Q3 2024 Rush Enterprises Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprises, Inc.'s Q3 2024 Earnings Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you would need to press star 811 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw the question, please press star 811 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, W.M. Rush, Chairman of the Board, Chief Executive Officer, and President. Sir, please go ahead.

Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprise Report 3rd quarter 2024 earnings results.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. TASCO question during the session you would need to press star one on your telephone. You would then hear an automated message of your hand to trace.

Speaker Change: To withdraw the question, please press star of one one again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Rusty Rush, Chairman of the Board, Chief Executive Officer, and President Sir, please go ahead.

W.M. Rush: Well, good morning, and welcome to our Q3 2024 Earnings Release Call. With me on call are Jason Wilder, incoming 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: Well, good morning and welcome to our third quarter 2024 earnings release call. With me on the call are Jason Wilder, incoming Chief Operating Officer, Steve Keller, Chief Financial Officer, Jay Hazelwood, Vice President and Comptroller, and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary.

Steven 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 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 31 December 2023, and in our other filings with the Securities and Exchange Commission.

Speaker Change: Now, Steve will say a few words regarding forward-looking studies.

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 forward-looking statements.

Steve Keller: Important factors that could cause actual results to differ materially from those expressed or implied by such foreign-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2023, and in our other filings with the Securities and Exchange Commission.

W.M. Rush: Thanks for joining us this morning. I am pleased to report that we had a solid Q3. We announced revenues of $1.9 billion and net income of $79.1 million, which comes out to $0.97 per diluted share. In Q3 2024, we incurred a one-time pretax charge of $3.3 million due to Hurricane Helene-related property damage. Excluding this charge, EPS would've been $1 per share. Once again, we are happy to declare a cash dividend of $0.18 per share for both Class A and Class B common stock. As we've experienced over recent quarters, the industry is still dealing with low freight rates and high interest rates, and these difficult operating conditions are keeping demand for Class 8 trucks on the low side. Given these headwinds, we are proud of our performance this quarter.

Steve Keller: Thank you.

Speaker Change: Thanks for joining us this morning.

Speaker Change: I'm pleased to report that we had a solid third quarter.

Speaker Change: We announced revenues of $1.9 billion and net income of $79.1 million, which comes out to $0.97 per diluted share. In the third quarter of 2024, we incurred a one-time pre-tax charge of $3.3 million due to Hurricane Helena-related property damage.

Speaker Change: Excluding this charge, EPS would have been $1 per share. And once again, we are happy to declare a cash dividend of $0.18 per share for both Class A and Class B common stock.

Speaker Change: As we have experienced over recent quarters, the industry is still dealing with low freight rates and high interest rates.

Speaker Change: And these difficult operating conditions are keeping demand for Class 8 trucks on the low side. Given these headwinds, we are proud of our performance this quarter.

W.M. Rush: While the over-the-road carrier segment faced some challenges, we saw good activity from Class 8 vocational and public sector customers. Medium duty demand also held up well, helping us outperform in Class 4 through 7 sales. Despite a tough used truck market, our strategy is paying off and contributing positively to our earnings. In the aftermarket space, we saw a slight revenue improvement over Q2, particularly in service sales, which outpaced the market. Diving deeper into our aftermarket results, our parts, service, and body shop revenues reached $633 million, down slightly, 1.6%, from Q3 2023, but up from the previous quarter. Despite the ongoing freight recession, we are finally seeing slight sequential growth in aftermarket sales through over-the-road customers, the first growth we have seen since early 2023.

Speaker Change: While the over-the-road carrier segment faced some challenges, we saw good activity from Class A vocational and public sector customers.

Speaker Change: Medium-duty men, their men also held up well, helping us outperform in class four through seven sets.

Speaker Change: And despite a tough used truck market, our strategy is paying off and contributing positively to our earnings.

Speaker Change: In the aftermarket space, we saw a slight revenue improvement over the second quarter, particularly in service sales, which outspaced the market.

Speaker Change: Diving deeper into our aftermarket results, our parts, service, and body shop revenues reached $633 million.

Speaker Change: down slightly, 1.6% from the third quarter of 2023, but up from the previous quarter.

Speaker Change: Despite the ongoing freight recession, we are finally seeing slight sequential growth in aftermarket sales through over-the-road customers, the first growth we have seen since early 2023.

W.M. Rush: The refuse and public sectors continue to be strong for Class 8 aftermarket sales, and our Class 4 through 7 aftermarket sales were healthy across the board. Though we expect some seasonality to adversely affect the Q4, we anticipate beginning a gradual return to more normal market conditions in early 2025. Looking at truck sales, we sold 3,604 new Class 8 trucks in the Q3, accounting for 5.3% of the total US Class 8 market and 1.6% in Canada. ACT Research forecasts for 264,000 new Class 8 sales in the US and Canada in 2024, down 12.5% from last year. Continued low freight rates and high interest rates contributed to a 3.5% decline in Class 8 retail sales from last year's Q3. Economic uncertainty continues to weigh on Class 8 carriers. Despite these challenges, we are pleased with our Q3 results.

Speaker Change: The refuse in public sectors continued to be strong for Class VIII aftermarket sales, and our Class IV-VII aftermarket sales were healthy across the board.

Speaker Change: Though we expect some seasonality to adversely affect the fourth quarter, we anticipate beginning a gradual return to more normal market conditions in early 2025.

Speaker Change: Looking at truck sales, we sold 3,604 new Class 8 trucks in the third quarter, accounting for 5.3% of the total U.S. Class 8 market and 1.6% in Canada.

Speaker Change: ACT Research forecast for 264,000 new class 8 surveys in the U.S. and Canada in 2024, down 12.5% from last year.

Speaker Change: Continued low freight rates and high interest rates contributed to a three and a half percent decline in class 8 retail sales from last year's third quarter.

Speaker Change: And economic uncertainty continues to weigh on Class VIII carriers.

W.M. Rush: Specialty markets like vocational and public sector remain bright spots for us. We expect this trend to continue into Q4. We saw a slight uptick in orders at the end of Q3. We expect that our Q4 Class 8 truck sales will increase slightly compared to our Q3 results. However, with high inventory levels across the industry, we anticipate that pricing will remain competitive, making sales challenging through H1 2025. Our Class 4 through 7 new truck sales reached 3,379 units in Q3, accounting for 5% of the US market and 2.9% in Canada. ACT Research projects US and Canadian Class 4 through 7 truck sales to be 273,000 units in 2024, up slightly, roughly about 2.5% from last year.

Speaker Change: Despite these challenges, we are pleased with our third quarter results. Specialty markets like vocational and public sector remain bright spots for us, and we expect this trend to continue into the fourth quarter.

Speaker Change: We saw a slight uptick in orders at the end of the third quarter, so we expect that our fourth quarter class A truck sales will increase slightly compared to our third quarter results.

Speaker Change: However, with high inventory levels across the industry, we anticipate that pricing will remain competitive, making sales challenging through the first half of 2025.

Speaker Change: Our Class 427 new truck sales reached 3,379 units in the third quarter, accounting for 5% of the U.S. market and 2.9% in Canada.

Speaker Change: ACT Research projects U.S. and Canadian Class 4-7 drug sales to be 273,000 units in 2024.

W.M. Rush: Demand remains strong in this medium-duty space across all segments, and our efforts to diversify our customer base is paying off. On the used truck side, we sold 1,829 units in Q3, up 1.8% year over year. Although used truck demand is still weak, we continue to successfully execute our strategy, which led to positive results in Q3. Depreciation rates for used trucks have stabilized, and we continue to manage our inventory levels effectively to meet market demand. Lease and rental revenue was almost flat year over year, down just 0.4%. However, we are optimistic that rental utilization rates will increase in Q4, and we expect to see moderate growth in our leasing and rental revenues as we move into 2025.

Speaker Change: roughly about two and a half percent from last year. Demand remains strong in this medium-duty space across all segments, and our efforts to diversify our customer base is paying off.

Speaker Change: On the used truck side, we sold 1,829 units in the third quarter, up 1.8% year-over-year.

Speaker Change: Although used truck demand is still weak, we continue to successfully execute our strategy, which led to positive results in the third quarter. Depreciation rates for used trucks have stabilized, and we continue to manage our inventory levels effectively to meet market demand.

Speaker Change: Lease and rental revenue was almost flat year over year, down just four-tenths of one percent. However, we are optimistic that rental utilization rates will increase in the fourth quarter, and we expect to see moderate growth in our leasing and rental revenues as we move into 2025.

