enterprises first quarter 2024.

This call at this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

I'll ask a question during the session you will need to press Star one one telephone you will then hear an automated message advising your hand is race to withdraw your question. Please press star one again.

He advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Rusty Rush Chairman CEO and President. Please go ahead.

Rusty Rush: Good morning, and welcome to our first quarter 2024 earnings release call. On the call are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary. Now Steve will say a few words regarding forward-looking statements.

Rusty Rush: Good morning, and welcome to our first quarter earnings release call on the Golar, Mike Mcroberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, Jay Hazelwood, Vice President Controller, and Michael Goldstone, Senior Vice President General Counsel and corporate segments.

Steve Keller: Now Steve will say a few words regarding forward looking statements.

Steve Keller: 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 risk and uncertainties, our actual results may differ materially from those expressed or implied by such a forward-looking statement. For more information, please visit www. FEMA.gov.

Steve Keller: Certain statements we will make today are considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995.

Steve Keller: 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 in our annual report on Form 10-K for the year ended December 31 2000.

Rusty Rush: As indicated in our news release, we achieved first quarter revenues of $1.9 billion and net income of $71.6 million, or $0.88 per diluted share. We are proud to declare a cash dividend of $0.17 per common share.

Steve Keller: 23, and in our other filings with the Securities and Exchange Commission.

Steve Keller: As indicated in our news release, we achieved first quarter revenues of $1 9 billion and net income was $71 6 million or 88 cents per diluted share were proud to declare a cash dividend of 17 cents per common share.

Rusty Rush: Class 8 neutral production has caught up with market demand, and that, along with other economic factors, led to a decline in our class 8 new truck sales in the first quarter. The freight recession and elevated interest rates are negatively impacting over-the-road customers, both small carriers and large fleets. We are pleased to significantly outpace the industry in Class 4-7 truck sales, and we achieved year-over-year growth in used truck sales, which were the bright spots in our challenging course. In the aftermarket, our parts, service, and body shop revenues were $649.2 million, flat compared to the first quarter of 2020, and our absorption ratio was 130.1%.

Steve Keller: Class eight neutral production.

Steve Keller: As caught up with market demand and that along with other economic factors led to a decline in our class eight new truck sales in the first quarter.

Steve Keller: The freight recession and elevated interest rates are negatively impacting over the road.

Steve Keller: Small carriers and large fleets.

Steve Keller: We are pleased to significantly outpace the industry and class four seven truck sales and we achieved year over year growth in used truck sales, which were the bright spots in a challenging quarter.

Steve Keller: In the aftermarket our parts service and body shop revenues were $649 2 billion flat compared to the first quarter of 2023.

Steve Keller: Actual ratio was 131%.

Rusty Rush: Our results were consistent with the industry, which is experiencing slowing aftermarket demand driven by a depressed freight market. We did, however, see some healthy aftermarket demand from the public sector, refuse, and medium-duty leasing customers. That, along with our commitment to support a large national lease and diversifying our customer base, helps us to somewhat offset the challenging industry conditions we faced in the first quarter.

Steve Keller: Our results were consistent with the industry, which is experiencing slowing aftermarket demand driven by the depressed freight market. We did however, see some healthy aftermarket demand.

Steve Keller: Public sector refuse and medium duty leasing customers that along with our commitment to support large national families and diversifying our customer base.

Steve Keller: What offset the challenging industry conditions, we faced in the first quarter.

Rusty Rush: As we look forward, we believe aftermarket demand in the second quarter will be fairly consistent with the first quarter, though we expect some seasonal uptick as we enter the summer months. We anticipate the current freight recession will continue to impact aftermarket demand, but we remain committed to executing on our strategic aftermarket initiative. We believe that our second quarter aftermarket performance will align with our first quarter results.

Steve Keller: As we look forward, we believe after market demand in the second quarter will be fairly consistent with the first quarter, though we expect some seasonal uptick as we entered the summer months.

Steve Keller: We anticipate the current freight recession will continue to impact aftermarket demand, but we remain committed to executing on our strategic aftermarket initiatives. We believe that our second quarter aftermarket performance will align with our first quarter results.

Rusty Rush: Turning to new truck sales, we sold 3,494 Class 8 trucks, accounting for 6% of the total U.S. Class 8 market and 1.4% of the Canadian market. As expected, economic pressures, such as high interest rates and low freight volumes, along with production levels of new Class A trucks catching up with pent-up demand, led to a 13 percent decline in U.S. retail sales in the first quarter. While most of the declining Class 8 truck sales were attributable to the over-the-road carriers, it is worth noting that we experience healthy demand for vocational customers, and we expect this to be a good year for vocational truck sales. ACT Research forecasts U.S. Class VIII Retail Sales to be 228,000 units in 2020, down 16% compared to 2023.

Steve Keller: Turning to new truck sales, we sold 3400 94 class eight trucks accounting for 6% with total U S class eight market and one point for the Canadian market.

Steve Keller: As expected economic pressures, such as high interest rates and low freight volumes, along with production levels of new class eight trucks catching up with pent up demand led to a 13% decline in U S retail sales in the first quarter.

Steve Keller: Well most of the decline in class eight truck sales was attributed to the over the road carriers. It is worth noting that we experienced healthy demand from vocational customers and we expect this to be a good year's vocational trucks.

Steve Keller: ACD research forecast U S class eight retail sales to be 228000 units in 2020.

Steve Keller: Down 16% compared to July 23.

