Q4 2024 Rush Enterprises Inc Earnings Call

Speaker Change: Good day and thank you for standing by. Welcome to the Rush Enterprise Report fourth quarter 2024 earning results.

Speaker Change: At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during this session, you'll need to press star 1-1 on your telephone. You will then hear an automated message device in your hand as raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.

Speaker Change: I'd now like to hand the conference over to your first speaker today, Rusty Rush, Chairman of Board of Chief Executive Officer and President. Please go ahead.

Rusty Rush: Well, good morning, everyone. Thanks for joining our Q4 and year-end 2024 conference call. I have with me today Jason Wilder, 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 Keller will say a few words regarding forward-looking statements.

Rusty Rush: Well, good morning. Everyone thanks for joining our 4th quarter and you're in 2024 conference call.

Rusty Rush: I have with me today Jason Wilder, 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 Keller will say a few words regarding forward-looking statements.

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.

Rusty Rush: 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.

Rusty Rush: 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, 2023, and in our other filings with the Securities and Exchange Commission.

Rusty Rush: As we mentioned in our news release, we had $7.8 billion in annual revenues for 2024, and our net income was $304.2 million, or $3.72 per diluted share. For Q4, our revenues were $2 billion, and our net income was $74.7 million, or $0.91 per diluted share. We are also happy to announce a cash dividend of $0.18 per common share. 2024 was a challenging year for the industry, which faced persistent headwinds, including the ongoing freight recession, high interest rates, and economic uncertainty. These factors hit over-the-road carriers hard, leading to weak demand for new Class 8 trucks from that customer segment. However, our strength in public sector and vocational markets helped balance things out, and we managed to hold our ground in a tough Class 8 environment market.

Rusty Rush: As we mentioned in our news release, we had $7.8 billion in annual revenues for 2024, and our net income was $304.2 million, or $3.72 per diluted share.

Rusty Rush: For the fourth quarter, our revenues were $2 billion, and our net income was $74.7 million, or $0.91 per diluted share. We are also happy to announce a cash dividend of $0.18 per common share.

Rusty Rush: 2024 was a challenging year for the industry, which faced persistent headwinds, including the ongoing freight recession, high interest rates, and economic uncertainty.

Rusty Rush: These factors hit over the road carriers hard, leading to weak demand for new Class A trucks from that customer segment.

Rusty Rush: However, our strength in public sector and vocational markets helped balance things out, and we managed to hold our ground in a tough Class 8 environment. Our Class 4-7 truck sales were strong across various customer segments, and we outperformed the market in the medium-duty truck sales.

Rusty Rush: Our Class 4-7 truck sales were strong across various customer segments, and we outperformed the market in the medium-duty truck sales. The used truck market remains challenging, but we continue to execute well on our sales strategy, and we're able to deliver strong profits. The same challenging operating conditions that impacted new Class 8 truck sales also impacted the aftermarket industry. Our sales force's dedication to our strategic initiatives helped us to slightly outperform the industry, despite the difficult operating environment that we faced in 2024. I am very proud of our financial results. Focusing on the aftermarket, our parts service and body shop revenues were $2.5 billion last year, down 1.8% from 2023. Our absorption ratio was 132.2%, compared to 135.3% in 2023.

Rusty Rush: The used truck market remains challenging, but we continue to execute well on our sales strategy and we're able to deliver strong profits.

Rusty Rush: The same challenging operating conditions that impacted new Class A truck sales also impacted the aftermarket industry.

Rusty Rush: But our sales force's dedication to our strategic initiatives helped us to slightly outperform the industry, despite the difficult operating environment that we faced in 2024.

I am very proud of our financial results.

Rusty Rush: Focusing on the aftermarket, our parts service and body shop revenue was $2.5 billion last year, down 1.8% from 2023.

Our absorption ratio was 132.2% compared to 135.3% in 2023.

Rusty Rush: Even though our aftermarket revenues were slightly down, we grew our market share by expanding our national account sales force, which allowed us to enhance our service to large strategic accounts. Demand was sluggish from the over-the-road, energy, and wholesale customers, but we saw strong sales to vocational, public sector, and medium-duty leasing customers. In 2025, we expect aftermarket demand to remain soft the first few months due to the freight market continuing to struggle, which results in lower over-the-road fleet utilization rates. However, we are optimistic that that demand will pick up as the year goes on and the freight market improves. We believe that our focus on growing our national account customer base and our other aftermarket strategic initiatives will result in revenue growth this year.

Rusty Rush: Even though our aftermarket revenues were slightly down, we grew our market share by expanding our national account sales force, which allowed us to enhance our service to large strategic accounts.

Rusty Rush: Demand was sluggish, worthy over the road, energy and wholesale customers.

Rusty Rush: But we saw strong sales to vocational, public sector, and medium-duty leasing customers.

Rusty Rush: In 2025, we expect aftermarket demand to remain soft the first few months due to the freight market continuing to struggle.

Rusty Rush: which results in lower over-the-road fleet utilization rates. However, we are optimistic that that demand will pick up as the year goes on and the freight market improves.

Rusty Rush: We are also committed to expanding our technician workforce in 2025, particularly mobile technicians, which will allow us to reduce vehicle dwell time in our shops, better serve our customers, increase back counter parts sales, and grow market share. Regarding truck sales, we sold 15,465 new Class A trucks in 2024, down 11.4% year over year, representing 6.1% of the US market and 1.7% of the Canadian market. Market conditions were tough, with high inventory levels and competitive pricing. However, our sales to specialty market customers helped offset weak demand from our over-the-road customers. ACT Research forecasts US and Canadian sales of new Class A trucks to be 277,200 units in 2025, basically flat with 2024. We expect sales to be challenging in H1 2025, but we anticipate the demand will improve in H2 2025 as freight rates recover.

Rusty Rush: We are also committed to expanding our technician workforce in 2025, particularly from mobile technicians, which will allow us to reduce vehicle dwell time in our shops, better serve our customers, increase back counterpart sales, and grow market share.

Rusty Rush: Regarding truck sales, we sold 15,465 new Class A trucks in 2024, down 11.4% year over year, representing 6.1% of the U.S. market and 1.7% of the Canadian market.

Rusty Rush: Market conditions were tough, with high inventory levels and competitive prices. However, our sales to specialty market customers helped offset weak demand from our over-the-road customers.

Rusty Rush: ACT Research forecast U.S. and Canadian sales of new Class A trucks to be 277,200 units in 2025, basically flat with 2024.

Rusty Rush: We expect sales to be challenging in the first half of 2025. We anticipate the demand will improve.

Rusty Rush: In the second half of the year, as freight rates recover, in addition, despite uncertainty around engine emissions regulations, we believe the EPA's clean diesel regulations will drive some pre-buy activity later this year.

Rusty Rush: Despite uncertainty around engine emissions regulations, we believe the EPA's clean diesel regulations will drive some pre-buy activity later this year. We are optimistic that pre-buys, along with strong vocational sales, will allow us to achieve strong new Class 8 truck sales and keep pace with the market in 2025. Our Class 4-7 new truck sales were up 5.1% year over year, with 13,935 units sold in 2024, representing 5.3% of the US market and 3.1% of the Canadian market. Medium-duty vehicle production has stabilized and delivery lead times improved throughout the year. Our strategic focus on diversifying our customer base and focusing on large national accounts paid off, and we outperformed the market in new Class 4-7 truck sales. ACT Research forecasts US and Canadian sales of new Class 4-7 trucks to be 282,250 units in 2025, up 5.3% from 2024.

Rusty Rush: We are optimistic that pre-buys along with strong vocational sales will allow us to achieve strong new Class A truck sales and keep pace with the market in 2025.

Rusty Rush: Our Class 4 through 7 new drug sales were up 5.1% year-over-year, with 13,935 units sold in 2024, representing 5.3% of the U.S. market and 3.1% of the Canadian market.

Rusty Rush: Medium-duty vehicle production stabilized and delivery lead times improved throughout the year. Our strategic focus on diversifying our customer base and focusing on large national accounts paid off.

Rusty Rush: And we outperformed the market in new class 427 drug sales.

ACT Research Forecast, U.S. and Canadian sales.

Rusty Rush: of new Class 4-7 drugs to be 282,250 units in 2025, up 5.3% from 2024.