W.M. Rush: Far, it's been a challenging year for the commercial vehicle industry, but I am incredibly proud of our team's hard work. Their dedication has helped us manage our expenses and stay on track with our sales initiatives, allowing us to keep delivering value to our shareholders despite these challenging times. I'm confident that we will finish the year in a solid financial position. I would like to extend my sincere gratitude to all our employees for their hard work this quarter. They stayed focused on our long-term goals while continuing to provide top-notch service to our customers. Before we wrap up, I personally want to thank Mike McRoberts, who, as we announced, will step down as COO on 31 October. Mike has been invaluable to us, we are glad he is staying on as a special advisor and board member.

Speaker Change: So far, it's been a challenging year for the commercial vehicle industry, but I am incredibly proud of our team's hard work. Their dedication has helped us manage.

Speaker Change: our expenses and stay on track with our sales initiatives, allowing us to keep delivering value to our shareholders despite these challenging times. I'm confident that we will finish the year in a solid financial position.

Speaker Change: I would like to extend my sincere gratitude to all our employees for their hard work this quarter. They stayed focused on our long-term goals while continuing to provide top-notch service to our customers.

Speaker Change: Before we wrap up, I personally want to thank Mike McRoberts who, as we announced, will step down as COO on October 31st.

Speaker Change: Mike has been invaluable to us, and we are glad he is staying on as a special advisor and board member.

W.M. Rush: I would also like to congratulate Jason Wilder, who will step in as our new COO on December first. I have full confidence in Jason and expect a smooth transition. With that, I'm happy to take your questions.

Speaker Change: I would also like to congratulate Jason Wilder, who will step in as our new CLO on December 1st. I have full confidence in Jason and expect a smooth transition.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. The first question comes from Andrew Obin with Bank of America. Your line is open.

Speaker Change: With that, I'm happy to take your questions.

Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: And the first question comes from Andrew Obin with Bank of America. Your line is open.

Andrew Obin: Hey, Rusty. Good morning.

W.M. Rush: Well, good morning, Mr. Obin. How are you today?

Speaker Change: Hey Rusty, good morning.

Andrew Obin: I'm doing great. Just a question. You have constructive order commentary, particularly into the quarter. At the same time, I would say, I think ACT forecasts no retail sale recovery until H2 of 2025. How do you balance the commentary that you've made in the press release, seems there are multiple references to things bottoming out, with the uncertainty that we're still facing in the H1 of 2025?

Rusty Rush: Well, good morning, Mr. Oben. How are you today?

Andrew Obin: I'm doing great. Just a question. You know, you have constructive order commentary, particularly into the quarter end.

Andrew Obin: You know, at the same time, I would say I think ACT forecasts no retails have recovered until second half of 25.

Andrew Obin: How do you bottom, how do you balance sort of the commentary that you've made in the press release? Seems there are multiple references to this bottoming out with the uncertainty that we're still facing in the first half of 25.

W.M. Rush: Well, when I say, I think I was talking bottoming out as far as our customers' business. As far as the truckload carriers, the haul for hire carriers. I believe, freight has been bobbing on the bottom for them. From a contraction of rates, I think it's about over with. If you read some of the reports that I've read in the last couple of weeks, you'll see that most carriers do believe they've been bobbing on the bottom. That's where they're at. I think we're getting a little bit mixed up here as the customer base and what I see for our business. When I talk about our business and I said we've had some uptick in order intake, understand, people are still thinking sometimes that, or I know they're not, but we had 2 years of allocation.

Speaker Change: Well, when I say, I think I was talking bottom of the mat as far as our customers business, right? As far as the truckload carriers, the haul for hire carriers, I believe, you know, freight has been bobbling on the bottom for them, right? And contraction of rates.

Speaker Change: I think it's, you know, about over with. If you read some of the reports that I've read in the last couple of weeks, you'll see that most carriers do believe they've been bobbling on the bottom.

Speaker Change: And that's where they're at. So I think we're getting a little bit mixed up here is the customer base and what I see for our business. And when I said, when I talk about our business, and I said, we've had some uptick in order intake.

Speaker Change: understand, you know, people are still thinking sometimes that, or I know they're not, but you know, we had two years of allocation.

W.M. Rush: What we've gotten back this year into what, the way it always was. I couldn't have told you back in Q1 we were going to have this great of a Q3. It's just shortened windows. Some of that order uptick that I talked about that we had in the last 6 weeks, let's say. Maybe not, let's say go back 2 weeks, but the prior 6 weeks, we did have pretty solid order intake. A lot of that's for Q4 build, okay? Not all of that's 2025 build. In fact, the majority of it was going to be built in Q4. We're in shorter lead times, but obviously I'm very pleased with the fact that we're adapting as a sales organization to what we historically lived in, where you're living in 90-day lead times. Okay, that's really what I was reflecting.

Speaker Change: Well, we've gotten back this year.

Speaker Change: The way it always was, right? I couldn't have told you back in Q1, we were going to have this grade of Q3. It's just shortened windows, right? Some of that order uptake that I talked about that we had in the last six weeks, let's say, maybe not. Let's say, go back two weeks, but the prior six weeks, we did have pretty solid order intake.

Speaker Change: But a lot of that's for Q4 built. Okay, not all of that's 2025 bill In fact, the majority of it was going to be built in the fourth quarter. So we're in shorter lead times

Speaker Change: But obviously, I'm very pleased.

Speaker Change: with the fact that we're adapting as a sales organization.

Speaker Change: to what we've historically lived in, where you're living in 90-day lead times, right? Okay, that's really what I was reflecting. We're not living in nine-month lead times. So, you know, it was nice to see the order intake pick up, and we're still trying to sort out 2025, but some of that stuff that we're building Q4 will roll over to be delivered in Q1.

W.M. Rush: We're not living in 9-month lead times. It was nice to see the order intake pick up and we're still trying to sort out 2025. Some of that stuff that we're building Q4 will roll over to be delivered in Q1. I couldn't sit here right now and tell you I've got Q1. We don't have it all sold out. I am confident, as we have shown in the last 2 quarters, that we have the ability. We're on top of our game. I'll be honest with you, a lot of people were a little lax coming out of allocation, but we're getting back on top of our game and making it happen, just like we have for decades, if not even better. Our customer base is bobbling on the bottom, but we're, I think, taking advantage of short lead times.

Speaker Change: I couldn't sit here right now and tell you, I've got Q1, don't have it all sold out, right? But I am confident, as we have shown...

Speaker Change: in the last two quarters, that we have the ability, we're on top of our game. I'll be honest with you, a lot of people are a little lax coming out of allocation, but we're getting back on top of our game and making it happen, just like we have for decades, but if not even better. So, our customer base is bubbling on the bottom.

Speaker Change: But we're, I think, taking advantage.

W.M. Rush: It can be a little more nerve-wracking, but that's because you got conditioned to allocation for a couple of years with nine-month lead times. Now you're back to more normalized 90-day lead times, even less than that, 60 to 90-day lead times. I feel good that there is still going to be some business there. I believe we can maintain what we're doing. How would I say that? I don't see any big uptick in orders until the back half of next year when we start thinking, when our customers on the over-the-road side, we're doing real well in locational, but that's still the biggest piece of what we do. There's truckload side is still a huge, large piece, and the small carriers are not back.

Speaker Change: short lead times it's just you know it can be a little more nerve-wracking but but that's because you you got conditioned to allocation for a couple years with nine month lead times now you're back to more normalized 90 day lead times you know even less sometimes 60 to 90 day lead times but I feel good that there is still going to be some business there.

Speaker Change: It may not be quite as, I believe we can maintain what we're doing. How would I say that? I don't see any big uptake in orders.

Speaker Change: Until the back half of next year, when we start thinking, you know, when our customers on the over-the-road side, we're doing real well in vocational, but, you know, it's still the biggest piece of what we do. This truckload side is still a huge, large piece, and the small carriers are not back.

W.M. Rush: Large carriers are being conservative in their outlook as they get their businesses righted, their loads back in shape. That will come back. I do expect for us to continue along the lines of where we have been performing from a volume perspective, but a big uptick coming in H2 of next year as people start to think about 2027, all the new technology, the costs that are going to go along with it, plus the performance that we're not sure of going out into 2027. Be honest, we meet the new EPA regulations. Anyway, that's a long, rambling answer, but that's how I answer, you know that. That's what I see.

Speaker Change: Large carriers are being, you know, conservative in their outlook as they get their businesses righted, their ORs back in shape.