Rusty Rush: Due to the timing of deliveries to certain of our large customers and due to our diverse customer base that includes strong support and vocational markets, we believe our second quarter truck sales will improve compared to the first quarter. However, we expect the current freight recession to continue, causing Class 8 truck sales to decrease in the second half of 2024 compared to the first half of 2021. That said, there is plenty of time for us to sell trucks into the second half of the year, and our sales teams are well positioned to take advantage of every opportunity possible to help us navigate these difficult market conditions.

Steve Keller: Due to the timing of deliveries of certain to certain of our large customers and due to our diverse customer base that includes strong support vocational markets. We believe our second quarter truck sales will improve compared to the first quarter. However, we expect the current freight recession to good day, causing class eight truck sales to decrease in the second half of 2024.

Steve Keller: Compared to the first half of 'twenty one.

Steve Keller: That said there is plenty of time for us to sell trucks into the second half of the year and our sales teams are well positioned to take advantage of every opportunity possible to help us navigate through these difficult market conditions.

Rusty Rush: Our Class 4-7 new truck sales reached 3,331 units in the first quarter, representing 5.4% of the U.S. market and 2.7% of the Canadian market. New and medium duty truck supply is less constrained than it has been recently, and lead times have decreased, though deliveries continue to be somewhat delayed by issues with bodybuilders, with steady widespread demand from our customer base and our focus on supporting large national accounts. We are proud of our Class Strong, Class 427 results this quarter.

Steve Keller: Our class four through seven new truck sales reached 3300 31 units in the first quarter or five 4% in the U S market and two 7% I look at it the Canadian market.

Steve Keller: In medium duty truck supply is less constrained than it has been recently and lead times have decreased low deliveries deliveries continue to be somewhat delayed by issues with body manufacturers with steady widespread demand from our customer base and our focus on supporting large national accounts. We are proud of our class strong class four through seven.

Rusty Rush: ACT Research for US class 427 retail sales to be 262,000 units in 2024, up 3.7% from 2023. As we look ahead, we will continue to monitor concerns regarding customer spending and high interest rates and their potential impact on Class 4-7 demand. Currently, we believe Class 4-7 commercial vehicle sales will improve in the second quarter compared to the first quarter and remain strong for the remainder of the year. Our used truck sales reached 1,818 units in the first quarter, up 8% compared to 2023.

Steve Keller: Results this quarter.

Steve Keller: Research forecasts U S class four through seven retail sales to be 262000 units in 2023.

Steve Keller: Three 7% from 2023.

Steve Keller: As we look ahead, we will continue to monitor concerns regarding customer consumer spending and high interest rates and their potential impact on class four through seven demand. Currently we believe class four through seven commercial vehicle sales will improve in the second quarter compared to the first quarter and remained strong for the remainder of the year.

Steve Keller: Our used truck sales reached 18 or 18 units in the first quarter up 8% compared to 2023, we continue.

Rusty Rush: We continue to experience weak demand and depressed values for used trucks, largely due to low freight volumes and high... Even with those difficult conditions, great execution on our used truck inventory and sales strategy allowed us to achieve strong results in the first quarter. As we look forward, the rate of decline in used truck values is slowing, but we believe it may continue to decline somewhat. But with our strategically diverse product mix, we expect our second-quarter used truck sales to be similar to our first quarter.

Steve Keller: Weak demand and depressed values for used trucks, largely due to low freight volumes and high interest rates.

Even with those difficult conditions, great execution on our used truck inventory and sales strategy allowed us to achieve strong results in the first quarter.

As we look forward the rate of decline in used truck values are slowly, but we believe we may continue to decline somewhat.

Steve Keller: But with our strategically diverse product mix, we expect our second quarter used truck sales to be similar to our first quarter results.

Rusty Rush: Looking ahead, we're closely monitoring economic issues and the current freight recession impacting over-the-road carriers, which we expect will continue for at least the next several months. We believe that the second half of the year will be tough with respect to new Class A truck sales. But we also believe that demand should remain solid for new Class 4 through 7 commercials. When it comes to the aftermarket, challenging operating conditions will likely continue, but we should experience some seasonal lift in the warmer months. To help offset the challenges facing our industry, we are taking action to reduce expenses throughout our organization with these expense management measures, along with our diverse customers.

Steve Keller: Looking ahead, we are closely monitoring economic issues and the current freight recession impacting over the road carriers, which we expect will continue for at least the next several months.

Steve Keller: We believe that the second half of the year will be tough with respect to new class eight truck sales, but we also believe demand should remain solid for new class four to seven commercial leader.

Steve Keller: When it comes to the aftermarket challenging operating conditions will likely continue but we should experience some seasonal lift in the warmer months.

Steve Keller: The challenges facing our industry, we are taking action to reduce expenses throughout our organization.

Steve Keller: These expense management measures, along with our diverse customer mix and our focus on supporting large rational fleets. We are confident that we can successfully navigate to navigate this difficult market cycles through the second quarter and the remainder of 2024.

Rusty Rush: In our focus on supporting large national fleets, we are confident that we can successfully navigate this difficult market cycle through the second quarter and the remainder of 2024. It is very important that I express my gratitude to our employees for their hard work and for continuing to provide superior service to our customers while staying focused on our long-term goals. With that, I'll take your questions. Thank you.

Speaker Change: It's very important that I Express my gratitude to drive employees for their hard work for and for continuing to provide superior service to our customers, while staying focused on our long term goals with that I'll take your questions.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Justin Long of Stevens. Your line is now open.

Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Justin Long of Stephens. Your line is now open.

Justin Long: Thanks and good morning.

Justin Long: Thanks, and good morning.

Rusty Rush: Well, good morning, Justin.

Justin Long: Good morning, Justin.

Justin Long: Maybe I'll start with one on the expense side of the equation because, Rusty, I know you mentioned some cost initiatives that are going to be kicking in. Any sense you can give us for the timing and magnitude of those expense reductions and how we should think about those flowing through SG&A in the next two, three quarters?

Justin Long: Maybe I'll start with one on the expense side of the equation because Rusty I know you mentioned some cost initiatives that are going to be kicking in any sense, you can give us for the timing and magnitude of those expense reductions and how we should think about those flowing through.

Justin Long: SG&A in the next two to three quarters.

Rusty Rush: Well, you know the timing of it will obviously flow in through the second quarter, Justin. You know, to take full effect, I would imagine by the time we get into the first part when we get into Q3 or Q4. As I've said, we feel pretty good about where we're going into Q2. We expect better truck sales across the board timing, but we do expect decreased truck sales right now in the second half, but you know as far as getting, that's the one thing you can always tell by looking at our absorption rate. Right, that gives you a good gauge of where you're at.

Justin Long: Well.

Rusty Rush: The timing of Les will happen, obviously flowing through the second quarter adjustment.

Rusty Rush: To take full effect I would imagine by the time, we get into the first part when we get into Q3 and Q4 as I've said, we feel pretty good about where we're going into Q2, we expect better truck sales.

Rusty Rush: Across the board timing.

Rusty Rush: But we do expect decreased truck sales right now in the second half.

Rusty Rush: But.

Rusty Rush: As far as getting that's the one thing you always tell by looking at absorptions Craig right that gives you a good.

Rusty Rush: Gage of where you're at as I said when you look at Q1.

Rusty Rush: As I said, when you look at Q1, we were off about six points compared to last year's absorption, and that's with flat gross profit, right? So you can probably gauge that, you know, that was caused by some expense creep that got a little out of line considering the gross profits from parts and service flattened out some, which we're not used to for a while, but you know, we've been doing a heck of a job, if you ask me, fighting it all. So that's the one good thing we have two levers, right?

Rusty Rush: We were off about six points compared to last year absorptions and Thats with flat.

Rusty Rush:

Rusty Rush: As with flat gross profit right. So you can probably gauge that brentwood.

Rusty Rush: That was caused by some expense Greg.

Rusty Rush: That got a little out of line considering the gross profit from parts and service flattened out so we're.

Rusty Rush: We're not used to for a while but we've been doing a heck of a job.

Rusty Rush: Fighting at all so that's the one good thing is we have two levers right you've got the Roes private absorbed.

Rusty Rush: You've got gross profit and absorption, and you've got expenses. So we will manage the expenses to, you know, where we are currently and where we believe that the gross profit side is gonna go flattened out. So we'll try to get some of that back, that absorption rate, those six points. We'll try to get somewhere around half of that back, if you wanna know the truth, maybe a little more. We'll see how it all falls out, but it's just normal.

<unk> expenses. So we will we will we will manage the expenses to where we're at currently and where we believe that.

Rusty Rush: The gross profit side, it's going to go has flattened out. So we will try to get some of that back that absorption rate that six points, while prior to get somewhere around half of that back to you on the order trends, maybe a little more we will see how it all falls out but.

Rusty Rush: What you do, we're in a cyclical business. This is nothing new or not something this company is not pretty experienced at managing. And the good part is, you know, we run a whole lot higher absorption rate, do a whole lot more parts and service business than we ever have. So we feel good about being able to do the right and proper thing and manage through. That's the good part of what we've done over the last decade is shifting, you know, shifting the earnings of the company from where they used to be so reliant upon truck sales to the parts and service side, where you can manage the expense side of it along with it, not necessarily dollar for dollar, but because that's not the way it works.

Rusty Rush: It's just normal what you do but we're in a cyclical business. This is nothing new or not something this company is not.

Rusty Rush: Pretty experienced at managing and the good part is we run a whole lot higher absorption rate go up more.

Rusty Rush: Parts and service business than we ever have so we feel we feel good about being able to do the right proper thing and manage through that's the good part.

What we've done over the last decade is shifting.

Rusty Rush: Shifting the earnings of the company or they used to be so reliant upon truck sales to the parts and service side, where you can manage the expense side of it along with it not necessarily dollar for dollar, but because that's not the way. It works you still got inflation.

Rusty Rush: You still have inflation and things that you have to deal with, and you've got services that you have to provide for customers. So there's a balancing act in what you do, but it does give you a lever. And I think we've proven in the past that we know how to do that, and we'll do it prudently like we did then and according to the market.

Rusty Rush: Things that you have to deal with and you've got services that you have to provide for customers. So there's a balancing act and what you did but it does give you a lever and I think we've proven in the past we know how to do that.

Rusty Rush: We'll do it prudently we have done that.

Rusty Rush: According to the market.

Justin Long: Got it, that all makes sense. Maybe to follow up on parts and service. So you talked about your expectations for the second quarter. But any updated thoughts on the back half of this year? Do you think it's possible for parts and service to start seeing a little bit of growth on a year over year basis? Or, given the environment for truck sales, could that be a challenge?

Got it that makes sense.

Speaker Change: Maybe to follow up on parts and service. So you talked about your expectations for the second quarter, but any updated thoughts on the back half of this year do you think it's possible for parts and service to start seeing a little bit of growth on a year over year basis or given the environment.

