Operator: for the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.
Ken Hastings: Thank you, Joel, and good morning, everyone. My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer, Kevin Baney, President, and Brice Poplawski, Senior Vice President and Chief Financial Officer. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings and the Investor Relations page of paccar.com. I would now like to introduce Preston Feight.
Preston Feight: Hey, thank you, Ken, and good morning, everyone. Kevin, Brice, Ken, and I will update you on PACCAR's excellent Q3 financial results and business highlights. I would like to start by thanking our wonderful employees all around the world who did a fantastic job of providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR delivered excellent revenues of $7.94 billion and net income of $847.5 million in the Q3. This is 19% revenue growth and 44% profit growth compared to the same period last year. PACCAR Parts had record quarterly revenues of $1.78 billion, and PACCAR Financial Services, $138 million in profit, was an increase of 9.4% compared to the same period last year.
Preston Feight: We estimate this year's US and Canadian Class 8 market to be in a range of 240,000 to 260,000 trucks, and next year to grow and be in a range of 240,000 to 280,000. The US and Canadian truck market is being driven by economic growth, continued investments in infrastructure, and the general freight market recovery. In Europe, we project this year's above 16-ton market to be in a range of 300,000 to 320,000 units, and in a similar range for 2027. This represents continued truck replacement in a region with steady economic growth. We estimate this year's South American above 16-ton truck market to be in the range of 100,000 to 105,000 vehicles, and next year to be up slightly and in the range of 105,000 to 115,000 trucks. PACCAR's premium trucks are performing very well for customers throughout all of Latin America.
Preston Feight: Based on strong customer orders, PACCAR increased deliveries to 40,100 trucks in Q3. Delivery volume will increase in Q4 as suppliers become more able to ramp up their production to meet continued strong customer demand. Q4 deliveries are anticipated to increase and be in the range of 41,000 to 43,000. PACCAR's Q3 trucks, part, and other gross margins were a strong 14.5%. Q4 gross margins should remain high, and again, be in the range of 14% to 15%. We look forward to a strong finish to this year and another very good year in 2027, as our customers benefit from PACCAR's excellent trucks and new transportation solutions. Kevin Baney will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights.
Kevin Baney: Thank you, Preston. PACCAR Parts achieved record Q3 revenue of $1.78 billion. This record is a result of investments in parts distribution, growth of the TRP All Makes brand, expanding transportation solutions, and increasing dealer retail locations. We anticipate continued growth in Q4. PACCAR Financial Services' pretax income was a robust $138 million, with 9.4% year-over-year growth. These excellent results reflect stable finance margins and higher used truck pricing. Similar to PACCAR Parts, PACCAR Financial provides steady foundational profitability during all phases of the business cycle. Last week at the American Trucking Associations Truck Conference, PACCAR proudly introduced its next-generation transportation solutions platform called PACCAR Connect. This system provides a state-of-the-art technology platform in a beautifully integrated vehicle display.
Kevin Baney: PACCAR Connect has the ability to bring together fleet telematics systems, PACCAR truck data, customer-specific productivity applications, Apple CarPlay, and electronic driver logs into a fully integrated system. This system will serve as a unifying platform that will enhance customer productivity and create new revenue streams for PACCAR. This year's capital expenditures are projected to be between $650 million and $700 million, and research and development expenses will be $440 million to $460 million. In 2027, we estimate the company will invest $650 million to $700 million in capital projects and $460 million to $500 million in research and development expenses. Key technology and innovation investments include next-generation clean diesel, hybrid and battery electric powertrains, growing the parts business, enhancing manufacturing capabilities, and expanding the connected vehicle offerings.
Kevin Baney: PACCAR's industry-leading trucks, best-in-class parts and financial services businesses and advanced technology strategy position the company for an excellent future. We are pleased to answer your questions.
Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Steve Volkmann with Jefferies. Your line is now open. Please go ahead.
Steve Volkmann: Great. Thank you, guys. Good morning.
Preston Feight: Good morning, Steve.
Steve Volkmann: A couple quick ones here for me, and I will pass it on. One, Preston, I think you mentioned that you expected supply chain to catch up, and I think your deliveries this quarter might have been slightly less than what you had projected. Are you seeing supply chain constraints that are limiting that, or was that just normal variability?