Speaker Change: And but that will come back, but I do not expect for us. I do expect for us to continue

Speaker Change: along the lines of where we have been performing.

Speaker Change: From a volume perspective, but a big uptick coming in the back half of next year is people, you know, start to think about 2027, all the new technology, the costs that are going to go along with it, plus the performance.

Speaker Change: that we're not sure of going out into, you know, 27 beyond as we meet the new EPA regulations. So, anyway, that's a long, rambling answer, but that's how I answer it, and you know that. So, we're, we, that's what I see. Customers, over-the-road customers.

W.M. Rush: Over-the-road customers not doing great, but bobbling on the bottom, looking for some uptick here as we move into next year, which we hope will drive further sales in the back half of next year and into 2026. Feel solid about we can continue the performance we've given.

Speaker Change: Not doing great, but bobbling on the bottom, looking for some uptake here as we move into next year, which we hope will drive further sales in the back half of next year and into 2026. But feel solid about we can continue the performance we've given.

Andrew Obin: Yeah, thanks so much. Just a commentary for you. As I said, look, when somebody like you starts getting marginally less negative, just, let's keep it there, but I think you are getting more positive, but at least your press release got more positive. What are you seeing? I always ask questions about the economy because what are you seeing? Because you do touch a lot of verticals, right? You touch a lot of off-road. Caterpillar today, maybe not the most exciting numbers, but what are you seeing on construction? What are you seeing in oil and gas, outside of truckload industry? What does the economy look like? Are you feeling more positive, more negative into 2025? Thank you.

Speaker Change: And yeah, thanks so much. And just a commentary for you, as I said, look, when somebody like you starts getting

Speaker Change: marginally less negative you know just let's keep it there but

Speaker Change: I think you are getting more positive, but.

Speaker Change: At least your press release got more popular. What are you seeing, you know, I think, you know, I always have a question about the economy because...

Speaker Change: What are you seeing because you do touch a lot of verticals right you touch a lot of off-road

Speaker Change: you know, Caterpillar today, maybe not the most exciting numbers, but what are you seeing on construction? What are you seeing in oil and gas outside of a truckload industry? You know, what does the economy look like? Are you feeling more positive, more negative into 25? Thank you.

W.M. Rush: Sure. I think, we've seen when it comes to vocational, when you start breaking vocational businesses down. No, oil and gas has been solid. Okay. Our oil and gas, let's see. Look, no one's really bought much equipment for oil and gas. Everybody's just refurbing and fixing it, right? Because people view it with all the BEV and everything going electric or hybrid, however it all works out. Oil and gas, some people think, has long-term, I don't want to call it terminal value, but long-term, obviously, downside to it. There's not a lot of CapEx being spent. There's a lot of maintenance being spent, but that maintenance was even off about 20%. When you look at our numbers from a parts and service perspective.

Speaker Change: Sure

Speaker Change: You know, I think, you know, we've seen when it comes to vocation, when you start breaking vocational businesses down, no oil and gas has been solved.

Speaker Change: Okay, our oil and gas, let's see, look, no one's really bought much equipment for oil and gas. Everybody's just refurbing and fixing it, right, because people view it with all the, you know, the Bev and everything going electric or hydro, however it all works out. Oil and gas, some people think, has a long-term, I don't want to call it terminal value, but long-term, you know, obviously, downside to it.

Speaker Change: So, everyone, there's not a lot of CapEx space, but there's a lot of them.

Speaker Change: Maintenance being spent, but that maintenance was even, we've been off about 20 percent. When you look at our numbers from a parts and service perspective, now remember, it is not the same piece as much of a percentage of our business as it was a decade ago by any stretch. But even if it's,

W.M. Rush: Now remember, it is not the same piece, as much of a percentage of our business as it was a decade ago by any stretch. Even if it's, oh, I don't know, 5%, 7% piece of what we do, it's off 20%. Construction, though, is up from a CapEx perspective, right? You're seeing the flow of money coming through from the infrastructure bill. We've been limited a little bit on some of the vocational products by some supply shortages on the transmission side. That, I think, is going to smooth itself out later into next year. That was really an issue we dealt with in H2 of this year. Demand is strong. Refuse demand still remains strong around that sector. Municipal's pretty solid. It's varied, Andrew, but you're always waiting for those truckload guys to really get back into it.

Speaker Change: I don't know, 5-7% piece of what we do, it's all 20%.

Speaker Change: Construction, though, is up from a CapEx perspective, right? You know, you're seeing the flow of money coming through from the infrastructure bill. And, you know, we've been limited a little bit on some of the vocational products by some supply shortages on the transmission side.

Speaker Change: But that I think is going to smooth itself out later into next year. That was really an issue we dealt with in the back half of this year, but demand is strong. Refuse to demand still remains strong around that sector.

Speaker Change: Municipal is pretty solid, it's varied Andrew, but you're always waiting for those front row guys to really get back into it, but I see that happening more in the back half of next year.

W.M. Rush: I see that happening more in the H2 of next year. Private carrier purchases earlier this year were extremely strong. That's one thing when you look at our business model. That's what I try to drive the focus is we really have diversified our business model. Sometimes when it comes to our customer base and our geography, which geography can have a lot to do with it, depending on what's going on. California's tough. We're performing out there, but given the new CARB laws, my order intake out there is 50% of what it was. That stuff will smooth out. That's the good part. It's just one state for me, right? I can go on and on and say, you know me, I can talk all day about the business because I love it.

Speaker Change: Private carrier purchases earlier this year were extremely strong. That's one thing when you look at our business model. That's what I try to drive to folks is.

Speaker Change: we really have diversified our business model.

Speaker Change: Sometimes, when it comes to our customer base and our geography, which geography can have a lot to do with it. I don't know what's going on. I mean, California stuff, you know, we're performing out there.

Speaker Change: Given the new car laws, you know, my order intake out there is true, 50% of what it was.

Speaker Change: But you know that stuff will smooth out. That's a good part. It's just one stake for me, right?

Speaker Change: I mean, I can go on and on and say, you know me, I can talk all day about the business because I love it. But the good part is we've got a very diversified customer base.

W.M. Rush: The good part is we've got a very diversified customer base that we deal with. We're not just tied to big 1,000-truck orders. Ours is a much more diverse customer base, it allows us to navigate these waters and perform the way we do. Yeah, you said, I was laughing at how you phrased that, Andrew. There's going to be a free buy at some time to drive orders. ACT has next year going down 10% or so, right? They've come up 10% from where they came into this year. I'm not so sure the numbers they have out, they've got like 234,000 for the US this year and 217,000, 216,000, something like that for next year. I will say this, I see no downside to that.

Speaker Change: that we deal with. We're not just tied to big, I don't, big, you know, thousand truck orders. Ours is a much more diverse customer base, so it allows us to, you know, navigate these waters and perform the way we do. So I, yeah, you said, I was, I was laughing at what, how you phrased that, Andrew.

Andrew Obin: You know, there's going to be a free buy sometime.

Andrew Obin: to dry waters, but we've been able.

Speaker Change: ACT has next year going down.

Speaker Change: 10% or so, right? I mean, but they've come up 10% from where they came into this year So I'm not so sure the numbers they have out They got like two thirty two hundred thirty four thousand for the US this year and like two So remember to 17 to 16 something like that for next year

W.M. Rush: Now, I do see it more in H2, but I see no downside to it. I feel good about the next couple of years. We're slugging it out through a tough spot through H1 of the year, but I think we were slugging it out right now. You see the performance of the company, that's all I can tell you.

Speaker Change: I will say this, I see no downside to that.

Speaker Change: Now, I do see it, you know, more in the back half, but I see no downside to it. So, you know, I feel good about the next couple of years. We're just, we're slugging it out to a tough spot through the first half of the year, but I think we were slugging it out right now and, you know, you see the performance of the company.

Andrew Obin: This is great. Thanks so much.

W.M. Rush: You bet.

Speaker Change: This is great. Thanks so much.

Operator: Our next question comes from Daniel Imbro with Stephens. Your line is open.

Speaker Change: You bet.

Speaker Change: And our next question comes from Daniel Embro with Siemens. Your line is open.

Daniel Imbro: Yeah. Hey, good morning, guys. Thanks for taking our questions.

W.M. Rush: Thank you, Daniel. Good morning to you, sir.

Daniel Embro: Hey, good morning, guys. Thanks for taking our questions.