Speaker Change: <unk> for truck sales could that be a challenge.

Rusty Rush: Well, obviously, the environment for drug sales, really, it's not just truck sales. It's our customer base, right? You know, when you look, if you own something I'm extremely proud of, and anybody that has studied the organization or been around for a while should be also, it's the fact that I haven't seen a two-year freight recession that I can remember for decades, okay? And we truly are dealing with a two-year freight recession.

Speaker Change: Well, obviously, it's harman.

Speaker Change: Drug sales relates not just truck sales.

Speaker Change: Our customer base right.

Speaker Change: When you look.

Speaker Change: If you are is that mine, we're extremely proud of anybody studied the organization had been around for a while should we also it's.

Speaker Change: The fact that I haven't seen a two year freight recession that I can remember for decades, Okay, and we truly are adhering to your great recession, while we have a diversified earning streams in parts of service something we're very proud of what we talk about all the different markets, we manage a dozen different market segments.

Rusty Rush: Now we have diversified earning streams in parts of service, something we're very proud of. We talk about all the different markets; we manage a dozen different market segments, you know? And that's the good thing, that if we were so reliant on just the over-the-road business or the large customer or the small fleet, I mean, our unassigned accounts, we call them, which is the small customer, they're down, again, continue to be down double digits from last year, 12%, actually. But to answer your question, you bet I believe we can get some growth in the second half. Now, from which sector? I'm not exactly sure.

Speaker Change: And thats the good thing.

Speaker Change: If we are a silver line or just the over the road business and the large customer and a small small fleet.

Speaker Change: Non assigned accounts, we call it which is the small guys, where they're down again continued to be down double digits from last year, 12%.

Speaker Change: Actually so but to answer your question.

Speaker Change: Question, you bet I believe we can get some growth in the second half naphtha, which sector I'm not exactly sure but the good thing is we attack all different market segments. Okay. That's how we go to market. We don't just go to market against that get one just trucks.

Rusty Rush: But the good thing is we attack all different market segments, okay? That's how we go to market. We don't just go to market attacking one of these trucks. We look at each market segment; we have it assigned from the top of the corporation to the store level. We have people assigned to different segments. So do I believe there's room for some low, single to small, mid-single digit growth in the back half? Yeah,

Speaker Change: Look at each market segment, we have assignment we have aside from the top of the corporation to the store level, we have people assigned to different segments. So do I believe there is room for <unk>.

Speaker Change: Low single to small.

Speaker Change: Mid single digit growth in the back half, yes, we're not looking at any kind of a double digit growth this year, but I do believe given our approach to the market that I'm, telling you is more.

Rusty Rush: We're not looking at any kind of double-digit growth this year. But I do believe, given our approach to the market, which I'm telling you is more sophisticated than most with our systems and such, that we have the opportunity to grow some in the back half of the year. I really do believe that. So, without getting too much into proprietary stuff, you better believe it.

Speaker Change: More sophisticated than most.

With our systems and such that we have the opportunity to grow some of the back half of the year I really do believe Brad.

Speaker Change: So I mean without getting too much into proprietary stuff.

Rusty Rush: So hopefully that, along with some better expense management as we get into it, will allow us to maintain levels similar to where we were last year from an absorption perspective. I don't know that we'll be all the way there because you do have inflationary pressures that get you on the expense side. But there are market segments, I mean, I could tell you right now that, year over year, oil and gas were down in Q1. And you go, what?

Speaker Change: You better believe it so hopefully that along with some better expense management as we get into it will allow us to maintain.

Speaker Change: Maintain levels similar to where we were last year from an absorption perspective, I don't know if it will be all the way there because you do have inflationary pressures that gets you on the expense side, but there are market segments that I could tell you right now year over year like oil and gas was down in Q1 and you go what it was.

Rusty Rush: Well, it was. It was a little softer. You know, the small customer was a little softer. But we were up, say, in refuse. We were up in the public sector. We were a little off in wholesale.

Speaker Change: Was it was a little softer and other small customer it was a little soft, but we were up say in revenues, we were up in the public sector.

Rusty Rush: Without me going into every market segment, we have our arms wrapped around it tightly, I promise. And we are putting more resources or focusing where we do believe that there are opportunities to grow in those certain market segments. So to answer your question, I know I'm long-winded as always, but I'll be happy to answer plenty of questions this morning. But, nothing. We're not talking about big double-digit growth, but we're talking about growth. We do believe it's possible.

Speaker Change: But wholesale without me going into every market segment, we have our arms wrapped around and tackling promise and we are putting more and more resources are focusing where we do believe that there are opportunities to grow in those certain market segments. So to answer your question I don't have a long winded as always but I'll be happy to answer.

Speaker Change: Plenty of questions. This morning, but yes nothing.

Speaker Change: Talking about being double digit growth, but we're talking about growth we do believe it's possible.

Justin Long: Okay, that's good to hear. And I guess I'll just ask one more question. To your point about the freight down cycle lasting for two years now, I think it's lasted longer than everybody anticipated. Has that changed your view at all on the trough earnings and free cash flow potential of the business this year?

Speaker Change: Okay. That's good to hear and I guess I'll just ask one more question to your point about the freight downcycle lasting for two years now I think it has lasted longer than everybody anticipated has that changed your view at all on the trough earnings and free cash flow potential.

Speaker Change: All of the business this year.