Preston Feight: Yeah, Steve, that is a nice observation. Our deliveries in Q3, 40,100, were somewhat affected by supply constraints, and as we and others are building more trucks, I think the suppliers are trying to get up to speed on that. That is kind of what affected Q3 and what we think is improving in Q4 with the guide to 41,000 to 43,000 trucks. We are working closely with our suppliers to make sure they get the parts to us and we can build trucks. Makes it a lot easier to build the trucks when we got the parts.
Steve Volkmann: Okay, that makes sense. The second one, I am curious how you are thinking about or how you are even interacting with customers relative to 2027 now, because I am imagining, but please correct me if I am wrong, that it is actually hard to price trucks for 2027 when we do not know the NCPs yet. That probably makes it hard to take orders. Are you taking orders for 2027? If so, can you provide any color as to what people are actually ordering relative to engines?
Preston Feight: Hey, Steve, that is great. We made the observation of it is easier to build trucks if you got parts, and it is easier to price trucks if you know the cost. I think that the government is doing a very nice job, actually, of looking at the 2027 emissions regulations and figuring out how they are able to set the NCP levels. As you noted, they are not finalized yet, and I think that does give some customers pause about what their price will be. We have had excellent discussions with our customers. We have known them for many years, and ATA was a great opportunity to sit with a lot of them and talk about what their needs are for 2027.
Preston Feight: I think they feel, everyone we met with feels like they would like to keep buying the 200 milligram engines so they have time to prove out the technology of the new engines, the lower NOx engines. I think they are starting to place their orders. We are seeing good inquiry and increasing order intake, but obviously, that will likely increase as we have certainty around NCPs.
Steve Volkmann: Understood. Thank you so much.
Preston Feight: Yep.
Operator: Your next question is from Jerry Revich with Wells Fargo. Your line is now open. Please go ahead.
Jerry Revich: Yes, hi. Good morning, good afternoon, everyone. I am wondering if you could just talk about the lead indicators that you are tracking for the PACCAR Parts business. What do you expect the outlook to be over the next couple of quarters? Normally, you folks have some visibility a couple of quarters out, given contract rates are moving higher. I wonder if you could just give an update on how you are thinking about the cadence.
Kevin Baney: Jerry, this is Kevin. As we look at the PACCAR Parts business, right now in a smaller parts market, team has done a great job increasing volume, growing share. Share is one of those things that we measure. And right now, with customers have elevated operating costs, they have got higher diesel prices, they have got an increased number of unseated trucks, and so they are focused on really required maintenance at this point. And so, we spend a lot of time working with them. One of our key things we look at is our share of wallet with our customers, and we have been able to grow share and increase while they are at elevated costs. And as things return to more normal conditions for them, we anticipate to keep growing.
Jerry Revich: When do you think that will be based on what you are hearing? Do you expect an acceleration exiting Q4, or is it possible to get a sense, Kevin?
Kevin Baney: Yeah, we anticipate continued growth into Q4, and we have been able to grow share, so that is a key metric for us. I think we really provide ease of doing business with our customers, so we continue to grow the revenue with them, gain share, and anticipate that to continue.
Jerry Revich: Super. Can I ask the margin outlook, 14% to 15% for Q4? What we are hearing is really good pricing for Q4 delivery slots and a sequential improvement from Q3 pricing. Does the margin outlook embed some of the uncertainty on the parts side versus improved profit per unit on the truck side, or can we just unpack the push and the pull there, if you don't mind?
Preston Feight: Yeah, sure. I think a simpler way to think about it is when we are building trucks and we have to deliver or build them without all the parts, there is a cost adder in that. So that has some impact to price cost in the quarter as we think it might occur. Obviously, we are doing everything we can to minimize that. I think the PACCAR Parts team is, as Kevin said, doing a great job of getting the market share gains, margin growth, so we feel positive about how they are doing. I think as we look at our pricing power, it has been good with our customers.
Preston Feight: There is a strong demand for the 200 milligram engines, which we think carries into 2027 as well. So it feels pretty positive from that standpoint. It is really just about those efficiencies that we have to deal with in Q4. And I think the other part of it is, it is always a function of there is a lag factor between pricing a truck and your backlog, so that sits into the factors as well.
Jerry Revich: Appreciate the discussion. Thank you.
Preston Feight: Yeah. Great. Good talking to you, Jerry.
Operator: Your next question is from Tami Zakaria with JPMorgan. Your line is now open. Please go ahead.