Rusty Rush: However, supply has caught up with demand, and we believe the medium-duty market may begin to slow in 2025. Nevertheless, we believe that our expertise in the medium-duty sector and our Ready to Roll program will help us achieve strong medium-duty commercial sales in 2025. We sold 7,110 used trucks in 2024, basically flat year-over-year. The used truck market was challenging due to values continuing to fall and tight credit, but our disciplined inventory and pricing strategies helped us deliver strong results. With freight rates showing signs of improvement and used truck values stabilizing, we are cautiously optimistic about 2025. Leasing and rental revenue was $354.9 million, basically flat for 2023. Our truck leasing division continues to be a key contributor to our overall performance. While rental revenue was slightly down in Q4, leasing revenue increased as we replaced 1,500 units in our fleet.

Rusty Rush: However, supply has caught up with demand, and we believe the medium-duty market may begin to slow in 2025. Nevertheless, we believe that our expertise in the medium-duty sector and our Ready to Roll program will help us achieve strong medium-duty commercial sales in 2025.

Rusty Rush: We sold 7,110 used trucks in 2024, basically flat year over year. The used truck market was challenging due to values continuing to fall and tight credit, but our disciplined inventory and pricing strategies helped us deliver strong results.

Rusty Rush: with freight rates showing signs of improvement and used drug value stabilizing. We are cautiously optimistic about 2025.

Rusty Rush: Leasing and rental revenue was $354.9 million, basically flat for 2023. Our restaurant leasing division continues to be a key contributor to our overall performance.

Rusty Rush: While rental revenue was slightly down in the fourth corner, leasing revenue increased as we replaced 1,500 units in our fleet.

Rusty Rush: As the age of our leasing and rental fleet decreases, we should recognize higher revenue and lower maintenance and operating costs going forward. We expect our leasing and rental business to remain strong in 2025. I wanted to remind everyone that due to seasonal increases in employee benefits and payroll taxes that occur in Q1 of every year, we expect our G&A expenses to be sequentially higher in Q1 of 2025 compared to Q4 of 2024. I want to make a final comment on the proposed tariffs that may impact vehicles and component parts manufactured in Canada, Mexico, or China. We are currently monitoring this situation closely. If such tariffs are enacted and significantly increase the aggregate price of new commercial vehicles or parts, we believe the demand for new commercial vehicles and parts could decrease in 2025.

Add the eggs.

Rusty Rush: As the age of our leasing and rental fleet decreases, we should recognize higher revenue and lower maintenance and operating costs going forward. We expect our leasing and rental business to remain strong in 2025.

Rusty Rush: I wanted to remind everyone that due to seasonal increases in employee benefits and payroll taxes that occur in the first quarter of every year, we expect our G&A expenses to be sequentially higher in the first quarter of 2025 compared to the fourth quarter of 2024.

Rusty Rush: Lastly, I want to make a final comment on the proposed tariffs that may impact vehicles and component parts manufactured in Canada, Mexico, or China.

Rusty Rush: We are currently monitoring this situation closely. If such tariffs are enacted and significantly increase the aggregate price of new commercial vehicles or parts, we believe the demand for new commercial vehicles and parts could decrease in 2025.

Rusty Rush: Before we wrap up, I want to thank our employees for their hard work and dedication in 2024. Despite the challenges, they stayed focused on our strategic initiatives and expense reduction goals, helping us achieve strong financial results. With that, I will take your questions.

Rusty Rush: Before we wrap up, I want to thank our employees for their hard work and dedication in 2024.

Rusty Rush: Despite the challenges, they stayed focused on our strategic initiatives and expense reduction goals, helping us achieve strong financial results.

With that, I will take your questions.

Operator: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will 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 stand by while we compile the Q&A rosterAnd our first question comes from the line of Andrew Obin of Bank of America. Your line is now open.

Rusty Rush: Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you will need to press star 101 on your telephone and wait for your name to be announced. To withdraw your question, please press star 101 again. Please stand by while we compile the Q&A roster.

Speaker Change: And our first question comes from the line of Andrew Oldman of Bank of America. Your line is now open.

Andrew Obin: Yes. Good morning. Can you hear me?

Yes, good morning. Can you hear me?

Rusty Rush: Yes, we got you, Andrew.

Yes, we got you, Andrew.

Andrew Obin: Excellent. Rusty, given your commentary about H2 recovery, how should we think about earnings seasonality in 2025 versus a normal seasonal pattern? I'll just throw in, and specifically, when does parts and service turn positive again? Two-part question. Thank you.

Speaker Change: Excellent. Rusty, given your commentary about second half recovery, how should we think about earning seasonality in 2025?

versus a normal seasonal pattern.

Speaker Change: And I'll just throw in, and specifically, you know, when does parts and service turn positive again? So, two-part question.

Rusty Rush: You got it. Andrew, it's going to be an interesting year. The H1 of the year, we're still believing in the lingering effects of the freight recession, okay? Without question, here in Q1. We do expect, though, we are seeing signs of activity. Regardless of what the numbers showed, like in December, their order numbers were down in January. We are seeing the last few weeks signs of activity that don't tell me that we're going to get better in the over-the-road business in the H2. Location businesses are still strong. We believe that you're getting. I think if you check with the large over-the-road guys, they're starting to get low single to maybe up, trying to get maybe to mid-single digits on the contracts that are coming up. That has to take hold, right? That has to take effect, right?

Speaker Change: You got it. No, Andrew, it's going to be an interesting year. The first half of the year, we're still believing in the lingering effects of the freight recession, okay, without question here in the first quarter. We do expect, though, but we are seeing signs of activity, right?

Speaker Change: regardless of what the numbers showed back in December and then they'd order numbers were down in January, we are seeing the last few weeks signs of activity that don't tell me that we're going to get better in the over-the-road business in the back half. Occasional businesses are still strong.

But we believe that

Speaker Change: You know, you're getting I think if you check with the larger over the road guys, they're starting to get low single

Speaker Change: trying to get maybe the mid-single digits on the contracts that are coming up. So that has to take hold, right? That has to take effect, right? And it just doesn't happen overnight. But it shows, you know, they've breached confidence.

Rusty Rush: It just doesn't happen overnight. It shows it breeds confidence in the over-the-road carriers and the fact that, okay, we for sure bottomed out in the back half of last year like we talked about it prior. Well, now we start getting confidence going forward, and where we're at going into later into this year. Then I'll talk a little more in a minute, if someone would like me to, about what we see when it comes to the government regulations and all with everything up in the air right now. I do believe, I'll get to the parts and service here in a second. I do believe that when you ask about what the year's going to look like, the year is going to ramp up from beginning till the end. Okay?

and the over-the-road carriers.

Speaker Change: And the fact that, okay, we are, we sure thought about in the back half of last year like we talked about, we talked about it prior.

Well, now we started getting confidence.

going forward.

Speaker Change: and where we're at going into, you know, going on into later into this year.

Speaker Change: And then I'll talk a little more in a minute, if someone would like me to, about what we see when it comes to the government regulations and all, with everything up in the air right

Speaker Change: But I do believe I'll get to the parts of service here in a second I do believe that when you ask about what the year is going to look like the year is going to ramp up

from the beginning to the end, okay?

Rusty Rush: A tougher start, I do see and believe that by the time we get into H2, we're definitely going to be on the upswing. Again, I looked at the overall deliveries in retail in the US in January, we're down 2,000 units from last January. Even though it's only a couple of thousand, you are starting, being a little softer in January from where you were last year. We do firmly believe that H2 will continue to ramp up, and I think that It's hard to talk about pre-buys and all because we got too many regulation uncertainties out there, which I don't mind getting into if someone would like in a minute, that are still to be We've got to figure them out.

Speaker Change: A tougher start, but I do see and believe that by the time we get into the back half of the year,

We're definitely going to be on the upswing.

Again, when it comes to

Speaker Change: I looked at the overall deliveries and retail in the U.S. in January, we're down 2,000 units from last January. As you know, it's only a couple of thousand, you are starting a little softer in January from where you were last year.

Speaker Change: But we do firmly believe that the back half of the year will continue to ramp up. And I think that you're still, it's hard to talk about pre-buys and all because

Speaker Change: We've got too many regulation uncertainties out there, which I don't mind getting into if someone would like in a minute, that are still to be, you know, we've got to figure them out. We've got to see what the government does right after the administration.

Rusty Rush: We've got to see what the government does right after the administration. He's only been in office, what, 30 days now, the new administration. Obviously I don't have to tell everyone that there's a lot of uncertainty as to how a lot of things, whether it's tariffs or EPA regulations or any of this stuff, are going to shake out right now. We've got thoughts about it, but not sure. I do believe that overall, it's going to be a ramp up throughout the year from beginning to end. Maybe with a better close than what we had in 2024, that would be my plan. The H2 will definitely should be stronger than the 2024 H2, H1. We just got to work our way through it. Look, we had to work last year extremely hard. If you remember, I always called it hand-to-mouth, man.