Rusty Rush: Well, you would reflect on something I threw out there a couple of years ago: trawl frames. The answer is, no way. That's not happening. I'm more confident in that than I ever have been when I look at the organization right now and how we're going to market it. I put that out there a couple of years ago, but now I'm extremely confident in that statement, more confident now than when I made it then, and also about what I think my peak will be.

Speaker Change: Well you would reflect on something I threw out there a couple of years ago that would be <unk> and the answer is no way.

Speaker Change: That's not happening that more confident of that.

Speaker Change: Than I ever have been when I look at the organization right now and how we're going to market. So.

Speaker Change: I put that out there are a couple of years ago with no <unk>.

Speaker Change: Namely confident.

Speaker Change: And those in those in that.

Speaker Change: And that statement more government and now that I've made it better and also what I think <unk>.

Rusty Rush: If things fall out the way everybody believes they will in 2026, that should be the peak earnings of the organization based upon projections. Now, everything can change, the economy can move and change, but based upon all the information we have, all the new EPA guidelines coming into effect for the first of 27, etc. We're very confident in both the trough, which I- Look, 24 is nothing more than what I've told you the last couple of years.

Speaker Change: Things fall out the way everybody believes it will in 2026.

Speaker Change: Biggs.

Speaker Change: The earnings of the organization based upon projections out everything can change the economy can move and change but based upon all the information we have with all the new EPA guidelines coming into our first of 2007.

Speaker Change: Et cetera.

Speaker Change: We're very confident in both the trough.

Speaker Change: Look 24, so nothing more than what I've told you the last couple of years Okay.

Rusty Rush: I've told you 24 was going to be the- You had a great 22 and 23, and a good 24, but off. I mean, I still think we're going to be, what is it, 13 percent off in truck sales so far, but 20 percent in the month of March. But first quarter was off 13. I know ACT is at 16.

Speaker Change: I've told you 24 was going to be.

Speaker Change: You had a great 'twenty, two and 'twenty three and a good 24, but all I mean, I still think we're going to be 13% and truck sales so far with 20% in the month of March Okay, but first quarter was all 13.

Justin Long: This one time, I'm going to say it's probably going to be a little more off than that. But I do believe there's going to be a large free buy on 25 and 26. It's just difficult for folks. Go look at all the public earnings, all the over the road truck loads now. LTL is obviously still doing extremely well. What happened with Yellow last year, etc., the way the dynamics are in the distribution business.

Speaker Change: <unk> 16 is one time I am going to say, it's probably going to be a little more off the map, but I do believe there's going to be a large free by 'twenty five 'twenty six.

Speaker Change: Yes difficult for folks go look at all the public earnings.

Speaker Change: All all the over the road trucks truckload, Lpl's, obviously still doing extremely well.

Speaker Change: What happened yellow last year.

Speaker Change: The way the.

Speaker Change: The dynamics are in the distribution business, but we'll look at what's going on out there everybody suffer.

Justin Long: But look at what's going on out there. Everybody's suffering. That's why I'm extremely proud of what we've done and more confident than ever that we will handle both that and the free cash flow side will still be extremely strong this year, without question in my mind. Not as strong as last year, but it'll be extremely strong when you look at the historical data.

Speaker Change: That's why I'm extremely proud of what we've done and more confident than ever that we will handle both that and the free cash flow side will still be extremely strong this year without question in my mind.

Speaker Change: Not as strong as last year, but it will be extremely strong when you look at historical is for sure.

Rusty Rush: Okay, that's a great way to wrap it up. I appreciate the time. You betcha.

Speaker Change: Okay, that's great way to wrap it up I appreciate the time.

Speaker Change: You bet. Thank you.

Operator: Thank you. One moment for our next question. Again, as a reminder to ask a question, you will need to press star 1 1 on your telephone. Our next question comes from line worker Andrew Aubin of Bank of America. Your line is now open.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Again as a reminder to ask a question you will need to press star one on your telephone.

Speaker Change: Our next question comes from the line of <unk> of Bank of America. Your line is now open.

Andrew Aubin: Yeah, this 511 thing is confusing, Rusty. Sorry. So, question. Can you talk about your confidence given the weakness in

Speaker Change: Okay.

Speaker Change: One thing its computers <unk> sorry.

Speaker Change: No question.

Speaker Change: You talked about.

Speaker Change: Youre confident given the weakness in.

Speaker Change:

Speaker Change: Over the road freight.

What's your confidence of actually sort of being able to manage your inventory into the second quarter.

Rusty Rush: You bet. Well, it goes back to, first off, I'm going to take them in an inverted order here, Andrew. I'm going to go to the used ones first. Why?

Speaker Change: You said that you sort of have confidence in your used truck, but maybe elaborate granularity why you're so confident given the weakness in the market. Thank you.

Rusty Rush: We took down our used inventory, which is traditionally carried by 40% over a year ago. We took it down that much. Traditionally, we probably had closer to 2,500 units. We carry somewhere around 1,500 units. Because when you got into this very accelerated declining environment that used cars have been in over the last two years, you had to be turning fast. So your turns had to accelerate from what maybe they had been historically.

Speaker Change: You bet well it goes back to that first of all we.

Speaker Change: I'm going to take a minute <unk> inverted order here, Andrew I'm going to abuse burst.

Speaker Change: We took down our used inventory, which traditionally carry by 40%.

Speaker Change: Over a year ago, we took it down that much right. We've traditionally probably closer to 2500 units, we're carrying somewhere around 1500 units because when you got into that this very accelerated declining environment to use was added over the last two years, you had to be turned and fast so your turns and the.