Daniel Imbro: Rusty, want to start maybe on the new unit side. You mentioned, obviously, the order uptick picking up a little bit, but inventory is still going to challenge pricing for the intermediate term, I guess. How should we think about the impact of that on gross margin or gross profit per unit, however you want to think about it, kind of across both, I guess, new or used and then any difference in Class 8 medium duty? Just curious how that's going to trend over the coming quarters given the inventory versus demand backdrop.

Speaker Change: Thank you, Daniel. Good morning to you, sir.

Daniel Embro: Russell, I want to start maybe on the new unit side. You mentioned, obviously, the order uptick, pick it up a little bit, but inventory is still going to challenge pricing for the intermediate term. I guess, how should we think about the impact of that on?

Daniel Embro: on gross margin or gross profit per unit, however you want to think about it, kind of across both, I guess, new or used, and then any difference between Class A and medium duty. Just curious how that's going to trend over the coming quarters given the inventory versus demand backdrop.

W.M. Rush: Right. No, I will say this. Our inventory, we've been working on it all year. It's in better shape now than it was six months ago. Say three months ago. With the downturn late last year and everybody used it out. We had a bunch of small order fallout, which turned into what we would consider stock inventory. We have been managing it inside of all the numbers extremely, I would tell you, well. We've been making sure it's mark to market every quarter. I feel that has helped us start to disperse some inventory. I feel we're headed in the right. I feel a lot better about it than I did without getting too deep into how I manage it or how we manage it.

Daniel Embro: Right. No, I will say this, our inventory

Daniel Embro: We've been working on it all year

Daniel Embro: And it's in better shape now than it was six months ago, or say three months ago. We had, with the downturn late last year and everybody used the allocation, we had a bunch of small order fallout, which turned into what we would consider stock inventory.

Daniel Embro: But, we have been managing it inside of all the numbers extremely, I would tell you, well, we've been making sure it's marked to market every quarter. And I feel that has helped us start to disperse the inventory.

Daniel Embro: I feel a lot better about it than I did without getting too deep into how I manage it or how we manage it. I feel better about it now than I did in April, I can promise you that. So we got our arms around it.

W.M. Rush: I feel better about it now than I did in April, I can promise you that. We got our arms around it, and we've been able to drive it down. Over the last 60 days, we've turned the corner and been taking inventory down. Regardless of what the overall, we got 90,000 Class 8 units or so, largest inventory ever across the country of the US, right? I feel better about ours than that, than the numbers you've posted for everyone else. I feel a lot better about ours. We're not perfect yet, but I know we're heading in the right direction. I know we've shut the spigot off and our inventory's continuing day by day to get in better shape, and I feel decent about it, as I'm saying. Is it perfect where I want it? No. Talk about used, you said something about the used.

Daniel Embro: And we've been able.

Daniel Embro: to drive it down over the last.

Daniel Embro: Sixty days.

Daniel Embro: We turn the corner and have been taking inventory down, regardless of what the overall, you know, the overall, we got 90,000 class A units or so, largest inventory ever across the country in the U.S., right? So...

Speaker Change: But I feel better about ours than that, the numbers you're posting for everyone else. I feel a lot better about ours.

Speaker Change: Now, we're not perfect yet, but I know we're heading in the right direction. I know we've shut the spigot off and, you know, having our inventories continuing day by day to get in better shape, and I feel decent about it, as I'm saying. So is it perfect where I want it? No.

W.M. Rush: Look, our used folks have done an outstanding job. Why? We used to carry, oh, I don't know, 45% more in inventory than we currently do. We saw where the volumes were, and we got our inventories down. I want to tell you, where we would carry 2,500 units, we got our inventories under 1,500, and we're turning them. That's the key piece of inventory in used. You got to turn used trucks. If you're not turning your used trucks in under 90 days, you're going to lose money. It's just as simple as that. Because unlike new trucks, used trucks depreciate every day. New trucks are on MSOs or used, obviously, they're titled used vehicles. They're not like fine wine. They don't get better with age. You've got to make sure you keep your turns right.

Speaker Change: Talk about use, you said something about use. Look, our use, folks.

Speaker Change: have done an outstanding job. Why? We used to carry, oh, I don't know, 45% more in inventory than we currently do.

Speaker Change: So, we saw where the volumes were and we got our inventories down, you know, I want to tell you where we would carry 2,500 units, we got our inventories under 1,500 and we're turning up. And that's the key piece of inventory and use.

Speaker Change: You gotta turn these trucks. If you're not turning these trucks in under 90 days, you're gonna lose money. It's just as simple as that.

Speaker Change: Because unlike new trucks, used trucks depreciate every day. New trucks are on MSOs where used drivers are entitled to used vehicles.

Speaker Change: and they're not like fine wine, they don't get better with age. So you've got to make sure you keep your turns right. I feel really, I'm very positive, very pleased with how our district departments have performed or at least managed our business for the year.

W.M. Rush: I feel really, I'm very positive, very pleased with how our used truck departments have performed, or at least, and managed our business for the year. That's been a plus for this year, over last year. A nice plus, where it's not anything the size of our new. We're in hand-to-hand combat sometimes right now, I tell people, right? Hand-to-mouth. You just keep slugging it out, so when you can get something from the used truck department that you didn't get last year, it makes up for some of the softness that we're having on all the road business in the new side.

Speaker Change: That's been a plus for this year over last year, a nice plus, where it's not anything the size of our new, it's nice to get, you know.

Speaker Change: We're in hand-to-hand combat sometimes right now, I tell people, right hand to mouth. So you just keep slugging it out, so when you can get some from the youth drug department that you didn't get last year, it makes up for some of the softness that we're having on the drug business and the news side.

W.M. Rush: When you get into the overall business, if there's one thing you haven't asked yet or anybody's asked me yet about, that I'd love to talk about, and that will be when we get a chance to talk about the expense management of the organization. I'll be quiet and let you ask me.

Speaker Change: And, you know, when you get into the overall business, I mean, I'm going to, if there's one thing you haven't asked yet, or anybody's asked me yet about, that I'd love to talk about, and that will be when we get a chance to talk about the expense management of the organization. But I'll be quiet and let you ask me.

Daniel Imbro: It's like you're looking at my question list here, Rusty. I was going to ask next on the cost side.

W.M. Rush: Go for it. I got all day. I've got all day, Daniel. Go ahead.

Daniel Embro: It's like you're looking at my question list here, Rusty. I was going to ask next on the cost. Go for it, I've got all day. I've got all day, Daniel, go ahead.

Daniel Imbro: You took out a lot of OpEx in the quarter. I guess first, can you maybe just talk about where you guys are pulling costs out of the business? And secondly, I guess, how do you think about the sustainability of these cost takeouts? Obviously, we're at a cyclical trough, and how much can we keep out of the business as the business improves next year? Where do you see opportunities to further reduce it? How does that cost management shape it up?

Daniel Embro: You took out a lot of optics in the quarter. I guess, first, you maybe just talk about where you guys are pulling costs out of the business. And secondly, I guess, how do you think about the sustainability of these cost takeouts? Obviously, we're at a cyclical trough and how much can we keep out of the business as the business improves next year? Where do you see opportunities to further reduce it? How does that cost management shape it up?

W.M. Rush: Sure. Well, we saw flattening out, right? I went to everybody back in April and said, Folks, let's talk about parts and service. Strip truck sales out of it. Truck sales is what drives the S. We run this business S in one side, G&A on the other side, okay? S is typically, remember, just reflective of truck sales because that's where your commission is. That's your variable piece on the truck sales side. G&A is that where you really run your business, right? That's the dealership business without truck sales. Truck sales will take the S piece. The G&A piece, we looked at it and said, Look, I don't see the seasonal uptick that we typically get in the summer. Guess what? We didn't have it. We didn't get it. We have been fairly flat-lined.

Speaker Change: Sure. Well, back in, you know, we saw flattening out, right?

Speaker Change: And, you know, we went and I went to everybody back in April and said, folks, you know, the parts and service business.

Speaker Change: Typically, let's talk about parts and service, strip truck sales out of it. Truck sales is what drives the S. We run this business, S in one side, G and A on the other side. S is typically, remember,

Speaker Change: just reflective of truck sales because that's where your commission is. That's your variable piece on the truck sales side.

Speaker Change: G&A is that where you really run your business, right? That's the dealership business without drug sales, drug sales take the S piece. So the G&A piece, we looked at it and said, look.

Speaker Change: I don't see the seasonal uptick that we typically get in the summer.

Speaker Change: And guess what? We didn't have it. We didn't get it. We have been fairly flat-lined.