Speaker Change: It's only been in office, what, 30 days now, the new administration, and obviously I don't have to tell everyone that there's a lot of uncertainties about a lot of things, whether it's tariffs or EPA regulations or any of this stuff, are going to shake out right now. We've got thoughts about it, but not sure, but I do believe.

Speaker Change: that overall it's going to be a ramp up throughout the year from beginning to end.

Bye.

Speaker Change: Maybe, you know, with a better close than what we had in 24, that would be my plan. The back half definitely should be stronger than the 24 back half, front half, we're just going to have to work our way through it.

Speaker Change: We had to work last year extremely hard if you remember I was called it hand-to-mouth man We were back in normal regular times where you could get it if you didn't have allocation, right? You were working to get trucks and you could get them in 60 to 90 days. Well, guess what? That's still the environment We're in right now

Rusty Rush: We were back in normal, regular times where you didn't have allocation, right? You were working to get trucks, and you could get them in 60 to 90 days. Well, guess what? That's still the environment we're in right now. From a parts and service perspective, it goes right along with what I see from when I talk about where we're at. It goes right along with truck sales, to be honest with you, ramping up throughout the year. I do think we may get a little bit more inflation, which can have sometimes a positive effect on parts and service totals when you get through them all. We'll have to see how that all shakes out again. We do believe that it will ramp up. We will get up into maybe not the H1 of the year.

Speaker Change: from a parts and service perspective, it goes right along with what I see.

Speaker Change: When I talk about where we're at, it goes right along with truck sales to be honest with you. Ramping up throughout the year, I do think we may get a little bit more inflation.

which will have, again, have a...

sometimes a positive effect on margin of service.

Speaker Change: totals when you get through them all, but we'll have to see how that all shakes out again. But we do believe that it will wrap up. We will get up into maybe not the first half of the year. I look for, like I said, the first few months fairly flat.

Rusty Rush: Like I said, the first few months, fairly flat. Ramping up to mid-single digits and growth when we get into the H2 of the year is how I'd look at it. You want to do more, but right now, I want to be conservative in my outlook. I'm not one to really get out over my skis too far, if you've known me for 28 years. We have confidence that we'll be all over the market as it begins to ramp back up, and we'll continue to drive. There's still runway left in a lot of our strategic initiatives, and we're always working on others behind the scenes that I may not talk about.

but ramping up to mid-single digits.

Speaker Change: you know, growth when we get into the back half of the year is how I'd look at it. You know, you want to do more, but right now I don't want to be conservative in my outlook.

Speaker Change: I'm not one to really get over my skis too far, if you've known me for 28 years. But we have confidence that we'll be all over the market as it begins to ramp back up, and we'll continue.

Speaker Change: to be dry, we've still got, there's still a runway left.

Speaker Change: And a lot of our strategic initiatives are always working on others behind the scenes. I mean, I talk about so anyway, that would be my take on the year. And it's pretty similar both both sides ramping up, especially once we get settled out with all these uncertainties are out there right now.

Rusty Rush: Anyway, that would be my take on the year, and it's pretty similar on both sides, ramping up, especially once we get settled down with all these uncertainties that are out there right now.

Andrew Obin: Rusty, just a follow-up question. As things ramp up, how should we think about, as G&A was one of the sources of upside in the quarter, how do we think about SG&A control as you ramp into the next cycle? Will it look similar to the prior cycle? Are there any incremental savings as you get efficiency? That will be it for me. Thank you.

Speaker Change: And just a follow-up question, as things around POP, how should we think about

Speaker Change: You know, SG&A was one of the sources of upside in the quarter. How do we think about SG&A control as you ramp into the next cycle? Will it look similar to the prior cycle or, you know, are there any incremental savings as you get efficiency? And that will be it for me.

Rusty Rush: There you go. Put the heat on me on G&A. Remember one thing. S is S. S is directly tied to the sale of trucks. Okay? We run the business off of G&A. Our S is going to be down at 25% range or so all the time relating to the gross profit of trucks.

Bye.

Speaker Change: There you go, put the heat on me on GNA. Remember one thing, S is S. S is directly tied to the sale of drugs, okay? So we run the business off of GNA. Our S is gonna be around that 25% range or so all the time related to the gross profit of drugs.

Andrew Obin: Okay.

Rusty Rush: The G&A piece is what we manage on a daily basis. You can look back, that was a big contributor this last year. Big contributor. We were down almost 5%. We were down 4.9% year over year in Q4. If I'm not mistaken, it was similar, I feel like 7 in Q3, and we were sequentially flat with Q3 and Q4, but Q3 was down like 5.2, if I remember right, over Q2. We did an outstanding job, from my perspective, in managing that G&A. As it ramps up, as you ramp up parts and service, it's not like loaning cash or loaning money to someone. It does come with a G&A expense. Our goals will be to try to keep the gross profit dollar recreated on the back ends. We're going to try to keep 40% or so of that.

Speaker Change: The G&A piece is what we manage on a daily basis. You can look back at, that was a big contributor this last year, big contributor. We were down almost 5%, we were down 4.9% year over year.

Speaker Change: And Q4, if I'm not mistaken, it was similar to like 7 and Q3. And it was sequentially, we were sequentially flat with 3 and 4. But 3 was down like...

Speaker Change: Oh, 5-2 if I remember right, over 2. So we did an outstanding job from my perspective.

and managing that G and A.

Speaker Change: As it ramps up, as you ramp up parts and service, it's not like loaning cash or loaning money to someone. It does come with a G&A expense, and our goals will be to try to keep.

Speaker Change: You know the gross profit dollars recreated on the back ends. We're gonna try to keep 40% or so Of that, you know, I've got a goal to keep 50 or more, but typically it Averages out if you go in the ramp up period over a three-year cycle it will average out in that 40

Rusty Rush: I've got a goal to keep 50% or more, but typically, it averages out. If you go in the ramp-up period over the 3-year cycle, it'll average out in that 40% range, 50%. We're handling parts, we're doing this, we're doing that, we're working with whole goods, right? It takes people to do all that work. That's a great situation to be in, and if we can stay close to that 50% number in a ramp-up period, then I will be very happy about it. We're looking for that. I'm looking to get back. We were 135% down to 132% in absorption, that's a direct correlation, obviously, with gross profit on parts and gross profit and expenses.

percent range.

Speaker Change: Because we're handling parts, we're doing this, we're doing that, we're working with whole goods, right? So it takes people to do all that work, but that's a great situation to be in.

Speaker Change: And if we can stay close to that 50% number in a ramp-up period, then I will be very happy about it.

Speaker Change: And we'll continue to, we're looking for that, okay, I'm looking to get back, you know, we were $135 down to $132 in absorption. And that's a direct correlation, obviously, with gross profit on bars and gross profit on expenses.

Rusty Rush: We lost some gross profit last year, but we managed our expenses well to keep it that tight of a number to produce a year like that, when you're going negative on your parts and service, and that's not easy. Okay? I would expect us to even do a better job. I'm not going to get into specifics as to why I believe that, but the world continues to evolve. E-commerce continues to evolve, which actually helps when it comes to expenses. It's not all the way there, but it's only going one direction. Always, we should be able to do business, hopefully cheaper, okay, in the future. It's not all the way there yet. We're in the truck business. We're not in the most highly technical business in the world.

Speaker Change: You know, we lost some gross profit last year, but we managed our expenses well to keep it that tight of a number to produce a year like that. When you're going negative on your parts and service, that's not easy.

Speaker Change: Okay, so I would expect us to even do a better job. I'm not going to get into specifics as to why I believe that.

Speaker Change: But the world continues to evolve, you know e-commerce continues to evolve which actually helps when it comes to expenses It's not all the way there, but it's only going one direction

Speaker Change: So we should be able to do business, hopefully, cheaper in the future. It's not all the way there yet, we're in the truck business, we're not.

Speaker Change: the most highly technical business in the world, but it is evolving.

Rusty Rush: It is evolving, and I think there will be opportunities for us to take some of that normal what we see in expenses, when the cycle ramps up. Hopefully, we'll be able to take some of that out, with technology as we move forward. It's not ever gonna go all the way, but at the same time, we ought to be able to do a better job of trying to squeeze those expenses. We still have 390 outside salespeople, right, on the parts and service side, so they're not going away. I can see a shift in our business. Now, this is over a longer period. It continues to shift right now, more towards e-commerce, et cetera, which you would hope you could take some costs out, but it can also make it a more competitive landscape, too.