Speaker Change: Right from what maybe they had been historically so by doing that we've been able to really mitigate any losses that we might be.

Rusty Rush: So by doing that, we've been able to really mitigate any losses that we might have been taking in some of our used truck inventory because our turns were accelerated. And with that, what it has allowed us to do is take advantage of opportunities that are out there, right? So we've been able to take advantage of other opportunities because we don't have an inflated used truck inventory. We keep it at a level, and we turn it fast.

Speaker Change: Had been taking and some of our used truck inventory because our turns were accelerated.

Speaker Change: And with that what it has allowed us to do is take advantage of opportunities that are out there right.

Speaker Change: So we've been able to take advantage of other opportunities because we don't have an inflated used truck inventory, we keep it at a level and return it fast and so are used.

Rusty Rush: And so our used car business, we had as good a used quarter as we probably, I don't want to say ever had, but we had a strong, extremely strong used quarter, which is quite unusual. Not necessarily volume, but just turning it fast has allowed us to maintain a higher margin. So, because we're not getting caught with used trucks that are, you know, decelerating valuations quicker than what historical norms are when it comes to medium duty. I mean, medium duty.

Speaker Change: As good a use quarters, we'd probably.

Speaker Change: Say ever had but we had strong extremely strong used quarter, which is quite unusual not necessarily volume or but just turning it faster has allowed us to maintain a higher margin. So because we're not getting caught with used trucks that are decelerating valuations quicker than what historical norms.

Speaker Change: When it comes to medium duty medium duty I can look at the order board.

Rusty Rush: I can look at the order board, and I feel good about it. It's solid where I'm not going to say we're all sold out, but unlike the heavy side, we're way further along to selling out, because in some ways, on our medium duty side, we still have some allocation. When it's involved in medium duty, because remember medium duty when we had that huge market in twenty two and twenty three, medium duty got. Especially in 22, the manufacturers that built medium and heavy shifted towards the heavy side because they made more margin.

Feel good about mid solid where I'm not going to say were all sold out but unlike the heavy side we are.

Speaker Change: Way further along to selling up because in some ways in our medium duty side, we're still have some allocation imports involved on medium duty because remember medium duty.

Speaker Change: When we had that huge markets in 'twenty two 'twenty three medium duty got.

So I'd say 20 to everybody people for the manufacturers that build medium and heavy shifted towards the heavy side because they made more margin. So medium duty still have some pent up demand.

Rusty Rush: So medium duty still has some pent-up demand, and along with consumer spending remaining extremely strong for the last couple years, that has a lot to do with driving medium duty sales. So when you put it all together, we feel really good about where medium duty is at for the year. We've had a good first quarter.

Speaker Change: Along with <unk>.

Speaker Change: Consumer spending is remaining extremely strong the last couple of years that has a lot to do with driving medium duty sales. Okay. So when you put it all together, we feel really good about where medium duty is that for the year as I said, we've had a good first quarter.

Rusty Rush: The second quarter is going to be stronger than Q2. And I believe that, you know, remember there's fluctuations by the quarter. Sometimes people get so caught up in quarters.

Speaker Change: <unk> waterflood will be stronger is going to be stronger than Q2, and I believe that.

Speaker Change: Remember there is fluctuations by quarter, sometimes people get so caught up quarters.

Rusty Rush: But I would expect our second half to be, I'm right now believing it will be just as strong as our first half based upon looking at the backlog of where we're at with medium, Now, heavy duty. Well, heavy duty, you know, we timing has a lot to do with things sometimes, especially at least in the first half first half of the year. I have a large inventory right now if you were to look at my inventory you're going oh my gosh you're inventory rusty i'm gonna say yeah but understand that the vast majority of that is sold and so what's happening is we're in the process of delivering a lot of that right now into q2 so we do believe that q2 for sure we will deliver more class a drugs there's just no question about it the stuff's on the ground already we're already almost through april i'm pretty solid as to where we're going to be in q2 now we look into q3 and q4 are there concerns you better believe it is the backlog pretty far off you better believe it but you know what we're not around occasion anymore you want a truck i can start one for you in eight weeks or so so it's not like you know i can still start a truck in the back half of q2 to deliver to you in q3 and q4 so we feel pretty good about now i do believe we'll be softer there's no question about mine i do mean the second half will be less class a deliveries in the first half okay like i said q2 more than q1 the second half less than the first half but given the diversification of our market look all most all your big carriers have already placed all their you know all their orders for this year near the little guys we're still way over supplied in trucks out there just look at contract rates look at spot rates it'll tell you what's going on, So that market's going to be tough, but given our diversification into the vocations that we sell into, we're going to be extremely strong in refuse. That's booked out.

Speaker Change: But I would expect our second half to be black now, believing it will be just as strong as our first half based upon looking at the backlog of where we're at with medium duty.

Speaker Change: Heavy duty.

Speaker Change: Heavy duty.

Speaker Change: Timing has a lot to do with take sometimes especially at least in the first half of the year when I look at the first half of the year.

Speaker Change: Great.

Speaker Change: Large inventory write down we were looking at my inventory going Oh, My Gosh, you ratify Rusty I don't say, yes, but understand that the vast majority of that is so and so what's happening is we're in the process of delivering a lot of that right now into Q2. So we do believe that Q2 for sure we will.

Speaker Change: To deliver more class eight trucks or just no question about it the steps on the ground already we're already almost through April pretty solid as to where we're going to be in Q2, now we look into Q3 and Q4.