Tami Zakaria: Hey, good afternoon. Thank you so much. I will ask one question today. I heard you comment about some delays in how customers are trying to, or there is delays in how they are trying to decide what to order next year. As you are part of those discussions, are you getting a sense that customers are looking to buy the non-compliant engines and planning to pay a penalty on it, or is there willingness to adopt a compliant platform even if it comes with a higher cost? Any color on which direction customers are leaning towards at the moment?
Preston Feight: Sure. I think one of the things I would start with, Tami, is to say that we have very good visibility right now. Obviously, the year is full and we are filling the first quarter, so that is a pretty positive position to begin with. I think the customers are beginning to order, but it is just the beginning of that when they would expect the fleets to be thinking about their capital allocations for next year, so that is kind of a part one of your commentary. Then I would share, and we have said this a lot, we have not met with a customer, so every customer we meet with is much more interested in proven, stable technology that they have had time to vet in their operations.
Preston Feight: They are asking for us to deliver to them trucks with the 200 milligram and an NCP, because that makes their operation smoother compared to introducing new technology from any manufacturer that they have not had enough time with. That is kind of where the world sits right now.
Tami Zakaria: Understood. Thank you.
Preston Feight: You bet.
Operator: Your next question is from Rob Wertheimer with Melius Research. Your line is now open. Please go ahead.
Rob Wertheimer: Thank you. I think Kevin mentioned half a dozen things that could affect PACCAR Parts margin, which was down a little bit year-over-year this quarter, from mix to maybe people delaying some purchases to investments. I wonder if you could just break that down, and is there any kind of price competition that has led to lower margin, or is it other factors?
Kevin Baney: Rob, it is just primarily mix right now due to the elevated operating costs that we see with the customers. We have great trucks with a lot of proprietary content. The engine business, I mentioned the connected, so really see as the customers' operating conditions improve, we see a nice balance of that mix back between all makes and proprietary.
Preston Feight: Rob, I would just add on what Kevin said and echo it in different ways. Think about the way the enforcement of CDLs went in 2026, and they pulled a lot of trucks out of service. If the trucks pulled out of service and they are sitting against the wall, if you will, then that means that there is less miles driven on some of those newer trucks. It is just postponing parts purchases. We think that will come back, obviously, and that is kind of what Kevin said with high fuel prices being the other factor. That is just kind of the way the market is running, and I am so pleased with what the team has been able to do in terms of growing the parts business in a market which is kind of constrained. They have done a really nice job in that factor.
Rob Wertheimer: All right, thank you. If I may sneak in another one, you mentioned a couple times the launch of PACCAR Connect and potentially even new revenue streams that might come out of it. What are the biggest kind of pain points, whatever you want to call it, that your customers are feeling that might be solved by this, and how does that evolve over time? I will stop there. Thank you.
Preston Feight: Yeah. Thanks, Rob. Great question. We are really excited about this. The product is really cool. I do not know if you had a chance to see it, but to get in one of the new Peterbilt or Kenworth trucks with the integrated system, I mean, what you end up with in today's world is people install third-party telematics systems into their truck, which requires getting into the dash, cutting things, installing hardware, and this eliminates the need to do that. Step one is it gives us, PACCAR, an opportunity on a hardware side, because now we are doing that work for the customer in a much more integrated factory direct manner. They are all going to be excited about that. We hear that from them.
Preston Feight: You think they get the choice of the telematics system they want to put in, as we are doing this as some kind of an open source system, kind of like an, you can akin it to an iOS on your phone, an operating system on your phone where you can add applications that can be bespoke to a customer, specific to a customer, or they can be PACCAR applications, and those applications can be revenue accretive for PACCAR. They are also really beneficial to our customers. You think about how it builds into the parts business in the future, as we understand what the truck is doing, it gives us the opportunity to do predictive maintenance on the truck or direct it towards our dealerships. Integrating our businesses with our customers in a way that is beneficial for their profitability and ours feels like just an exciting time.
Kevin Baney: Yeah. I'll just add to it. It allows us to stay connected longer with the customer through their operating cycle, so ease of doing business around the parts business will really help.
Rob Wertheimer: Thank you. Perfect.
Operator: Your next question is from Lewis Merrick with BNP Paribas. Your line is now open. Please go ahead.
Lewis Merrick: Yeah. Good morning, everyone. Thank you for taking my question. Just one from my side. A quick one on tariffs. Are you able to confirm there was still some one-off benefit from tariffs during the quarter? If so, how much? Should we expect there to be further one-off benefit coming in Q4? Is Q1 then the point where we sort of get to a clean sort of point from a tariffs perspective?