And I think there will be opportunities for us.

Speaker Change: to take some of that normal, what we see in expenses.

Speaker Change: when the cycle ramps up, hopefully we'll be able to take some of that out.

Speaker Change: technology as we move forward. It's not ever going to go all the way. But at the same time, we ought to be able to do a better job.

Speaker Change: of trying to squeeze those expenses, but it's still, you know, we still have 390 outside sales people, right, on the parts and service side, so, you know, they're not going away.

But I can see a shift in our business.

Speaker Change: It continues to shift right now more towards e-commerce, et cetera, et cetera, which you would hope you could take some costs out, but it can also make it a more competitive landscape too. So, there's a yin and a yang there that you've got going with it, but I know I'm giving you a long-winded answer, but you're used to my long-winded answers.

Rusty Rush: There's a yin and a yang there that you've got going with it. I know I'm giving you a long-winded answer, but you're used to my long-winded answers. Trust me, we'll, I think, we'll do a better job on G&A and the ramp-up than we have this year.

Speaker Change: So, trust me, I think we'll do a better job on GNA at the ramp up than we have this year.

Andrew Obin: Thanks so much.

Thanks so much.

Rusty Rush: You betcha, friend.

You betcha, Ren.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Daniel Imbro of Stephens. Your line is now open.

Thank you. One moment for our next question.

Thank you.

Speaker Change: Our next question comes from the line of Daniel Ambrose of Stevens. Your line is now open.

Brady: Yeah, thanks. Morning, everyone. This is Brady on for Daniel. Rusty, I wanted to start by asking about your different end markets. You've talked about how resilient vocational has been for you in recent years. How did that market end the year? While you've talked about how Class 8 fleet sales probably likely take until the back half to recover, how are you thinking about that vocational side of the business in 2025?

Yeah, thanks. Morning, everyone. This is Brady on for Daniel.

Speaker Change: Rusty, I wanted to start by asking you about your different end markets. You've talked about how resilient vocational has been for you in recent years. How did that market in the year? While we've talked about how class A fleet sales will probably likely take until the back half to recover, how are you thinking about that vocational side of the business in 2025?

Rusty Rush: Okay. Yeah, no, we believe it'll still remain strong. I would say we're starting to fulfill some of that, but there is still strength in vocational. Our construction business, I could possibly see a, I can't believe I'm even saying this, a little more in the oil field pickup, which we haven't had, to help offset anything else. The refuse business is still strong in 2025. I see vocational remaining strong. Maybe not as deep or as big a backlog right at the moment, but still strength in demand, right? Because you had a transmission issue for a while a year ago that actually pushed, and we weren't able to get to all of it. Now we're chewing away at that, but we still got good demand.

Speaker Change: Okay, yeah, no, we believe it was Neal Bernankstraub. I mean, we haven't seen...

Speaker Change: I would say we're starting to fulfill some of that, but there is still strength in vocational.

Speaker Change: In our construction business, I could possibly see a little more in the oil field pickup, which we haven't had, to help.

Speaker Change: offset anything else. The refuse business is still strong in 2025.

So, I mean, you know, I see.

Speaker Change: Okay, so remaining strong, maybe not as deep or as big a backhaul right at the moment, but still strength and demand, right? So because you had a

Speaker Change: You had a transmission issue for a while a year ago that actually pushed and we weren't able to get to all of it. Now we're chewing away at that, but we still got good demand. You never know. Like I said, it's crazy for me to think.

Rusty Rush: You never know, like I said, it's crazy for me to think with oil and gas, what, the last 4 years, that was a bad word. You're obviously with a different administration there, you're seeing some activity around that sector too, which we haven't had. I feel pretty good about it. Again, though, look, we're not backlogged. I can build this up in 60 days if you wanted. Okay. It's not like we've got these huge 1-year backlogs like we had in 2023. Okay. That's not the case at all. There's no such thing as allocation. There's plenty of opportunity to build trucks out there right now because, most factories, I don't believe, are running at full tilt at the moment. I mean, they're running. You have to run. There's no shutdown days or things like that.

Speaker Change: Well, with oil and gas, what, the last four years, you know, that was a bad word. But, you know, you obviously within the Democratic administration there, you're seeing some activity around that sector too, which we haven't had.

Speaker Change: So I feel pretty good about it. You know, that's again though. Look we're not backlogged

Speaker Change: I can build this up in 60 days if you want it.

Speaker Change: Okay, it's not like we've got these huge one-year backlogs like we had in 23. Okay, that's not the case at all.

So.

There's no such thing as allocation, there's plenty of them.

Plenty of opportunity to build trucks out there right now.

Because.

Speaker Change: Most factories, I don't believe, are running at full tilt at the moment. I mean, they're running, shut down days and things like that, but they could wrap up build if demand came in line, which is something, remember, in this industry, when demand hits that over the roadside, it happens fast.

Rusty Rush: They could ramp up build if in line, which is something, remember, in this industry, when demand hits that over the roadside, it happens fast, and it happens really quick. As we get into the back H2 of the year, I wouldn't be surprised to see I'm not going to call for allocation in 2026 yet, but I could see it getting there. A lot has to do with regulations and things. Back to your original question, vocational is still strong, man, and so we feel good about it.

Speaker Change: And that was really quick. So, you know, as we get into the back half of the year, you know, I wouldn't be surprised to see, you know,

Speaker Change: I'm not going to call for allocation in 26 yet, but I could see it getting there. A lot has to do with regulations and things, but back to your original question, vocational skills is wrong, man, and so we feel good about it.

Brady: Okay, great. Thanks for that color. I wanted to switch gears a bit for my second question, see if we could touch on medium duty. Medium duty's been very strong for you guys in recent years. Could you just talk a little bit about what's driving that strength and what you're expecting from medium duty in 2025?

Speaker Change: Okay, great. Thanks for that color. I wanted to switch gears a bit for my second question, see if we could touch on medium duty.

You know, medium duty has been.

Speaker Change: very strong for you guys in recent years. Could you just talk a little bit about what's driving that strength and what you're expecting from medium duty in 2025?

Rusty Rush: Sure. Well, what drove that strength? Now listen, when we went into the year, medium duty had a big backlog, right? They chewed away at it. It all happened, you have to go back when we had supply issues in 2022 and 2023, because manufacturers that built both medium and heavy chose to take componentry and put it towards heavy because they make more money on it. Well, that gave the medium duty. You had pent-up demand, where medium duty was really stretched out. They weren't running them as fast and hard to manufacture to do both. Well, guess what? Once Class 8 slowed down last year, Jerome, they chewed out the medium duty backlog. Medium duty right now is just like Class 8. I can get you one in 60 days, okay? It's not that hard to get a medium duty truck at the moment.

Speaker Change: Sure. Well, what drove that strike? Now, listen, we went into the year, medium duty had a big backlog, right? They chewed away at it. It all happened, you have to go back when we had supply issues in 22 and 23, because

Speaker Change: Manufacturers that both built both medium and heavy chose to take componentry and put it towards heavy because they make more money on it

Speaker Change: Well, that gave the medium-duty, so you had pent-up demand, medium-duty was really stretched out, they weren't running them as fast and hard, the manufacturers would do both. Well, guess what? Once Class VIII slowed down last year, so.

Speaker Change: They chewed out the medium-duty backlog, so medium-duty right now is just like class 8. I can get you one in 60 days, okay? It's not that hard to get a medium-duty truck at the moment.

Rusty Rush: While we expect, I mentioned in the call, I know that ACT has medium duty up 5-something%. Kenny's a great friend of mine. I'm not sold on all that right at the moment, for 2025, to be honest. That's just a personal opinion. I do expect we're going to have a good year. I know in the back half we've got some good stuff working in the Q4, but that's a particular transaction. We still should remain I expect to be flat, if you want to know the truth, in medium throughout the year. That's strong. Like you said, we've had strong results. I expect it to remain strong. Is there a lot more to get this year there? I don't think so. I don't see it right now.

Speaker Change: So, while we expect, I mentioned in the call, I know that

ACT has medium duty at five something percent. Hmm.

Speaker Change: Kenny's a great friend of mine. I'm not sold on all that right at the moment for 25, to be honest. That's just a personal opinion. But I do expect, we're gonna have a good year. I know in the back half, we've got some good stuff working in the fourth quarter, but that's.

a particular transaction.

Speaker Change: But we're still, should remain, you know, I expect to be flat if you want to know the truth in medium throughout the year. That would be about where I would think our medium would be. So that's strong. Like you said, we've had strong results. I expect a brainstorm. Is there a lot more to get this year there? I don't think so. I don't see it right now.