Speaker Change: Are there concerns you better believe it is the backlog for all you better believe it.

Speaker Change: We're not our allocation anymore, you want a truck I can start 148 weeks or so so it's not like.

Speaker Change: I can still start extra kicks in the back half of Q2.

Speaker Change: Delivered to you in Q3 and Q4, so we feel pretty good about that I do believe we will be softer. There is no question of online I believe in the second half will be less class eight deliveries in the first half.

Speaker Change: Like I said Q2 more than Q1 second half less than the first half, but given the diversification of our market look.

Speaker Change: All most all your big carriers already placed all of it.

Speaker Change: All the orders for this year.

Speaker Change: The little guys.

Speaker Change: Way oversupplied and trucks out there I guess look at car drag race Logan spot rates I will tell you what's going on.

Speaker Change: So that market is going to be tough, but given our diversification into the vocations that we sell into we're going to be extremely strong and refuse thats booked at Oregon square on that I'm going to have more construction now we do have some supply issues from one crest essent manufacturer, we're dealing with and some other things on the vocational side, but we see.

Rusty Rush: I already know where I'm at. I'm going to have more construction. Now we do have some supply issues from one transmission manufacturer we're dealing with and some other things on the vocational side, but we still have the opportunity to sell into that. There are still some private carriers out there that are looking at purchases, right? Not not not for hire, but private stuff that we believe we can sell into.

Speaker Change: You'll have the opportunity to sell into that.

Speaker Change: And there are still.

Speaker Change: There is still some private carriers out there that are looking at purchases right not.

Speaker Change: Not for hire but private stuff.

Rusty Rush: Okay, so the year's not done yet. I'll put our sales team out there and challenge anybody, and we're going to be out there, we'll be looking for business, and there's going to be some. It's just not going to be what it has been until this rate recession clears itself up. Everybody's got to remember that still, over half the market is the over the road market is in other than, you know, LTL is in good shape, and all those orders There's one or two little small ones out there we're working on.

Speaker Change: We believe we can sell into.

Speaker Change: So the year is not done.

Speaker Change: I'll put our sales team that their challenge anybody and we're going to be out there we will be looking for business and theres going to be some it's not it's just not going to be what it has been.

Speaker Change: Bill this freight recession clears itself up everybody's got to remember it's still over half the market is the over the road market.

Speaker Change: <unk> is in good shape, but all those orders are pretty much place theres, one or two small ones out there we're working on but most of that business. So the second half is going to be tougher.

Rusty Rush: But most of that business, so we the second half is going to be tougher. But I believe that we end up the year. When you look at our total market, we will be in a lot better shape when you look at our 24 compared to what the U.S. retail market went down in 24, given our diversification. There's just some timing stuff, but I do expect that as we get into the fourth quarter, you will start to see when we're gonna have good, we're gonna produce when it comes to the company. I promise you, just like I answered a minute ago to Justin, I'm solid as ever about where we're at.

Speaker Change: I believe that we ended up the year.

Speaker Change: When you look at our total market, we will be a lot better shape. When you look at our 24 compared to what the U S. Retail market went down in 2004, given our diversification. There's just some timing stuff, but I do expect that as we get into the fourth quarter.

Speaker Change: You will start to see lets not get too shortsighted here.

We're going to have good we're going to produce when it comes to the company I promise you just like Ive answered.

Speaker Change: A minute ago to adjust it as solid as ever about where we're at but but when we get into that last quarter people will really start I do believe you're going to see the order intake go up and I do believe you're going to see 25 and 26.

Rusty Rush: But when we get into that last quarter, people will really start, I do believe you're gonna see the order of intake go up, and I do believe you're gonna see 25 and 26 as we just finished passing the last greenhouse gas law just three weeks ago. And they're pretty strenuous tasks that are out there that folks are gonna have to start focusing on. Right now, a lot of our own business, they're focused on their own business currently, but they're going to have to focus on their fleets and the makeup of their fleets and having to deal with all the new technology and the inflationary price increases to meet the demands that are gonna be put on January 1 or 27.

Speaker Change: We've just finished pass in the last greenhouse gas largest three weeks ago and Theyre pretty strenuous.

Speaker Change: Let her out there that folks are going to have to start focus at all right now there are a lot of others.

Speaker Change: <unk> business their focus on their own business currently, but theyre going to have to focus on their fleets in the makeup of their fleets and having to deal with all the new technology and the inflationary price increases to meet the demands there are going to be put on at January one of 2007, So I would expect that those markets.

Rusty Rush: So I would expect that those markets will. Well, regardless, the overlord market will understand they're going to have to invest in not just the small carrier so much, but the large carrier, regardless of where they are, you know, in their own business. Hopefully, the freight recession will be clearing up by the back half of this year, sometime in the third. Look, I've been watching everybody kick the can for a year about when freight was going to pick back up.

Speaker Change: Regardless, the overall market will understand theyre going to have to invest a small carrier so much but the large carrier irregardless of where they are.

Speaker Change: And their own business hopefully the freight recession will be clearing up by the back half of this year.

Speaker Change: I've been watching everybody kick the can for a year about when freight was going to pick back up so I'm not going to be the economist here and tell you when but I know, it's got a carrier out sometime but further can we go and the closer we get to the end of it you got to believe but did you tie that up with the 27 EPA loss youre going to start to get I do believe 'twenty five and 'twenty six.