Preston Feight: Lewis, what we have seen is the tariffs have gotten a little more stable. We have still seen tariff costs that we incur as we are importing. We have had some benefits as well, but it is really not been material to the results of our performance. So, it is just kind of in the mix.
Lewis Merrick: Okay. So, just to be clear, there was not any sort of one-off benefit in Q3?
Preston Feight: No, it is kind of like it is just continuing as we sort through the tariff process and work with the suppliers and work with the government and try to get clarification on it.
Brice Poplawski: Yeah, this is Bryce. A comparable, I think we mentioned in the Q2 as well during the call, comparable kind of activity.
Lewis Merrick: Okay. All right. Thank you very much.
Operator: Your next,
Preston Feight: Thanks, Lewis.
Operator: Your next question is from David Raso with Evercore ISI. Your line is now open. Please go ahead.
David Raso: Hi. Thank you for the time. You used to speak to gross margins as the Q3 guide and then further increases in Q4. Just so we are clear, the change and now the Q3 to Q4 gross margins are more flattish as a base case. Is that more because the truck margins are not going to grow sequentially the way you would have thought due to the supplier-related inefficiencies? Or is it also related to the PACCAR Parts margins being less than you thought? Then I just had a quick follow-up on truck margins more broadly.
Preston Feight: Yeah, David, good to talk to you. I would say that your first comment is more accurate than your second comment, in that it is just the cost of production right now is having some impact. We are seeing great truck pricing, but it is just that uncertainty there.
David Raso: Well, that is why I wanted to back into the second question. So, the profitability per truck was the highest since the Q4 2024, and you did it with 3,800 less trucks delivered, right? So, it appears very impressive. You did have more US/Canada mix this quarter than back then. Price/cost was negative back then. I am not sure if you commented if price/cost was still positive this quarter like last, so maybe you can confirm that. But I think we are all just trying to level set. All right, maybe the supplier issue does not extend into 2027, but what do I do with the Q4 margin as a launchpad thinking about 2027? I know there is a lot in there with penalty revenues on the trucks in 2027 and how that dampens the margin.
David Raso: But again, just trying to think through this margin performance and how to think about the Q4 launch for 2027 thoughts. Thank you.
Preston Feight: Yeah. David Raso, like usual, you give these great questions. It's fun to talk with you. You bring up a very important point, is to think back at just a year ago in September of 2025, net income was $590 million. in this quarter, it's $847 million. So the teams have just done a fantastic job each quarter increasing total profitability, and they've done that through truck pricing and through disciplined operating performance like PACCAR always does. It sets us up really well for the future, puts us in a very strong position to look forward into things. Obviously, the more stable the market is and the more clean the production costs are, the easier it gets for us. I think you asked or you mentioned, which I think was kind of an ask, about price/cost, and price/cost remained favorable in the quarter.
Brice Poplawski: That was mostly due to, on the price side, the favorable price realization we're getting on our truck price.
David Raso: I guess I asked the question without asking you for guidance for 2027 truck margins. Would you look at this Q4 then with, again, the drag of maybe pass-through revenues with not much margin on the penalty, but assuming less supplier issues? Just how would you want us to think about 2027 truck margins versus this Q3, Q4 kind of run rate?
Preston Feight: Yeah, great. That's a great way to think about it. If you think about 2027, we're calling the market up, and we're doing that without having the certainty of what the cost structure will be in 2027, which means we're pretty bullish. We remain in our bullish position on 2027. We think that any of the uncertainty will show up in the first part of the year, and then clarity will be through the Q2, Q3, Q4. Then as we get towards the end of the year, we would expect it to even strengthen. So, I think our general sense is the uncertainty will dissipate, and the market will become stronger as the year passes.
David Raso: Okay. I appreciate the time. Thank you.
Preston Feight: You bet. Thanks, David.
Operator: Your next question is from Chad Dillard with Bernstein. Your line is now open. Please go ahead.
Chad Dillard: Hey. Good afternoon, guys.
Preston Feight: Hey, Chad.
Chad Dillard: I wanted to go back to the PACCAR Parts business. Can you update us on what the outlook is for 2026? I think you talked about seeing some outgrowth, and I recall from the investor day, you talked about the $3.5 billion PACCAR Parts opportunity. Just any color on just how fast you are outgrowing and where you are tracking versus that goal?