W.M. Rush: At the same time, as I've tried to tell people, that's the flexibility of the business model. I've been telling them for years, we're way better than what we used to be at it. That's what we call absorption. That's got a numerator and a denominator being expense. You got gross profit from parts and service above it. If you don't see that growing, if you see it flattening, you've got to make some expense adjustments driven by what you see on the parts and service gross profit side. Now, as you saw, we were down a slight. I talked about revenue being down. We're actually down a little bit in margin. Took a little bit of a margin hit. At the same time, go back to April, we decided we had to make some adjustments, and we did.

Speaker Change: Yet, at the same time, I've tried to tell people that's the flexibility of the business model. I've been telling for years, and we're way better than what we used to be at it. And that's what we call absorption.

Speaker Change: And that's a numerator and a denominator, denominator being expense, you got gross profit from parts and service above it. If you don't see that growing, if you see it flattening, then you've got to make some expense adjustments driven by what you see on the parts and service gross profit side.

Speaker Change: We, as you saw, we were down, I talked about revenue being down, we actually got a little bit margin, took a little bit of a margin hit, but at the same time, go back to April, we decided we had to make some adjustments, and we did.

W.M. Rush: When you look at our G&A piece, we're off 4.5% sequentially to Q2. We're off 7.7% from last year's Q3. I am so proud of the organization, I can't tell you how proud I am, for doing more with less. You asked sustainability. Look, our goal when we start back, if it starts to ramp back up, right, and you have to add some people back, because remember, when you're doing service and you're doing selling parts, it takes people. I'm not loaning money. I'm working on equipment. At the same time, you try to keep a certain percentage of that gross profit, and we historically have done that. That's what's driven our absorption number up 50 points in 20 years, okay?

Speaker Change: I mean, when you look at our G and A piece, I mean, we're all four and a half percent sequentially to Q2, we're all 7.7 percent from last year's Q3. I am so proud of the organization, I can't tell you how proud I am, for doing more with less. So you ask sustainability.

Speaker Change: It is our goal, and we're going to start back.

Speaker Change: if it starts to ramp back up, right? And you have to add some people back. Because remember, when you're doing service and you're selling parts, it takes people. I'm not loaning money. I'm working on equipment.

Speaker Change: But at the same time, you try to keep a certain percentage of that gross profit, and we historically have done that. That's what's driven our absorption number up 50 points in 20 years, okay? So...

W.M. Rush: We still run it. If you'd have told me we would never have picked up anything in gross profit in the summer months, you still got inflation, you still got payrolls, you still got everything going up on you, yet we were able to basically maintain a pretty flat absorption rate by working that expense number. I would expect going forward, if it does start ramping up like I'm hoping it does next year. Right now we're working on all our budgets for next year. We're not getting way out there. We're going to try to have mid-level, we hope for at least mid-level parts and service growth right now. I'm waiting on budgets to come back in, and we're helping drive them through the field. If we pick up, say, 6 points or something like that in gross profit, we try to keep half of it, right?

Speaker Change: But, you know, to run it, we still run it.

Speaker Change: If you'd have told me, we would never have picked up anything in gross profit in the summer months. You still got inflation, you still got payrolls, you still got everything going up on you, yet we remembered to basically maintain a pretty flat absorption rate by working that expense number.

Speaker Change: I would expect going forward if it does start ramping up like I'm hoping it does next year.

Speaker Change: I mean, right now, we're working on all our budgets for next year. We're not getting way out there. We're going to try to have...

Speaker Change: We hope for at least mid-level parts of service growth right now. I'm waiting on the budgets to come back in and we're helping drive them to the field. So if we do go, so if we pick up

Speaker Change: Say six points or something like that and most probably we try to keep half of it Right, which will drive more money to the bottom line. So sustainability is there. There's no question in my mind That we'll be able to sustain it

W.M. Rush: Which will drive more money to the bottom line. Sustainability is there. There's no question in my mind that we'll be able to sustain it. Because we're doing it where we're at. Now, it will take a little bit more expense if gross profits and sales revenues start to go up in parts and service, but that's your goal, is to keep part of it, but it takes people to sell parts, to work on trucks, to do things. Our model just is driven by what goes on, right? We have the flexibility to adapt to whatever the markets throw at us or whatever we're able to take from the market. Remember, we're going to keep trying to take share. Our goal is to continue to take share.

Speaker Change: because it's not, we're doing it where we're at. Now it will take a little bit more expense if gross profits and sales revenues start to go up in parts of service, but that's your goal, is to keep part of it, but it takes people, you know, to sell parts, to work on trucks, to do things.

Speaker Change: Our model is driven by what goes on, right? We have the flexibility to adapt to whatever the markets throw at us or whatever we're able to take from the market.

Speaker Change: Because remember, we're going to keep trying to take care of it.

W.M. Rush: We're going to continue to add outside parts and service salespeople, where we can give them a solid book of business to go call upon as we try to take share. No matter what the market is. On the service side, we're going to try to continue to add techs. We didn't do that good a job this year on that piece of it. At the same time, we just finished our senior leadership conference this last weekend, for about 300 folk that came up here in town. We're going to get back. That was one of the big messages to everybody. We're going to get back because we do expect business to have some better growth next year.

Speaker Change: Our goal is to continue to type the same text here.

Speaker Change: We're going to continue to add outside parts and service salespeople where we can give them a solid book of business to go call upon as we try to take share.

Speaker Change: No matter what the market is, and on the service side, we're going to try to continue to add techs. We didn't do that good a job this year on that piece of it.

Speaker Change: But, at the same time, we just finished our senior leadership conferences last weekend and we're about 300 folk table here in town.

Speaker Change: And, you know, we're going to get back. That was one of the big messages to everybody. We're going to get back because we do expect business to be a little, you know, have some better growth next year.

Daniel Imbro: That makes sense. Maybe last one, just follow up on that. I guess, how is tech availability out there? I feel like just across a lot of all markets, it is difficult to find technicians, difficult to hire them. You mentioned you guys haven't done as well this year as you would like to on the technician hiring. Just curious, has that backlog gotten better at all, or that available labor pool gotten better at all for you guys? Just any thoughts there.

Speaker Change: That makes sense. Maybe the last one, just to follow up on that. I guess, how is tech availability out there? I feel like just across a lot of bed markets, it's difficult to find technicians, difficult to hire them.

Speaker Change: You mentioned you guys haven't done as well this year as you'd like to on the technician hiring. So just curious, has that backlog gotten better at all? Or has that available labor pool gotten better at all for you guys? Just any thoughts there? Good question. No, it's always a struggle, right? It's a struggle.

W.M. Rush: Good question. No, it's always a struggle, right? It's a struggle on the entry-level technicians, right? That's where your turnover comes in. Technicians, I don't want to get too deep in the weeds here, but it's level 1 through 5 being the old experienced guy, right? Just can do anything. It's at level 1 and 2s, if you got some secret sauce for it to help me, I'd sure appreciate it. We do a lot of things. We sort of have a lot of efforts around retention on those 1s and 2s. It's that, I think there was a study here recently and we saw, was it 40%? 40% of your level 1 and 2s are out of the business in two years. They're going to do something else. They think they want to be technicians, but 40% of them are out of the industry.

Speaker Change: on the entry-level technicians, right? That's where your turnover comes in.

Speaker Change: Technicians, I don't want to get too deep in the weeds here, but it's level 1 through 5, 5 being the old experienced guy, this can do anything. It's at level 1 and 2.

Speaker Change: If you got some secret sauce for it to help me, I'd sure appreciate it.

Speaker Change: We do a lot of things, we sort of have a lot of efforts around, you know, retention on those ones and twos, and it's that, I think there was a study here recently, we saw, was it 40%, 40% of your level one and twos are out of the business in two years. Not.

Speaker Change: They're going to do something else. They think they want to be technicians.

W.M. Rush: You can see that's a hard road to hoe, right? We keep plugging away at it, and that's one of the big things is, it's difficult. It hasn't changed, and it's still very difficult. We work with tech schools, we work with high schools, we have recruiters. We go at it. It's a multi-pronged attack, and it's something I think we'll always be battling, even though being a technician is nothing like it was 25 years ago with all the technology that's been put into trucks, okay? It's a whole different job and it takes a whole different skill set, but it's still sometimes a very difficult. I have all the confidence. We're trying to grow 150 to 200 techs a year. About five or six years ago, we tried to grow it too many, about 500.

Speaker Change: But 40% of them are out of the industry. So you can see that's a hard road to hoe, right? And so, but we keep plugging away at it. And that's one of the big things is, it's difficult.