Rusty Rush: Because we've caught up with that pent-up demand that was created by medium duty not being the focus, but Class 8 being the focus of the supply side. The supply side's caught up, so medium duty's caught up. There's still good demand out there. It's just you don't have these pent-up, big backlogs like you used to have. I hope that sheds a little color on it. Personally, I'm thinking it's going to be probably flat. I do expect to be somewhat back-loaded, okay, especially in Class 8s. I'm not sure about medium duty, I can say that for sure. For sure, on the backlogs in H2, back to Class 8, that's what we talked about ramping up, hopefully ramping up throughout H2. Medium duty, probably pretty constant through the year.

Speaker Change: But, you know, because we've caught up with it in terms of demand.

that was created by.

Speaker Change: Medium duty not being the focus, but Class A being the focus of the supplies lab because the supplies lab's caught up, so medium duty's caught up.

Speaker Change: So, but there's still, you know, there's still good demand out there. It's just you don't have these pent-up big backlogs like you used to have.

Speaker Change: So, I hope that she has a little color on it. So, I'm just, personally, I'm thinking it's going to be probably flat. I think, you know, both sides, but I do expect.

Speaker Change: to be somewhat backloaded, okay, especially in H. I'm not sure about medium, I can say that for sure, you know, but for sure on the backlogs in the back half, you know, back to the eight, that's what we talked about ramped up.

Speaker Change: Hopefully, ramping up throughout the back half of the year and medium duty, probably pretty constant through the year.

Rusty Rush: Looking at a flat year over year.

but looking at a flat here over here.

Brady: Okay, great.

Rusty Rush: Where we need.

Brady: Thanks for the.

Rusty Rush: Yeah. You're welcome.

Okay, great. Thanks for the... Yeah.

Brady: Yeah, go ahead, Rusty. Okay.

Rusty Rush: No, as I said, I'd like to talk about it a minute, but I think there's another call. I'll ramble on here in a minute about some of the uncertainties and things that are out there that will really dictate the year right now. I have confidence in the year, but there are things surrounding our environment, just like there have been the last 30 days, that we're all waiting to get clarity on. With regulations, tariffs, and all that wonderful stuff, which can create a little bit of hesitation for folks out there. I did say, as I mentioned earlier, we're seeing some activity better in the last couple, 3 weeks, in spite of all the non-clarity.

Yeah, go ahead, Rushie.

Okay, no, I mean

Speaker Change: As I said, and I'd like to talk about it in a minute, right, there's another call I'm going to...

Speaker Change: I'll ramble on here in a minute about some of the uncertainties and things that are out there.

will really dictate the year right now.

I have confidence in the year, but there are things.

Speaker Change: surrounding our environment, just like there have been the last 30 days.

Speaker Change: that we're all waiting to get clarity on, which regulations, tariffs, and all that wonderful stuff which, you know, can create.

Speaker Change: a little bit of hesitation for folks out there. But I did say, as I mentioned earlier, we're seeing some activity better in the last couple of three weeks, in spite of all the non-clarity.

Rusty Rush: It's not real clear to me, as to the uncertainty about where rules and regs and how things are going to fall out here, which have a very direct correlation on the decisions that the business people make inside their truck businesses. My voice is about to go.

Speaker Change: It's not real clear to me as to the uncertainty about where rules and regs and how things are going to fall out here, which have a very direct correlation on the decisions that the business people make inside their truck business.

Bye-bye.

Maybe if I could just...

Brady: Maybe if I could just.

Rusty Rush: Go ahead.

Speaker Change: Maybe if I could just add one quick final one, you've built a lot of cash on the balance sheet in recent quarters. Can you just talk about uses of cash, Rusty? Are you seeing anything in the M&A pipeline? What are you seeing there for 2025? Well, M&A is always my first.

Brady: One quick final one.

Rusty Rush: Sure, go for it.

Brady: You've built a lot of cash on the balance sheet in recent quarters. Can you just talk about uses of cash, Rusty? Are you seeing anything in the M&A pipeline? What are you seeing there for 2025?

Rusty Rush: Well, M&A is always my first option to spend money, right? We have a committed, shoot, for 7, 8 years, 9 years, we've committed to return 35%, 40% back to shareholders, which we've been doing. Some years it might be 50, some might be 30. It just depends. We try to be opportunistic in repurchasing. We've been consistently raising our, I think our dividend, 8%, 9%, 10%, or somewhere in that range. We raise it the second, give it in the second Q2, we take a look at it. Yeah, we're in pretty good shape. For your information, we redid all our credit lines in December and got a 5-year run on all that. That has got us set up. If we need, we can pull cash. We have good cash on the balance sheet, and I have great structure to get cash if needed, quickly.

Option to spend money, right?

Speaker Change: You know, we have a committed, for seven, eight years, nine years, we've committed to

Speaker Change: return 35, 40% and back to shareholders, which we've been doing some years, might be 50, some might be 30. It just depends, you know, we try to be opportunistic in repurchasing. We've been consistently raising our

Speaker Change: Oh, I think our dividend, you know, 8, 9, 10 percent or somewhere in that range. We raise it in second, give it a second Q2, we take a look at it.

Speaker Change: Yeah, we're pretty good shape, you know, I've been out that we read you get for your information. We redid all our credit lines

Speaker Change: in December and got a five-year run on all that that has got us set up if we need, you know, we can pull cash. We have good cash on the balance sheet and I have great structure to get cash if needed.

Rusty Rush: We're set up to do M&A. We've just got to find it, right? Trust me, that responsibility falls on me. I probably need to get out and find a couple deals that do work for us. I don't have anything imminent, and I would tell you if I did.

Quickly.

Speaker Change: So we're set up to do him and I've just got to find it right and Trust me that responsibility falls on me And I probably need to get a fish find a couple deals that do work for us I don't have anything imminent and I wouldn't tell you if it did so But I mean I might say that am I always looking at my talking to other people you better believe it

Brady: Okay.

Rusty Rush: I mean, when I say that, am I always looking? Am I talking to other people? You better believe it. There's nothing huge. There's some small deals. We've added a store up in Nebraska, a couple stores in Nebraska back in the summer. Really haven't added anything but Greenfield since, a couple of Greenfield places. Yeah, I'm always in conversations, but as I said, even if it was imminent, I probably wouldn't tell you. That is the first choice of cash, and then the second choice is return to shareholders. We didn't repurchase as much last year as we did the prior year. Understand our approval is, we approved it on 1 December. When I look at what we repurchased last year, I throw in our $65 million repurchase that we had in December 2023.

Speaker Change: But there's nothing huge. There's some small deals, you know, we've managed a store up in Nebraska, a couple stores in Nebraska back in the summer. Really haven't managed anything but Greenfield since, a couple little Greenfield places. But yeah, I'm always in conversations.

Speaker Change: But as I said, even if it was eminent, I probably wouldn't tell you. So that is the first choice of gashing, and the second choice is return to shareholders. We didn't.

Speaker Change: Repurchase as much last year as we did the prior year, but understand our approval is we approve it on the 1st of December So I try it when I look at what we repurchase last year I throw in a 65 million dollar repurchase that we had

December of ...

Rusty Rush: Really, after that prior, when we approve, we approve a new $150 million every 1 December. We are repurchasing currently. Every day, we do our 10b5-1. We repurchase and acquire very consistently all the time right now. I would expect our repurchase, unless I spend it on M&A, will be more than the calendar year 2024. Should probably end up being more, I'm pretty sure, no it will, in 2025. We still believe, outside of giving you, handing shareholders a dividend, but repurchasing our stock is a clear direction from management in the belief in this organization. We've shown that throughout the last eight or nine years, consistently doing it, and we will consistently do it and continue, because I still believe we're a great value, and we've got a lot in front of us. There you go. There's your cash answer.

Speaker Change: three and really master that pride, you know, when we approve, we approve.

Speaker Change: We approve a new $150 million every 1st of December, so we are repurchasing currently.

Every day we do our 10B5.

Speaker Change: So, you know, we repurchase the required very consistently all the time right now. So I would expect our repurchase.

Speaker Change: unless I spend it on M&A, will be more than the calendar year 24 should probably end up being more. I'm pretty sure I know it will in 2025.

Speaker Change: We still believe in giving shareholders a dividend but repurchasing our stock.

Speaker Change: It is a clear direction for management in the belief in this organization, and we've shown that throughout the last eight or nine years, consistently doing it, and we will consistently do it and continue because I still believe we're a great value, and we've got a lot in front of us.