Kevin Baney: Yeah, Chad, this is Kevin. Outlook for 2026, I mentioned the continued growth in the Q4, and we will finish within the range that we had forecasted, the 3% to 5% we had given previously. Outlook for next year is continued growth. We see, as we watch customers' operating conditions, as Preston mentioned, we forecast the market to increase. We have got the connected platform out there, and we see the continued growth. We mentioned in the investor day the opportunity with the second owner. We mentioned the PACCAR Parts market down. Some of the growth that we have seen with our record revenue has come from growth in the second market. We have grown with our fleet services program, and then we have also grown the percent of our TRP All Makes, and a portion of that comes from the second owner.
Chad Dillard: Got you. That is helpful. In your North America guidance for 2027, it implies about a 4% increase at the midpoint. I was hoping you could break down how you are thinking about the vocational versus tractor market as we go into next year.
Preston Feight: We kind of look at the markets and think that we have really run below replacement demand on the fleets. I think that they have had some relief from that because of the driver situation, but they recognize the high performance, great fuel economy, low operating costs, and driver appeal of new trucks, so I think they are very interested in getting new trucks and are starting down that pathway. I think that the general infrastructure investments that are happening in America are very good for the vocational market for the coming years. Since we are the leader in the vocational market with our 40% share there, we think that bodes well for us also, because those are good trucks for us to sell.
Chad Dillard: Great. Thank you.
Preston Feight: You bet.
Operator: Your next question is from Kyle Menges with Citigroup. Your line is now open. Please go ahead.
Kyle Menges: Thanks. I just wanted to follow up on Chad's parts question. I think if I heard you correctly, you are still thinking that parts growth can be in the range of 3% to 5% for the full year. I think that would imply parts growth of around high single digits in Q4 versus you have been tracking in the low singles through the first 9 months of this year. What gives you confidence in that high single-digit growth in Q4?
Preston Feight: I would say we have a great team of people that are working closely with our dealers and our customers, and the freight market is returning, so those are the factors that push us into that confidence.
Kevin Baney: Yeah, Kyle, I will add that we have seen a growth in our fleet services program, so what that shows is that we continue to gain new customers. The ease of doing business with our parts programs, we gain new customers, and we continue to increase our share of wallet with our current customer base. We are planning for ongoing growth.
Kyle Menges: Got it. Thanks. I also wanted to follow up on some of the earlier Q&A related to 2027. It sounds like you are thinking H2 might be a little bit stronger than H1. I am curious if you think then that H1 of 2027 could be a little bit softer, just from a delivery perspective, than where you will be at in H2 of 2026. I guess you are expecting H2 of 2027 to be a bit stronger.
Preston Feight: Well, Kyle, I do not know. You might be putting a little too many words in my mouth. I think that we have to see what the NCP levels are set at, and I think that will be very significant to how the market reacts at the beginning of the year. We have seen good interest, but we have seen, obviously, the customers would like to know what the NCP level is going to be. We know they would like to buy a truck that is durable, reliable, and proven for themselves, but we need to see NCP levels. Once those become finalized and if they are set at a level which is helpful to the truckers who are already dealing with high fuel prices, then that will be good for the market in the early part of the year.
Preston Feight: As you get into the latter part of the year and customers get some time, we will see what their reactions are. It gets a little bit tougher to predict the market in the second half when it is nine months to a year from now.
Kyle Menges: Fair. Thanks for the time.
Preston Feight: You bet. Good talking with you.
Operator: Your next question is from Jamie Cook with Truist Securities. Your line is now open. Please go ahead.
Jamie Cook: Hi. Thanks for allowing me to ask a question. I guess my first question, Preston, could you just speak to your competitive positioning in the US with Section 232, how you are performing from a market share opportunity relative to your initial expectations, and how you are balancing market share for price in this type of environment? Can we get the Section 232 benefits dropping to the bottom line? Then I guess my second question, again, sorry to ask about next year, but I will anyway. Assuming the US market outperforms Europe next year, just thinking from a geographic mix perspective, the impact on margins, would North America be accretive, or is there just more noise associated with NCPs and supplier constraints and stuff like that? Thank you.
Preston Feight: Looking at your first question, I would say probably the easiest thing to do is look at truck margin since December 2025
Jamie Cook: Yep
Preston Feight: till now, and say that it has gone from $240 million to $570 million. I think that kind of answers the question of the positioning of what is happening and holding market share as a relatively flat position.