Speaker Change: It hasn't changed, and it's still very difficult. We work with tech schools. We work with high schools. We work with a whole different—we have recruiters. We go at it. It's a multi-pronged attack, and it's something I think we'll always be battling.

Speaker Change: Even though, being a technician, it's nothing like it was 25 years ago.

Speaker Change: With all the technology that's been put into trucks, it's a whole different job.

Speaker Change: And it takes a whole different skillset, but it's still, you know, sometimes a very difficult. We'll get, I have all confidence and we're not, we're trying to grow 150 to 200 techs a year.

W.M. Rush: We realized that wasn't going to work. We couldn't support it that way. We've really worked hard to try to level set the jobs and bring in more jobs that'll be beneficial for a level 1 and 2, because they can't do what a level 4 and 5 can. You've got to make sure that you're feeding them the proper work. I feel good about our ability to hopefully get our technicians. It's really the turnover for that level 1 and level 2 technician. I think we're going to make the most progress this next year in that area.

Speaker Change: About five or six years ago, we tried to grow it too many, about 500, we realized that wasn't going to work. We couldn't support it that way. But we've really worked hard to try to level set.

Speaker Change: the jobs.

Speaker Change: and bring in more jobs that'll be beneficial for a level one and two, because they can't go to what a level four and five can. So you've got to make sure that you're feeding them, you know, the proper work.

Speaker Change: And, you know, I feel good about our ability to hopefully get our, you know, technicians really the turnover for that level one, level two technician. I think we're going to make some, I think we're going to make some progress this next year in that area.

Daniel Imbro: Great. Appreciate all the color, and best of luck, guys.

W.M. Rush: Thank you.

Speaker Change: Appreciate all the color and best of luck, guys.

Operator: Our next question comes from Ian Zaffino with Oppenheimer. Your line is open.

Speaker Change: Thank you.

Speaker Change: Bye.

Speaker Change: And our next question comes from Ian Zaffino with Oppenheimer. Your line is open. Hey guys, thanks for taking my question. Appreciate it.

Ian Zaffino: Hey, guys. Thanks for taking my question, appreciate it.

W.M. Rush: You bet.

Ian Zaffino: Just kind of looking at the landscape here, I guess sort of with the environment is, how's the M&A environment, I guess, in this backdrop?

Speaker Change: You bet.

Ian Zaffino: Just kind of look at the landscape here. I guess sort of with the environment is You know, how's the M&A environment? I guess in this backdrop, you know, where do you see multiples and You know kind of what's out there and I know you're sitting on a great balance sheet. So Any color you could kind of give there and yeah, I have a follow-up. Thanks

W.M. Rush: Yeah.

Ian Zaffino: Where do you see multiples and kind of what's out there? I know you're sitting on a great balance sheet, so any color you could kind of give there, and yeah, then I have a follow-up. Thanks.

W.M. Rush: Well, obviously, I never talk about M&A till I do it. There's a little out there. I'm always working a little bit. We actually had a little M&A in the quarter. It's small stuff, right? We had a small deal up in Nebraska. I don't have any large M&A I'm working on right now. There's a couple other small things. I don't have anything big to announce that I could tell you, and I wouldn't tell you anyway till I did it. I don't see that there's this huge rush of people trying to get out of the industry at the moment, even though it wouldn't surprise me as we get further into the next two years with looming 2027 EPA regulations coming on, that some people don't try to get out prior to that. I'm not seeing it right now, not for those reasons.

Speaker Change: Well, obviously I never talk about M&A until I do it.

Speaker Change: There's a little out there, you know, I'm always working a little bit we have.

Speaker Change: We actually had a little M&A in the corner.

Speaker Change: You know, we added a small stir, right? We added a small deal up in Nebraska.

Speaker Change: Ahh.

Speaker Change: But I don't have any large M&A I'm working on right now. There's a couple other small things.

Speaker Change: I don't have anything big to announce that I can tell you, and I wouldn't tell you anyway until I did it. So I don't see that there's this huge rush of people trying to get out in the industry.

Speaker Change: at the moment.

Speaker Change: Even though it wouldn't surprise me as we get further into the next two years with looming 27 EPA regulations going on that some people don't try to get out prior to that. I'm not seeing it right now, not for those reasons.

W.M. Rush: There's not a lot of big M&A going on right now that we have going around. We're constantly looking, so if anybody out there wants to bring me a deal that I need in an area I'm not, I'll be happy to look at it. I know it's just a roundabout question, but I'm never gonna tell you what I'm doing anyway when it comes to M&A till I do it, so. There's not a lot of big activity at the moment. I wouldn't be surprised as we get further down the road towards 2027, 1 January EPA, that M&A activity picks up prior to that.

Speaker Change: But there's not a lot of big M&A going on right now that we have going around. We're constantly looking.

Speaker Change: So, if anybody out there wants to bring me a meal that I need in an area I'm not, I'll be happy to look at it.

Speaker Change: So, but I mean, I know it's just a roundabout question, but I'm never going to tell you what I'm doing anyway when it comes to M&A until I do it. So, but if it's not, there's not a lot of big activity at the moment, but I wouldn't be surprised.

Speaker Change: as we get further along down the road towards 27 January 1 EPA, that M&A activity picks up prior to that.

Ian Zaffino: Okay, thanks. I guess I know you did that Navistar deal and that went quite well, kind of wanted to get a little bit of build on that.

Speaker Change: Okay, thanks. And I guess I know you did that Navistar deal and that went quite well, so.

W.M. Rush: Yeah. We did a Navistar deal. We did one, two years ago, or I guess it's almost three, two and a half, three years ago, we did. It was almost three. It was December 2021. That was a big deal. We bought the second largest at that time, International dealer. We'll continue to look. We have more availability on that side of the house, and we'll continue to look for M&A around where it makes sense, right. If something shows up.

Speaker Change: Yeah, no, we did a lot of Navistar deal. We did one two years ago, or I guess it's almost three, two and a half years ago we did. It was almost three, it was December.

Speaker Change: of 21. That was a big deal. We bought the second-largest at that time international dealer, and we'll continue to look. We have more availability on that side of the house, and we'll continue to look

Speaker Change: for M&A around where it makes sense, right? If some serves up, so, okay.

Ian Zaffino: Okay. Thanks. Just maybe as a follow-up, can you just maybe talk to the outlook you're seeing now on the vocational truck side? Allison came out yesterday with quite good numbers on the vocational side. Kind of wonder what you're seeing there, looking forward. Thanks.

Speaker Change: Okay. Thanks. And then just maybe as a follow-up, can you just maybe talk about the outlook you're seeing now on the vocational truck side? I mean, Allison came out yesterday with quite good numbers on the vocational side. So I kind of wonder what you're seeing there looking forward. Thanks.

W.M. Rush: Yeah. I mentioned this a little bit ago. Yeah, I'll bet they had good numbers. They were sold out of 3,000 or 4,000 series transmissions back in May for the whole year. Anyway, they're managing their sales. They had their own inventory. Yes, vocational is continuing to be strong, as I mentioned. It actually probably cost us some sales because we couldn't get enough transmissions this year in 2024. That probably pushed some of those sales into 2025, so that's a good thing. We expect that to continue. As I mentioned earlier, most of all my vocational, I expect to continue to be strong through 2025.

Speaker Change: Yeah, I may have test started a little bit ago, but yeah, I bet they had good numbers.

Speaker Change: They were sold out of 3,000 or 4,000 series transmissions back in May for the whole year. So, anyway, but they're managing their sales, you know, they have their employees. So, yes, vocationalists continue to be strong, as I mentioned.

Speaker Change: You know it actually probably cost us some sales because we couldn't get enough transmissions this year 24, so

Speaker Change: You know, that probably pushed some of those sales into 25, so that's a good thing. We expect that to continue. As I mentioned earlier, I expected, most all my vocational, I expect to continue to be strong through 2025. I'm not going to look out into 26 on it, but we do expect to continue strong vocational sales across the board.

W.M. Rush: I'm not going to look out into 2026 on it. We do expect to continue strong vocational sales across the board, regardless of which vocation it's in, driven by the government spend on those bills, on the infrastructure bills. That's what we expect. We're still seeing it, and that's a solid piece for us. We're in the refuse business strong also, so that's solid for us also. Our medium-duty vocational continues to be strong, too.