There you go, there's your cash answer.

Brady: Okay, great. Thanks for all the time this morning, Rusty. I'll pass it along.

Speaker Change: Okay, great. Thanks for all the time this morning, Rusty. I'll pass it along. Thank you, my friend. You bet.

Rusty Rush: Appreciate you, my friend. You bet.

Operator: Thank you. One moment for our next question.

Thank you. One moment for our next question.

Thank you.

Rusty Rush: Hello.

Operator: Our next question comes from the line of Avinatan Jaroslawicz of UBS. Your line is now open.

Avery Joroswicz: Our next question comes from the line of Avery Joroswicz of UBS. Your line is now open.

Avinatan Jaroslawicz: Hey, good morning.

Rusty Rush: Good morning.

Hey, good morning. Good morning.

Avinatan Jaroslawicz: Rusty, it sounds like you're interested in talking about some of the policy uncertainties, interested in unpacking some of that. Starting with the emissions regulations and the engine changeover, what are the latest conversations with customers looking like around the pre-buy? Are you hearing any more uncertainty or less?

Speaker Change: Sounds like you're interested in talking about some of the policy uncertainties, so interested in unpacking some of that. So, starting with the emissions regulations and the engine changeover, what are the latest

Speaker Change: like conversations with customers looking like around the pre-buy hearing any more uncertainty or less Yeah, well, I mean, you know, it's interesting right but good

Rusty Rush: Well, it's interesting, right? You got to know a map, right? When you go someplace, and you're going into unknown territories, it's always good to have a map where you're going. Well, we thought we had a very clear map as to where things were headed, as clear as mud is anyway, as to what was going to happen and what happened in 2024 in California, what was going to happen in 2027. Well, I'm going to tell you, I'm going to speak like I'm a customer, because I am a customer, okay? I'm the middle guy. I am a customer also. Clarity, not right now.

Speaker Change: You know, you got to know a map, right? When you go someplace and you're going into unknown territories, it's always good to have a map where you're going.

Speaker Change: Well, we thought we had a very clear map as to where things were headed, as clear as mud is anyway, as to what was going to happen in 24 in California, what was going to happen in 27. I'm going to speak like I'm a customer, because I am a customer.

Speaker Change: Okay, I'm the middle guy, I am a customer also. So clarity, not right now. If you look back in the last...

Rusty Rush: If you look back in the last, back in, prior to the new administration coming on, ACF or clean trucks, that was for our customer base, where they were gonna have to roll in electric, BEV trucks and stuff over a time frame. That was thrown out, okay? Right now, as of last Friday, for Valentine's Day, the EPA is challenging ACT or clean truck, which affects all the OEMs, which is how they're going to have to sell this many electric, can do this much, all these rules and regs. I'm not going to get into all the detail, or I got 3 or 4 people on my staff that are way more intelligent about it than I am. I know just enough to be dangerous, okay? That is up in the air because it got approved outside of Congress.

Speaker Change: Oh, back then, prior to the new administration coming on, ACF, or Clean Trucks, that was for our customer base. They were going to have to roll in electric, you know, bed trucks and stuff over a time period. That was thrown out.

I'm good.

right now, as of last Friday, for Valentine's Day.

The EPA is challenging ACT or Clean Drug.

which affects all the OEMs.

Speaker Change: which is how they're going to have to sell this many electric and do this much.

Speaker Change: you know, all these rules and regulations. I'm not going to get into all the detail or I got a lot of people, I got three or four people on my staff that are way more intelligent about it than I am. I know just enough.

Speaker Change: to be dangerous, okay? So, that is up in the air because it got approved outside of Congress. They're saying it should have been approved in Congress, so they're taking it to Congress. Now, how it all sorts itself out, that's the new administration which is obviously

Rusty Rush: They're saying it should have been approved in Congress. They're taking it to Congress. Now, how it all sorts itself out, that's the new administration, which is obviously totally different than the prior administration, okay? They're promoting, big promoters. While it's still, we understand there's an environment issue, but they're staying with carbon fuels for longer, right? While we still work on the technology piece, which in truth, is the right thing. I don't know how it's gonna shake out. I don't expect the diesel emissions regs that are in place to go into place in 2027 to change. I think it could line up. You had a 0.2 and a 0.35. I personally think, and I could be wrong, they'll probably end up settling, and this is just my personal opinion, and they go aligning it at 0.35.

Speaker Change: totally different than the prior administration, okay? They're promoting, you know, big promoters, meanwhile, still...

Speaker Change: We understand there's an environment issue, but you know they're staying with you know with Carbon fuels for longer right while we still work on the technology piece which in truth is the right thing So I don't know how it's going to shake out. I don't expect

Speaker Change: The diesel emissions regs that are in place to go into place in 2027 to change.

I think.

Speaker Change: It could line up, you know, you had a 0.2 and a 0.35. I personally think.

Speaker Change: I could be wrong, but they'll probably end up settling, and this is just my personal thing, and they go on lighting it at 035. Well, that's still, you've got to clean it up more, okay? Remember, we're just talking about diesel. It's still diesel.

Rusty Rush: Well, that's still, you got to clean it up more, okay? Remember, we're just talking about diesel. It's still diesel. We're taking the BEV piece and taking the electric piece and pushing it out. That's what's gonna happen. Taking some of your greenhouse gas stuff and which is tied to the BEV in 2030 and all these other years, I expect all that to get stretched out. That's my opinion, okay? I do expect the new rules and regs around diesel to stay. Now, are they gonna stay in the same context the way they're written now, where you've got these huge long warranties on aftertreatment, that have never existed? They take up a lot of the cost. You're talking, nobody's really given a price of that. They're like all manufacturers. All manufacturers wait and then surprise you. We're talking, what, $15,000, $20,000, and with after-treatment?

Speaker Change: We're taking the BEV piece and taking the electric piece and pushing it out. That's what's going to happen. That then taking some of your greenhouse gas stuff, which is tied to the BEV in 2030 and all these other years, I expect all that to get stretched out.

Speaker Change: That's my opinion. Okay. I do expect the new rules and regs around diesel to stay now They're going to stay in the same context the way they're written now Where you've got these huge long warranties on after treatment

Speaker Change: that have never existed, that take up a lot of the cost. You know, you're talking.

Speaker Change: Nobody's really given a price of it. They're like all manufacturers, all manufacturers wait and then supply it to you. But you know, we're talking about $15,000, $20,000.

Speaker Change: And you know, we'll have to treat with now a lot of that is around the is written is because of the war cheese

Rusty Rush: Now, a lot of that is written in, is because of the warranties. Could those change? I hear rumors all the time that they might change a lot of that cost. That would change some of the costing of it. I don't know that it will or it won't, but all those types of issues are what are going to be vetted here pretty quickly. Look, we've been cleaning diesel up for a long time. Go back to 1988. 60 trucks today produce what 1 truck produced back then when it comes to NOx and things like that. That's a crazy number to me. We cleaned it up in 2004. We cleaned it up in 2007. We cleaned it up in 2010. We're going to clean it up again.

Speaker Change: Could those change? I hear rumors all the time that they might change a lot of that cost. So that would change some of the costing of it. I don't know that it will or it won't, but all those types of issues.

Speaker Change: Our water is going to be vetted here pretty quickly. We are still low.

Speaker Change: We've been cleaning diesel up for a long time, I mean, go back to 1988.

Speaker Change: Sixty, I said, sixty trucks today produced what one truck produced back then when it comes to NOx and things like that. That's a crazy number to me.

Speaker Change: We cleaned it up in 2004, we cleaned it up in 2007, we cleaned it up in 2010, so we're going to clean it up again.

Rusty Rush: We're going to slow down what those numbers turn out to be, what those warranties, I can't tell you yet, because that was Friday, it was Happy Valentine's Day. Later, they just announced, the EPA did, that they're going to try to run this all back through Congress. The OEMs have spent way too much money on this after-treatment stuff, preparing for this. I don't see it going away. All we're doing is cleaning up diesel, man. We've done it a lot. We've done it for decades, okay? That's the right thing to do. The right thing to do is to do that, push out some of these BEV requirements because they're way ahead. Look, I'm sorry, I'm just talking plain. We got 120 years of infrastructure around internal combustion, and we're going to change it in 6, 7 years? Give me a break. Okay?

Speaker Change: But we're going to slow down, what those numbers turn out to be, what those warnings, I can't tell you yet. Because, you know, that was Friday, it was Happy Valentine's Day. Later they just announced, the EPA did, that they're going to try to run this all back through Congress. And I, but the OEMs, I don't know. I don't know.

have spent way too much money.

on this after-treatment stuff, preparing for this.