Kevin Baney: Yeah, Jamie, and just to comment about Europe, we still forecast Europe to remain strong in that 300,000 to 320,000. DAF has done a great job maintaining its position and seen an increase in order activity in the back half of this year, and we have increased build commensurate with the increased orders. So, good forecast in Europe for next year.
Jamie Cook: Thank you.
Preston Feight: Thanks, Jamie. Good talking to you.
Operator: Your next question is from Steven Fisher with UBS. Your line is now open. Please go ahead.
Steven Fisher: Thanks. Good morning. You were able to maintain or hit your margin targets despite the lower deliveries in the quarter. I guess I am just curious what kind of helped that along. Was it just some general conservatism at the beginning? Were there any particular mix dynamics in there? I think you already said that the tariffs were not a material benefit to it. Just curious, what drove that hitting the margins despite the lower deliveries?
Preston Feight: You know, Stephen, the simple answer, and it is really true, is amazing people. We have a great team of people all around PACCAR, and you have had the chance to be in our factories, you meet the people that work there, you watch what they do every day and how well they can perform in spite of complications. It is super impressive, and it happens at every part of the business, the financial services business, the parts business. Those are the contributors more than anything else is to the performance in lieu of lower deliveries, and they just keep doing a great job. That is probably the biggest thing.
Steven Fisher: Okay. Thank you. Then, obviously there is a lot of talk about supply chain challenges on the call. Just curious how broad those challenges are. Is that mostly within domestic markets? Is it related to imports? Is it just a few, or is it more broad? Any help you can give on that? Thanks.
Preston Feight: Yeah, I think the easiest way to think about it at the macro level is, build rates have gone up significantly and they have gone up rather quickly, and that just puts a tax on the system. We have great suppliers. They do a good job of working with us. It is just expecting them to go up this quickly in support of the total industry has been created some work for them and a few misses. All you have to do is miss a single part on a truck and it becomes impactful. Almost all of them are performing really well, but all it takes is one or two missed parts to make it meaningful. Our teams are working closely with them and we are making great progress, hence the guide for higher deliveries in Q4.
Steven Fisher: Thank you very much.
Preston Feight: You bet. Good talking to you, Stephen.
Operator: Your next question is from Angel Castillo with Morgan Stanley. Your line is now open. Please go ahead.
Angel Castillo: Hi, good afternoon, and thanks for taking my question. Preston, I wanted to ask a little bit of a bigger picture question around autonomous. Clearly the trucker here is under quite a bit of pressure, ranging from drivers to high fuel prices. I was curious if you could elaborate or at least comment, I guess, in terms of what you are seeing in terms of customers' appetite for perhaps autonomous trucks, given your work with your partners. Perhaps more specific to PACCAR, as you are seeing the market evolve and all these pressure points on that trucker, any changes as to your appetite or the pace at which you want to move in terms of some of these investments to develop autonomous solutions here that you might be able to deploy to both gain share, but more importantly, help your customer solve some of those issues?
Preston Feight: Yeah, great. I love the way you ended the question, Angel, in thinking about helping our customers, because that is kind of what we try to do every day. If we have the opportunity to develop safe, reliable technology that helps our customers, and then we see autonomy being able to do that, then that is the path we are on. We are developing our own proprietary autonomous vehicle platform, which will make it easier for autonomous systems to be integrated into the truck in the factory. We think that is a significant advantage for the future going forward. Our pace of play on this is really about safety first, right? These are 40-ton vehicles. We want to make sure that they are completely capable, fully validated with production parts, just like any new program we do, and that is determining the pace of our introductions.
Preston Feight: We have good partners in Stack AV, Aurora, and others as we work forward with our customers and how to deploy that. We obviously think the deployment will happen somewhat gradually in lanes, in weather climes, and then it will roll out in a progressive way. I think the other instructive thing to think at the macro level is, it has got to be a win for our customers, it has got to be a win for the developers, and it has got to be a win for PACCAR. So when all those parties are winning and we have a durable, reliable, safe system, then that is when it will begin to deploy at scale. So that feels pretty good.
Preston Feight: I think the other thing that we look at in that is, macroscopically, it is very good for PACCAR because trucks are still going to need maintenance and they are still going to need taking care of, and it is going to involve our dealers and support systems for those trucks because now there will not be a driver at that point. So the PACCAR Connect system and all of the information we have on trucks will integrate us more to the vehicle.