Speaker Change: regardless of which vocation it's in, you know, driven by the, you know, government spend on those bills, on the infrastructure bills, and, you know,

Speaker Change: That's what we expect. We're still seeing it and that's a solid piece for us. We're in the refuse business strong also, so that's solid for us also. And our medium duty vocational continues to be strong too.

Ian Zaffino: All right, great. Thank you very much.

W.M. Rush: You bet.

Speaker Change: All right. Great.

Operator: As a reminder, to ask a question, please press star 11 on your telephone. The next question comes from Avinatan Jaroslawicz with UBS. Your line is open.

Speaker Change: You bet.

Speaker Change: As a reminder, to ask a question, please press star 1 1 on your telephone. And the next question comes from Avi Arosalewicz with UBS. Your line is open.

Avinatan Jaroslawicz: Good morning. Thanks for the call.

W.M. Rush: Good morning, sir. Good morning.

Avi Arosalewicz: Good morning, sir.

Avinatan Jaroslawicz: Morning. Yeah, just noted in the press release that you're hopeful aftermarket sales are around the bottom now. Just curious what you're seeing there to have some confidence in calling this the bottom. Also, how are you thinking about the ramp back up in sales for aftermarket? Should that be more muted than normal, just given the over-the-road continued to be a more challenged market?

Avi Arosalewicz: Goodbye.

Avi Arosalewicz: Mark, you noted in the press release that your hopeful aftermarket sales are around the bottom now. I'm just curious what you're seeing there to have some confidence in calling this the bottom?

Avi Arosalewicz: And also, how are you thinking about the ramp back up in sales for aftermarket, should that be more muted than normal, just given the over-the-road continues to be a more challenged market?

W.M. Rush: Well, we've seen it in the last mission. Parts margin have been pretty flat. That's why we made some adjustments back in April. You know what? Sometimes flat's a good thing when you cut expense. It's not a bad thing because usually we'll ramp up a little more in the summer than what we did given our geography, even though we are across 24 states, given our geography of where we're at. I would tell you that going into Q4, as I mentioned, there is some seasonality in the press release that it's a little softer in Q4. That's nothing more than every year. You've got fewer working days because of the holidays. It's like if you bill hours right in the shops. You got to be there to turn wrenches.

Speaker Change: Okay, well, no, you know, we've seen, as I just mentioned, it's been, perhaps, more than just a boom.

Speaker Change: Pretty flat

Speaker Change: and that's why we made some adjustments back in April. You know what? Sometimes flats are a good thing when you cut expense.

Speaker Change: Okay, so it's not a bad, you know, because we didn't see, usually we'll ramp up a little more in the summer than what we did.

Speaker Change: given our geography, even though we are across 24 states, given our geography of where we're at. But I would tell you that there is.

Speaker Change: You know, going into Q4, as I mentioned, there is some seasonality in the press release that it's a little softer in Q4, but that's nothing more than every year, right? Because you've got fewer working days because of the holidays.

Speaker Change: So there's you know, it's like it's like, you know, you build hours right in the shops, right? So you got to be you got to be there to turn wrenches. Well, you know with the holidays with Thanksgiving and Christmas

W.M. Rush: Well, with the holidays, with Thanksgiving and Christmas, flickering up to New Year's, it's naturally a little bit slower for those days. You lose, then your air conditioning business goes down a little bit, but there's other things you pick up, but it's just seasonally a little bit softer in Q4. That's nothing out of the norm. A couple points or so less than the couple, three points typically in Q4. That being said, I just believe that as this thing bottoms out in the over-the-road guys, and they slowly ramp back up next year. I would hope by the time we get to summer, I don't see any big ramp up early in the year, but I do see growth in the parts and service business when we get to the seasonal part, say next May and June, around that timeline.

Speaker Change: You know.

Speaker Change: up to New Year's, you just, you know, just naturally a little bit slower for those days. You know, you lose, then, you know, your air conditioning business, it goes down a little bit. But there's other things you pick up. But it's just seemingly a little bit softer in Q4. But that's nothing.

Speaker Change: out of the norm. So, you know, a couple of points or so less than a couple of three points typically in Q4. That being said, I just believe that as this thing bottoms out from the over the road, guys.

Speaker Change: and they slowly ramp back up next year. I would hope by the time we get to summer, I don't see any big ramp up early in the year, but I do see growth in the parts and service business.

Speaker Change: When we get to the seasonal part, say, next May and June, around that timeline, I'm not perfect on this, but I do believe we'll see some growth in the parts that are more like what we typically get. I expect a more typical...

W.M. Rush: I'm not perfect on this, but I do believe we'll see some growth, in the parts and service, more like what we typically get. I expect a more typical summertime, late spring through fall, summer included, of course, ramp up in our parts and service next year. I just believe by that time, I think the spot market's going to be better. I think we'll have taken enough capacity out of the over-the-road business. Remember, when you look at the numbers we're producing, thank God we got a diversified customer base, because we still, even though the small customer was off less than what we call our unassigned accounts, but the small, which is still 30% of what we do, are people we really don't even know, okay? Our growth was in the nationals, the big customer. That's where we managed was through that piece of our business.

Speaker Change: summertime, late spring through fall, summer included of course, ramp up in our parts of service next year.

Speaker Change: I just believe by that time, I think the spot market is going to be better. I think we'll have taken enough capacity out of the over-the-road business. Remember, when you look at the numbers we're producing,

Speaker Change: Thank God we've got a diversified customer base.

Speaker Change: Because we still, even though the small customer was off less than what we call our unassigned accounts, but the small, which is still 30% of what we do, are people we really don't even know. Okay, they were still, our growth was in the national.

Speaker Change: You know, the big customers, that's where we managed was through that piece of our business.

W.M. Rush: The small person was off still 8%, 9% year over year. Remember last year, he was off 12 or so in Q3. The combination of being off 20%, going back comparing to 2022, is quite dramatic for that small customer. The numbers we're producing are in spite of those headwinds with 30% of our customers. I do expect the comps get easier as we're starting to see we won't have that big a downturn in that smaller customer base. I expect the larger customers to come on better sometime. They're either going to have to buy trucks or fix trucks, one of the two. I expect that to pick up, as I said, middle of the year next year. I don't see any big downturn for us outside of normal seasonality because of our diversification over the next couple of quarters.

Speaker Change: But the small person was off still 8-9%.

Speaker Change: year over year, and remember last year he was all 12 or so in Q3. So the combination of being all 20% going back comparing it to 22 is quite dramatic for that small customer. So the numbers we're producing are in spite of those headwinds with 30% of our customers.

Speaker Change: But I do expect, you know

Speaker Change: The comps get easier as we're starting to see we won't have that big a downturn in that smaller customer base. I expect the larger customers to come on better sometime. They're either going to have to buy trucks or fix trucks, one of the two. So I expect that to pick up, as I said.

Speaker Change: middle of the year next year, and I don't see any big downturn for us outside of normal seasonality.

W.M. Rush: Hopefully, that holds true. That's just my outlook on it right now with the growth mainly pushed into the back two-thirds of next year. From a parts and service perspective, we'll continue to manage expenses the way we are and continue to, as I said, in spite of shorter lead times on truck sales, I expect us to keep being able to push out quarters. We expect to deliver a few more trucks in Q4 Class 8 than we did in Q3. While I can't tell you what Q1 looks like, I expect us to execute because I can still build you trucks in December. Okay. I may not have the clarity that we had for a couple of years, but I've got the machine, and I believe in the folks in this organization and their ability to execute no matter what the environment is.

Speaker Change: because of our diversification over the next couple of quarters.

Speaker Change: Hopefully, that holds true, but that's just my outlook on it right now with the growth mainly pushed into the back two-thirds of next year.

Speaker Change: From a parts and service perspective, we'll continue to manage expenses the way we are and continue to, as I said, in spite of shorter lead times on truck sales.

Speaker Change: I expect us to keep being able to push out corners. We expect to deliver a few more trucks in Q4 Class 8 than we did in Q3.

Speaker Change: And while I can't tell you what Q1 looks like.

Speaker Change: I expect this to execute because I can still build your trucks.

Speaker Change: in December. Okay, so it's not like, you know, I may not have the clarity that we had for a couple years, but I've got the machine. And I believe, you know, the folks in this organization and their ability to execute no matter what the environment is.

Avinatan Jaroslawicz: That makes a lot of sense. I guess also, yeah, thinking about the rebound that you're talking about for Class 8 in late 2025. It sounds like you're thinking of that being more from just improvement in the over-the-road market and to what degree would you say that the pre-buying ahead of the emissions regulations would also be a factor in that?