Speaker Change: So, I don't see it going away. All we're doing is cleaning up diesel, man. We've done it a lot. We've done it for decades, okay? So there's nothing that's the right thing to do.

Speaker Change: The right thing to do is to do that, push out some of these BEV requirements because they're way ahead. I mean, look, we've got a hundred and...

Speaker Change: I'm sorry, I'm just talking plain. We've got 120 years, 120 years of infrastructure around internal combustion.

Speaker Change: And we're going to change it in six, seven years. Give me a break. Okay. We don't have a grid. We don't have the infrastructure. There are so many. Is it the right thing probably to do long-term? Yes. But also doing it with automotive is different. The crux.

Rusty Rush: We don't have the grid. We don't have the infrastructure. There are so many. Is it the right thing probably to do long-term? Yes. Also doing it with automotive is different than trucks. Trucks do so many different applications. You know what a car does? I don't care if it's a Kia or a Ferrari. It goes from point A to point B. Okay? That's what a car does. Trucks, I don't care if they're picking up garbage, pouring concrete, hanging signs, in the oil field, over the road. They do so many different applications that I expect it to be a multi-pronged answer when we get there. It doesn't get done in this short period of time. There you get Rusty's rambling on about his own thoughts. We'll get it done in 20 years. BEV will be more.

Speaker Change: Trucks do so many different applications. You know what a car does? I don't care if it's a Kia or a Ferrari. It goes from point A to point B.

Speaker Change: Okay, that's what a car does. Trucks? I don't care. They're picking up garbage, pouring concrete, hanging signs in the oil field, over the road. They do so many different applications than I expected to be in Maldives.

prong answer when we get there.

Speaker Change: But it doesn't get done in this short period of time.

Speaker Change: So, you know, there you get Rusty scrappling on about his own thoughts. We'll get it done in 20 years. We'll get Beville B. Moore. Beville B. for a lot of applications, you know, around town and this, that, and the other. But we don't have the necessary components.

Rusty Rush: BEV will be for a lot of applications around town and this, that, and the other. We don't have the necessary components. I use this in my simple way. Some people think it's like plugging in a hair dryer. Let me tell you something, it's not, okay? It's way more complicated than that because of the grid and infrastructure and everything else. We can't even catch up on the cars, right? Automobiles will be way easier to do than trucks because of all the different applications. You're getting a long, rambling answer, as I always say, but I expect we're going to go through with the diesel changes. They could tweak them. They could tweak the warranties. We're not going to change flipping the diesel switch again in 2027 because there's been too much spent, too much prepped. We will go through in some form or fashion.

Speaker Change: I mean, you know, I use this in my simple way. Some people think it's like plugging in an air dryer. Let me tell you something. It's not. Okay. It's way more complicated than that because of the grid and the infrastructure and everything else. We can't even catch up on the cars, right? And automobiles would be way easier.

to do in flux because of all the different applications.

Speaker Change: So you're getting an all-rambling answer, as I always say, but I expect we're going to go through with additional changes that could tweak them, but if we could tweak the warranties.

But we're not going to change.

Speaker Change: I'm flipping the diesel switch again at 27 because there's been too much spent.

Too much prep.

Speaker Change: We will go through in some form or fashion, but what will happen is the other stuff will get pushed out to give

Rusty Rush: What'll happen is the other stuff will get pushed out to give our industries time to refine the technology and the things that are needed to do it properly, okay. We're not there, man. To do all that we were trying to do, I understand we got to do a better job cleaning the environment up, but we got to do it within the bounds of reality. There's your answer. I think there'll be a free-buy. I don't know how it all shake out to how much, because anytime you come with new after-treatment and stuff, boy, do I remember 2010. Okay. Everything was all this DPF clogged everywhere, et cetera. I'm not saying that that'll be the case, but I'm saying there always is issues. We'll be dealing with issues with all the new diesel technology, which is typical, okay. When you do things like this.

Speaker Change: To give our industries time to refine the technology and the things that are needed to do it properly, okay? We're not there, man, and to do all that we were trying to do. I understand we've got to do a better job cleaning the environment up, but we've got to do it within the bounds of reality.

Speaker Change: How it all shake out how much because anytime you come with new after treatment and is that more do I remember 2000, Dan Okay. Everything was galvanized dps clog everywhere et cetera et cetera.

Speaker Change: But that will be the case, but I am saying there always is.

Speaker Change: What we're dealing with issues with all the new diesel technology, which is typical.

Speaker Change: When you do things like this that's how it works, but it's something we can work on a new southern we've got 100 plus years dealing with right. So we'll figure all of that while behind the savings we do the right things to get into these other technologies whether it.

Rusty Rush: That's how it works. It's something we can work on and do, something we've got 100-plus years dealing with, right? We'll figure all that while behind the scenes, we do the right things to get into these other technologies. Not everything's going to be electric, hydrogen, and fuel cell and all this other, while that continues to progress. Then it'll take its place over the next 20 years.

Speaker Change: Whether it is not everything is going to be electric and hydrogen fuel cell and all this other while that continues to progress and then Europe.

Speaker Change: It will take its place over the next 20 years.

Avinatan Jaroslawicz: That makes sense to me, and I appreciate the perspective there. Shifting over to tariffs. I know you noted that the uncertainty around that and the prospect that it could really increase the price of trucks and squeeze demand.

Speaker Change: That makes sense.

Speaker Change: Right the perspective there.

Speaker Change: Shifting over to parents. So I know you noted.

Speaker Change: Okay.

Speaker Change: The uncertainty around that.

Speaker Change: <unk>.

Speaker Change: That it could really increase the price of trucks.

Rusty Rush: Oh, man.

Speaker Change: Squeeze demand, Matt So I guess two things there one just could you help frame for us what that is.

Avinatan Jaroslawicz: I guess two things there. One, just could you help frame for us what that impact be on the cost of a new truck.

Speaker Change: Impact beyond the cost of a new truck.

Rusty Rush: Sure

Avinatan Jaroslawicz: With the uncertainty, are you doing anything differently this year in terms of managing your inventory to try to mitigate that risk?

Speaker Change: And also.

Speaker Change: With certainty.

Speaker Change: Are you doing anything differently. This year in terms of managing your inventory to try to mitigate that risk.

Rusty Rush: Well, first off, about 17 days ago, maybe 18, on a Saturday, I'm going, "Are you kidding me?" Okay. We're really going to put 25% tariffs on Mexico and Canada? I understand the Chinese part, but the automotive sector, and I'm not just talking trucks, there is nothing more tied to Mexico than the automotive sector, okay? All the suppliers, all the manufacturers, everybody's got plants down there and stuff. It's like, you got to be kidding me. I don't understand fentanyl, but I read about it, and I understand the immigration issues. You're messing with an economy now, let me tell you. If it's manufactured down there, you're talking $30,000, $40,000 in a truck. Even if trucks that are manufactured in the US, they'll have components for you in them. If you put a 25% tariff on there, that'd probably be another $10,000.

Speaker Change: Well first of all.

Speaker Change: Hum.

Speaker Change: 17 days ago, maybe 18 on a Saturday.

Speaker Change: Governor you candidly.

Speaker Change: We're really going to put 25% tariffs on Mexico and Canada.

Speaker Change: I understand the Chinese part, but the automotive sector and I'm not just target drugs. There is nothing more jive to Mexico than the automotive sector. Okay Highway all of the suppliers all of the manufacturers everybody's got plants down there and stuff.

Speaker Change: And it's like you had any kidney.

Speaker Change: I understand.

Speaker Change: I don't understand.

Speaker Change: And I understand the immigration issues, but.

Speaker Change: Your medicine with an economy now let me tell you.

Speaker Change: Youre for Utah.

Speaker Change: Target, if it's manufactured down there jargon $30 $40000.

Speaker Change: And even as trucks that are manufactured in the U S. They all have components.

Speaker Change: If you put a 25% tariff honor that probably be another 10000 automobiles will be six to 8000 have been on who and where and what it gives is always remember the Devil's in the detail design brand right. So I'm not the expert on all of that but I got to tell you that makes absolutely zero cents to make I believe.

Rusty Rush: Automobiles would be $6,000, $8,000, depending on who and where and what. Remember, the devil's in the detail and the fine print, right? I'm not the expert on all of that, but I got to tell you, that makes absolutely zero sense to me. I believe I've told everybody since the new administration was announced back in November that it's a negotiation. I cannot believe that we would go do that. Look, those factories, it's not like China. Those are our factories. I'm on the border. I've been on the border. I'm born and raised in Texas, okay? I have the whole border from Peterbilt all the way from Tijuana to Brownsville. I understand. We built those maquiladora plants back in the '80s, okay? They're our stuff. More and more and more. I cannot see doing that. I just truly can't see. We own them.