Angel Castillo: Very helpful. Thank you. We have had, I guess, a lot of discussion around the P&L, but I was hoping to kind of pivot it to maybe the cash flow a little bit. Can you just talk about what your expectation is for cash flow from operations and free cash flow for, I guess, or just cash flow from operations for the year? To the extent that you could kind of elaborate a little bit more on kind of the Q3 and year-to-date cash generation, is that kind of as expected? Are there any puts and takes there that may be surprise or that we should be mindful of as we think about cash flow generation for the remainder of the year and the Q3 that may or may not have kind of potentially caused it to be a little bit light?
Angel Castillo: Just any, again, more color that you can provide on cash flow generation this year, that would be helpful.
Brice Poplawski: Sure, Angel. This is Brice. I would just tell you, we feel pretty proud of the cash we generate, we generate cash in the 9 months of $2.5 billion, which is greater than our net income, and a lot of companies can not say that. So it is very high quality of earnings. So we are pretty proud about that result. And for the year, we would expect a similar kind of scenario where the income would be generated through the cash from operations, meaning that income is the biggest driver. And if you are commenting about last year's number, it had a one-off kind of a large effect because our wholesale dealer flooring inventory was down. So that was a kind of a one-off, not a typical thing where dealer flooring changes that much in a given year.
Angel Castillo: Very helpful. Thank you.
Operator: Your next question is from Scott Group with Wolfe Research. Your line is now open. Please go ahead.
Preston Feight: Are you out there?
Ken Hastings: Okay, Joel, I think we maybe can leave it there.
Operator: Sounds good. It does look like Scott has tried to dial in one more time. Would you like me to put him onto the stage?
Ken Hastings: Sure.
Operator: Okay.
Ken Hastings: Yes, please.
Operator: Great. This is Scott.
Scott Group: Hey, guys.
Operator: from Wolfe Research. Your line is now open, Scott.
Scott Group: Hey, guys. Can you hear me now?
Preston Feight: Yeah, we got you, Scott. Glad you got in.
Scott Group: All right, fantastic. Thank you. It sounds like you guys were at ATA last week meeting with customers. Just wondering the tenor of the conversations. Truck rates going up a lot, driver market tight. Are you hearing about fleet growth? Is it just replacement? And how you think that plays out, and maybe what you think that means for the used market going forward as well?
Preston Feight: I think we are sitting at a transition point where the fleets would like to be growing. They are still managing cash flow. They have seen costs be high with fuel, so fuel increases the cash flow problem for them. They are managing driver costs. That is a cash flow impact to them. They would like to be growing their businesses. Some of them are starting to see that ability, but it is really just beginning to be there. There has been some consolidation over the past few years, so it is taking some absorption of fleet size into the market that is now, I think, finishing. So it makes it feel like they will begin to see increases in fleet size in the coming quarters.
Scott Group: Okay. That is helpful. And just on this idea of all this very near-term uncertainty, I do not know if you guys can give any color, like what percentage of Q1 is sold out now? And it sounds like pricing is really good in Q4. Does that logically take a step back in Q1 if we have less stuff sold at this point? Just any sort of near-term thoughts there. Thanks.
Preston Feight: Yeah, great question. I think when we look at it, just having the year filled as we sit here, and it has been filled for a little bit, gives us confidence that there is demand that is strong out there. Now I think that as we are filling the Q1, it is pretty early. You think a lot of fleets come into ATA, we were talking about ATA, and they are just starting to decide what capital to allocate and how they are going to do that. So it is pretty early days for Q1 to have a real look yet. I think we will get a better view of that in the coming 4 to 8 weeks here. Obviously, getting certainty of NCPs, and if they are at a low level to support our customers' wishes for the proven product, that will be advantageous to the fill of Q1.
Scott Group: Okay. Just last thing real quick. When do you actually think you are going to get that certainty on NCP? Is that in the next 4 to 8 weeks, or could that get pushed out to next year even? I do not even know.
Preston Feight: Yeah, I think 4 to 8 weeks feels like a good number. Obviously, we do not make those rules, so we just receive them, and we continue to have a great working relationship with the government, trying to sort this out for the betterment of the industry. But the timing is unclear at this point.
Scott Group: Thank you, guys.
Preston Feight: Yeah. Have a great day.
Operator: There are no other questions in the queue at this time. Are there any additional remarks from the company?
Ken Hastings: Thank you, Joel, and thanks everyone for joining the call.
Operator: Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.