Speaker Change: That makes a lot of sense.

Speaker Change: And then, I guess also, yeah, thinking about the rebound that you're talking about for class 8 and late 25, it sounds like you're thinking of that being more from just improving the over-the-road market, and to what degree would you say that the pre-buying ahead of the emissions regulations would also be a factor in that?

W.M. Rush: There are no questions, both of them. For sure. Everybody thought, you go back a year, pre-buy was going to start here back half of this year. Well, it didn't. Okay? Like I said, I can still build you a truck in December. It didn't happen. Why? Because the over-the-road guy was getting crushed. You can just read all the earnings reports. LTL is good, better, but the truckload side of it, which is a big piece of it, was getting hurt. What you're seeing is they're going to get healthier. I do believe that. Capacity's finally coming out of the market. That's the hardest thing, is couldn't take any capacity out. Financial institutions were more lax than I've ever seen them in pulling the chain and taking capacity out, but that's not my business to run.

Speaker Change: There's no question, both of them, for sure. You know, everybody thought.

Speaker Change: You go back right here

Speaker Change: You know, pre-battle was going to start here, back half of this year. Well, it didn't. Okay. Like I said, I can still build you a truck in December.

Speaker Change: So, it didn't happen, right? Why? Because the over-the-road guy was getting crushed.

Speaker Change: I mean, just read all the early reports. I mean, LTL is good, better, but the truckload side of it, which is a big piece of it.

Speaker Change: was getting hurt. So what you're seeing is they're gonna get healthier. I do believe that. Capacity's finally come out of the market. That's the hardest thing is couldn't take any capacity out.

Speaker Change: Financial institutions were more lax than I've ever seen them, and pulling the chain and taking capacity out, but that's not my business to run. But I think you are seeing that with all the bankruptcies and things coming out, but you still got to dispose of that equipment and that's being done as time goes on. That's happened. So they're getting healthier.

W.M. Rush: I think you are seeing that with all the bankruptcies and things coming out, but you still got to dispose of that equipment, and that's being done as time goes on. That's happened. They're getting healthier. People will start focusing on the regulations coming in 2027. All it's really done is we thought it was going to start earlier a year ago, now it's not. If you think about it, what you're doing is you're compressing that demand. It's probably going to make the peak get higher when it does because you're going to have less time to take care of demand. People have been having to run their businesses and manage on it, say, "Look, I'll deal with that 2027 EPA rule when I can, but right now, I've got to run my business.

Speaker Change: So, people will start focusing on the regulations coming in, you know, 20 and 27, right? So, but all it's really done is we thought it was going to start earlier a year ago. Now it's not. So, if you think about it, what you're doing is you're compressing that demand.

Speaker Change: It's probably going to make the peak get higher when it does because you're going to have less time.

Speaker Change: To take care of demand, people have been having to run their businesses and manage on it.

Speaker Change: I said, look, I'll deal with that 27 EPA rule when I can, but right now, I've got to run my business. Look at my OR. As that gets better, the focus will become better.

W.M. Rush: Look at my OR. As that gets better, the focus will become more on, Hey, I got to get ahead of some of this 2027. They're not going to pre-buy everything, but they're going to compress and try to buy a little ahead so they don't have to deal with the new technology and the whatever it's going to cost, $15,000 to $20,000 on diesel and the rolling in of BEV, electric, and everything else as all these rules and regs come about. They're going to try to pre-buy a little bit, driven by the fact also that their business is in better shape. Not in the shape it's been this summer. Okay? I do believe it's going to continue to get better as we move through it next year.

Speaker Change: more on, hey, I got to get ahead of some of this 27. They're not going to pre-buy everything, but they're going to compress and try to buy a little ahead so they don't have to deal with the new technology.

Speaker Change: You know, whatever is going to cost $50,000 to $20,000 on diesel, and then rolling in a bad electric.

Speaker Change: and everything else is all these.

Speaker Change: Rules and regs come about, so they're going to try to pre-buy a little bit, but driven by the fact also that their business is in better shape, right? Not in the shape it's been this summer.

Speaker Change: Okay, but I do believe it's going to continue to get better as we move through it next year I believe about middle of the year that their business will be stabilized and they might be getting some right

W.M. Rush: I believe by the middle of the year that their business will be stabilized, and they might be getting some rate. Now I can focus on, Oh, my gosh, we got 18 months till the January 2027. I need to be thinking. I don't know exactly how that timing is going to work out, but logic says that's what's going to happen, is one thing settles out, it gets better, then we can focus on out ahead of us. Right now, I'm not looking down the hill, I'm looking at the tips of my skis. We can start looking down the hill once we've got our skis straight, and not going sideways. If that makes any sense, that's how I see the combination of the two.

Speaker Change: And now I can focus on, oh my gosh, we've got 18 months to, you know, till January 27. I need to be thinking, you know, I don't know exactly how that timing is going to work out, but logic says that's what's going to happen.

Speaker Change: As one thing settles out, it gets better, then we can focus on, you know.

Speaker Change: out ahead of us. Right now, I'm not looking down the hill, I'm looking at the tips of my skis, right? Then we can start looking down the hill, and once we've got our skis straight, and not going sideways. So, if that makes any sense, that's how I see the combination of the two.

Avinatan Jaroslawicz: Yeah, no, that does. Thanks for unpacking that. I guess just a last kind of question. Where are vocational volumes relative to longer-term kind of normal average? Just trying to understand how much runway is left to that market.

Speaker Change: Yeah, no, that does. Thanks for unpacking that. And then, I guess, just a last kind of question, where vocational volumes relative to longer term, kind of normal average, trying to understand.

Speaker Change: how much runways left of that market.

W.M. Rush: I think all of 2025. I'm not going to look out to 2026 because that's a little far out for me. I feel really good about our vocational business in 2025. Where is it compared to normal? Well, what's normal in the truck business? Would be my question. I don't know that I know what normal is. It's one thing you learn in this business, truck sales can have some cyclicality. I would tell you, what, 25% better than what normal is? I don't know. Demand's strong, is the easiest way for me to say it, and continues to be. We look for vocational demand to continue to be strong in 2025. I'm not going to look out into 2026 on that yet.

Speaker Change: I think all 25. I think, I'm not going to look at the 26.

Speaker Change: because that's a little far out for me. But I feel really good about our vocational business in 2025. Where is it compared to normal? Well, what's normal in the drug business?

Speaker Change: Would be my question. I don't know what I know what normal is It's one thing you learn in this business, it's pretty it could be the truck sales could have some cyclicality, but I would tell you what

Speaker Change: 25% better than what a normal is? I don't know. I mean, you know, but demand strong is the easiest way for me to say it and continues to be and we look for vocational demand.

Speaker Change: to continue to be strong.

Speaker Change: In 2025, I'm not going to look out into 26 on that yet, but, you know, as we get further into 25, I'll try to get a feel for it because we're not trying to, we're really not booking 26 business right now. So, it's hard for me to see where 26 is going to be, but we are obviously talking about and booking some 2025 business.

W.M. Rush: As we get further into 2025, I'll try to get a feel for it because we're really not booking 2026 business right now, so it's hard for me to see where 2026 is going to be. We are obviously talking about and booking some 2025 business. Both sides, whether it's over the road or medium or vocational. Vocational, we've booked more than we have over the road, I can tell you that. We expect it to remain strong in 2025. 2026 is going to be hard for me to look at right now. Hope so.

Speaker Change: You know and both side of whether it's over the road or media or vocational location. We've booked more than we have over the road. I can tell you that. So we expect it to remain strong in 2526. It's going to be hard for me to look at right now.

Avinatan Jaroslawicz: All right. Got it. Appreciate the time. Thank you.

Speaker Change: Hope so.

W.M. Rush: You bet.

Speaker Change: All right. Got it. Appreciate the time. Thank you.

Operator: I show no further questions at this time. I would now like to turn the call back over to W.M. Rush for closing remarks.

Speaker Change: You bet.

Speaker Change: I show no further questions at this time. I would now like to turn the call back over to Rusty Rush for closing remarks.

W.M. Rush: Well, I'd like to thank everyone for their participation this morning. We won't be talking to you till February with Q4 release. Happy holidays to all, to you and yours, and we'll talk to you again in February. Thank you all very much.

Rusty Rush: Well, I'd like to thank everyone for their participation this morning. We won't be talking to you until February, so, with the four-quarter release, so happy holidays to all, to you and yours, and we'll talk to you again in February. Thank you all very much.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.