Speaker Change: Everybody says.

Speaker Change: New administration was announced back in November.

Speaker Change: It's a negotiation.

Ken: Ken I believe that we would go do that.

Ken: Those factories like China, those are our fabrics, along the border outbound and more and more and raised in Texas So that.

Ken: I have the old order for Peterbilt ball away from Tijuana to Brownsville.

Ken: We built those maquiladora plants back in the age Okay, there are more and more and more.

Ken: Let's see.

Speaker Change: Doing that I've, just truly can't see we own them its not like <unk>, Bob genre, we outmost factories okay.

Rusty Rush: It's not like we buy them from China. We own those factories, okay? It just makes absolutely zero sense to me. We need a strong, solid neighbor on the south, and it's just a labor position. We build all that stuff down there, but it's all our stuff, man. It really doesn't make any sense to me. Would there be disruption? Yes. Is there something I can do? Well, first somebody tell me a date. I got 2 weeks? Okay, no, I can't do anything in 2 weeks. We would just deal with it. You talk about crippling industry. You got to realize, Laredo, Texas, that's the biggest port in the United States. I don't care about these ocean ports. There's more freight coming through out of Mexico than you can I'm on I-35. I can look out my window right now.

Speaker Change: This makes it absolutely zero sense to me.

Speaker Change: We made a strong solid neighbor almost out.

Speaker Change: It's just the labor.

Speaker Change: We build all of that stuff down there, but it's all our stuff.

Speaker Change: So it really doesn't make any sense to be would there be disruption, yes, his or something I can do a first some idea, albeit alright.

Speaker Change: Alright at two weeks, Okay, No I can't do anything in two weeks, we would just deal with it but can you talk about cripple an analyst.

Speaker Change: Got to realize like Laredo, Texas, that's the biggest port in the United States I don't care about these ocean courts, there's more freight governments out of Mexico.

Speaker Change: 135, I look out my window right that.

Rusty Rush: Over half the vehicles are trucks going up and down the highway, okay? It's all from manufacturing that goes on in the South. I don't know where we'd come up with the workforce to do it all anyway, as we work our way through it. I'm getting into my own personal views here about all that, but you're going to know because I don't mind telling them. It just makes no sense to me. I've got to believe it's saber-rattling and negotiations. Maybe there will be some hand slaps and things like that on the wrist or something. I'm not close enough to the government to really know what they're thinking. I don't see doing that with your two bordering neighbors, one to the north and one to the south, the only ones you border, okay?

Speaker Change: Over half the vehicles or trucks going up and down the highway okay.

Speaker Change: Thats all.

Speaker Change: We're manufacturing that goes on in the south.

Speaker Change: What we've come up with a workforce to do it all anyway.

Speaker Change: As we work our way through it but I'm getting into my own personal views here about all of that but youre going to know because I don't timetable.

Speaker Change: So it just makes no sense to me I've got to believe it's sabre rattling in negotiations.

Speaker Change: There are obvious manned slabs and things like that on the risk or something.

Speaker Change: I'm not close enough to the government didn't really know what they're thinking.

Speaker Change: But I don't see doing that with your two bordering neighbors wanted to the northern one to the south of the only ones you bore okay.

Rusty Rush: I have a hard time making sense out of that personally, especially when we built it all. Okay. We drove all that ourselves. Wasn't driven by. Do people have plans? Yeah, OEMs have contingency plans around how they would get around it, but it would be costly, and it would be cumbersome to implement and take time. Sure they do. OEMs are thinking about it. They have to. I have to. Yes, I've thought about it. I have a hard time believing we're really going to do this with Mexico and Canada. That's just my opinion. I could be dead ass wrong. Excuse me, dead wrong. Don't worry, we've thought about it. Behind the scenes, yes, there are plans as to what we would do, how we would react. I just have a hard time believing we'd really do it.

Speaker Change: I have a hard time, making sense out of that first solid, especially when we build at all.

Speaker Change: So I think we drove all that ourselves wasn't driven by it.

Speaker Change: Over.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: People have plans, yes Oems.

Speaker Change: Tangency plans around how they would get around it.

Speaker Change: It would be costly.

Speaker Change: It would be cumbersome to Epsilon there tend to take time, but sure they did.

Speaker Change: Oems are thinking about it they have to answer yes, I've thought about it but.

Speaker Change: But I have a hard time, believing we're really going to do this with Mexico and again, that's just my opinion it'd be that asphalt was confusion make dead wrong.

Speaker Change: But.

Speaker Change: Don't worry.

Speaker Change: We've thought about it we are behind the scenes, yes their plans as to what we would do how would we were how we would react I just have a hard time believe it we really do it.

Avinatan Jaroslawicz: That makes sense. I guess moving a little bit away from the uncertainty towards what we're seeing today. I know H2 of last year, there was a bit of discounting on new truck pricing, and so just wondering if that's something that we should be expecting here for H1 of 2025 as well.

Speaker Change: And that makes sense.

Speaker Change: Moving a little bit away from the uncertainty.

Speaker Change: Yeah.

Speaker Change: Towards what we're seeing today.

Speaker Change: So I know the second half last year, there was a bit of discounting on new truck pricing and so just wondering if that's something that we should be expecting here for the first half 'twenty five as well.

Rusty Rush: No, I expect most of the stuff that we're doing right now is pretty flat. Slight, I mean slight, maybe increase. I don't see a lot of discounting. Maybe a one-off deal here or there, but there's not broad-based discounting going on. We'd already taken margin out last year, okay? When I say that, the manufacturers, and then through us, and we've managed to maintain a good blended margin. That's what I always tell folks. Remember, we don't sell just heavy duty. We sell medium, we sell used. We've done a pretty good job of keeping it over 9% or better of blended margin. Was new compressed a little bit? Yes. Do I see it getting compressed a whole lot more? No. We've already been a little bit compressed on it. I think most OEMs, where we've been planning on having a pre-buy, right?

Speaker Change: No I expect most of the stuff that we're doing right now.

Speaker Change: It's pretty flat.

Speaker Change: Slight timing slight maybe increase I don't see a lot of discounting.

Maybe a one off deal here or there, but there's not broad based discounting going on I mean, we'd already taken margin out last year.

Speaker Change: Some of them are when I say that.

Speaker Change: In other manufacturers.

Speaker Change: Through us and we've managed to maintain.

Speaker Change: Good blended margin as well as tell folks remember we don't sell just heavy duty was immediate which are used so we've done pretty good job.

Speaker Change: I'll keep it over 9% or better.

Speaker Change: Blended margin, so was new compressed a little bit yes.

Speaker Change: Glad to see Youre getting compressed a whole lot more no.

Speaker Change: We will be pretty.

Speaker Change: We've already been to wane, a little bit depressed on it so I don't I would say most Oems.

Speaker Change: Planning on having a pre buy right. So.

Rusty Rush: They were trying to maintain what they felt. You can look, their margins are off some. You can look at it later in the back H2 of last year, there's no question. I don't know how much more there is to take out of that. I think there'll be enough demand to keep things pretty flat, to be honest with you, without getting any increases in anything off either. I expect everything to stay pretty flat.

Speaker Change: We're trying to maintain what they felt their margins are awesome.

Speaker Change: You can look at it later in the back half of last year. There is no question.

Speaker Change: But.

Speaker Change: I don't know how much more there is to take out of that I think there'll be enough demand to keep things pretty far out to be honest with you without giving any increases in anything.

Speaker Change: I expected anything because they're pretty flat.

Avinatan Jaroslawicz: All right. Very helpful. That's it for me. Appreciate the time. Thank you.

Speaker Change: Alright very helpful.

Speaker Change: That's it for me I appreciate the time. Thank you you bet.

Rusty Rush: You bet. Thank you, sir.

Speaker Change: Thank you Sir.

Operator: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Rusty Rush for closing remarks.

Speaker Change: Thank you I'm showing no further questions at this time.

Rusty Rush: Turning back to Rusty rush for closing remarks.

Rusty Rush: Okay. I guess I look forward to talking to everybody in April. This is the shortest time between calls. I about talk to everybody in about two months. Thank you for your participation today.

Rusty Rush: Okay, I guess I look forward to talking to everybody in April since the show.

Rusty Rush: <unk> time between calls, but I've talked to everybody about two months and thank you for your participation today.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].