Rusty Rush: So I'm not going to be the economist here and tell you when, but I know it's got to carry on sometime. The further we go, the closer we get to the end of it, you've got to believe. But then you tie that up with the 27 EPA laws, and you're going to start to get, I do believe 25 and 26 will still be the kind of years that everybody's been predicting, because look, engine prices are going to go up $20,000 plus just for diesel or more when we get into 27. You're going to have demands. You have to do this much electric; you're going to do this much of that.

Speaker Change: We'll still be the kind of years that everybody has been predicting.

Speaker Change: Look the engine price go up 20, plus dollars just for diesel or when we get into 2007 youre going to have demands we have to do this much electric grid as much of that so people are going to be a little nervous and fearful of that so I do believe that will guide 'twenty five 'twenty six to be Super solid.

Rusty Rush: So people are going to be a little nervous and fearful of that. But I do believe that will guide 25 and 26 to be super solid. We'll just deal with 24, and as I said, given the diversification, I'm comfortable. Will it be backwards in the first half? Yes, but we've still got time to try to make it a little more decent. So there you go. I know I rambled on for a while, but I'm trying to give you a larger view of what we see coming in front of us for the next two and a half years.

Speaker Change: Moody's deal with 24, as I said, given the diversification not comfortable whether it be backwards. The first app, yes.

Speaker Change: We've still got that to try to make it a little more basis. So there you go I don't what rambled on for a while but I've tried to give you a larger look at what we see in front of us for the next two and a half years.

Andrew Aubin: Sure, and just, you know, looking at the ACT forecast, which you referenced, what do you think it puts and takes for the ACT forecast? What do you think is the potential upside to the numbers, and what do you think is the potential source of the downside to the numbers?

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Looking at the ACC or forecast, which you referenced what are you seeing a puts and takes with ACP or forecast, where do you think is potential upside to the numbers and what are you seeing as potential source of the downside to the numbers.

Rusty Rush: Well, I don't see any upside this year.

Speaker Change: Well I don't see any upside this year.

Rusty Rush: I mean, if you take the U.S. first quarter retail sales, multiply it by four, you're going to get the 228 number they got out there, right? So I don't see a lot. If I see anything, I see a little bit of downside this year, but I do believe that there will be upside in the 25 and 26. I just believe, especially as people, it comes into focus what this really is. Remember, CARB already went in, implementation of CARB in California already happened on January 1 of this year, but the effects of it have not been seen because we're still delivering stuff that was bought in late 23 and everybody really accelerated their purchases.

Speaker Change: Okay.

Speaker Change: I mean, if you take the U S first quarter retail multiply it by four you're going to get the 228 number they've got out there. So I don't see a lot of IOC anything I see a little bit of downside in this year.

But I do believe that there will be upside of the 25 26, I just believe especially as people. It comes into focus what this really is remember carhartt when implementation of Carb and California already happened January one of this year, but the effects of it.

Speaker Change: I have not been seen because we are still delivering stuff that was bought in late 'twenty, three and everybody really accelerated their purchases. So you really won't see.

Rusty Rush: So, you really won't see the real effect of that till you get into the last part of this year, I think. And as people see that, I think they're gonna get really nervous around the rest of the country. As to what these new EPA laws are going to mean from a cost perspective, I have concerns, no disrespect to anybody, about performance and the aftertreatment side of it. I've watched us deal with aftertreatment issues for decades.

Real effect of that till you get into the last part of this year I think.

Speaker Change: And as people see that.

Speaker Change: They're going to get really nervous around the rest of the country.

Speaker Change: <unk>.

Speaker Change: As to what the new EPA laws are going to mean from a cost perspective I have concerns no disrespect anybody with that performance in the after treatment side of it I have watched this deal with after treatment issues over the last decades.

Rusty Rush: Every time we roll out something new, we do have issues, and I think people will be concerned about performance around that. For us, it's diversification. That's why I'm confident that we'll end up the year in a better shape than what the overall Class A sales are, just because of the diversification of our customer base. I believe 2025 and 2026 are still going to be great years as people get their heads around what the true costs are going to be when you get to 2027. And I think, you know, we'll be back. I do believe we'll be back on allocation sometime later in the 25th probably. Thank you very much, trustee.

Speaker Change: Every time, we rollout something new we do have issues and I think people would be concerned about performance around that.

Speaker Change: So I don't see for us its diversification thats why im confident that we will end up the year in a better shape than what the overall class eight sales are.

Speaker Change: Just because of the diversification of our customer base.

Speaker Change: And I believe 25, and 26 are still going to be great years, there as people get their heads around what the true costs are going to be when.

Speaker Change: When you get to 2007.

Speaker Change: I think we.

Speaker Change: We'll be back I do believe we'll be back on allegations sometime later in 'twenty five.

Speaker Change: Probably.

Speaker Change: So very much rusty.

Rusty Rush: You betcha.

Speaker Change: You bet.

Speaker Change: Okay.

Rusty Rush: All right, I'm ready. Well, I guess I'll be the operator today. Do we have any more questions? I see no more questions on the board. So I get a second job for the day. With that, I look forward to speaking to everybody sometime in late, mid, late July with our second quarter results. And other than that, everyone have a great day.

Speaker Change: Alright, operator.

Speaker Change: Okay.

Speaker Change: Well I guess I'll be the operator today.

Speaker Change: Do we have any more questions I see no more questions on the board so I get a second job for the day.

Speaker Change: That I look forward to speaking to everybody.

Speaker Change: And the late mid to late July with our second quarter results and everyone have a great day.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].