Rusty Rush: Well, good morning, and thank you for joining us for our Q3 2026 earnings call. With me this morning are Steve Keller, our Chief Financial Officer, Jody Pollard, our Chief Operating Officer, Jay Hazelwood, our Vice President and Controller, and Michael Goldstone, our Senior Vice President, General Counsel, and Corporate Secretary. Before we get started, I will turn it over to Steve for a few forward-looking statements.
Steve Keller: Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risk and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those discussed or in our annual report on Form 10-K for the year ended 31 December 2025, and in our other filings with the Securities and Exchange Commission.
Rusty Rush: Thanks, Steve. We had a strong Q3. Revenue was approximately $2.1 billion, up 12.4% from a year ago, and net income was $78 million, $0.65 diluted share, and up 18.2% from a year ago. We also declared a quarterly cash dividend of $0.14 per share. The biggest drivers this quarter were higher new truck deliveries and improving aftermarket activity. Rate conditions have continued to get better following a prolonged downturn, and we are encouraged by what we are seeing as we move through Q4. The quarter also demonstrates the value of the diversified business we have built. We serve a broad range of customers across multiple parts of the commercial vehicle market, giving us different avenues for growth as conditions improve.
Rusty Rush: During the quarter, we completed our 50% investment in MCT Companies, giving us a meaningful entry into the refrigerated transportation space. MCT operates 17 full-service dealerships and 3 mobile service locations across 6 states. This is a great strategic fit and another step forward, providing customers with more of the products and services they need to operate their fleets. Parts, service, and collision center revenue was approximately $680 million, up 5.8%. Aftermarket operations generated nearly 63% of our total gross profit. Excuse me. Our absorption ratio was 128.3%. Demand improved across our customer base, with particularly good growth in energy and wholesale. We also saw encouraging improvement among smaller local customers. We expect that momentum to continue, allowing for normal seasonality. Trucks we are delivering from our backlog should also help create additional parts and service opportunities.
Rusty Rush: At the same time, we are focused on operating efficiently and capturing more of our local customers' maintenance and repair business. Class 8 was particularly strong. We sold 3,880 new Class 8 trucks in the US, up 24.4%, compared with industry growth of just over 10%. That brought our Class 8 market share to 6.5%. Over-the-road customers drove much of that growth, as improving freight rates and need to replace older equipment supported demand. Our backlog gives us good visibility in the strong Q4 and Q1 of next year, although supply constraints could affect the timing of some deliveries. The bigger question right now is new order activity. Quoting and orders have slowed as customers wait for clarity around the EPA's 2027 emission rules and ultimately, manufacturers' pricing. We view that largely as just a timing issue.
Rusty Rush: Underlying demand remains healthy, and we expect ordering activity to improve once customers have the information they need to make replacement decisions. Medium-duty also performed well. We sold 3,265 Class 4 through 7 vehicles in the US, up 9.6%, while the overall market was essentially flat. Several large fleets that had deferred purchases earlier in the year took delivery during the quarter, and our ready-to-roll inventory helped us serve customers as manufacturer capacity tightened. We remain positive about medium-duty demand going into early 2027. We added inventory during the quarter to help manage possible production constraints, which should put us in a good position to respond to customers who need equipment quickly. Used truck demand was also healthy. We sold 1,913 used commercial vehicles, up 5.5% over last year, with demand particularly strong among smaller fleets.
Rusty Rush: Limited new truck availability and expected increases in new vehicle prices continue to make used equipment an attractive alternative for many customers. Our leasing and rental business also had a good quarter. Our revenue was $98.2 million, up 5.3%, driven by improved rental utilization, along with continued growth in full-service leasing and contract maintenance. We expect rental demand to remain healthy into next year as some customers consider alternatives to buying higher priced new vehicles. Overall, I am pleased with how the business performed this quarter. We generated strong growth, gained share in both Class 8 and medium-duty, saw continued improvement in aftermarket demand and maintained a very strong financial position. During the quarter, we repurchased $10.3 million of our stock, paid $16.4 million in dividends and ended September with $226 million in cash and cash equivalents. Going forward, our focus remains pretty straightforward.
Rusty Rush: Serve our customers well, make it easier for them to do business with Rush and continue investing where we see attractive opportunities. That is what our total solution strategy is about. We want to support customers across the life of the vehicle, from the initial purchase through parts and service, technology, leasing, rental, and other solutions. The more effectively we do that, the more valuable those relationships become for both our customers and Rush. Finally, I want to thank our employees. Their hard work and commitment to our customers are what make these results possible, and I appreciate everything they do for Rush Enterprises. With that, I will take your questions.
Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Obin. Your line is now open.
Andrew Obin: Good morning. We talked about it, Rusty, Steve. Maybe we can talk about just regulatory uncertainty and how it impacts your customer behavior going to 2027. Thank you.
Rusty Rush: Sure, Andrew. Well, it is a great question, Andrew. I could probably ramble on for 20 minutes talking about it, but there is no question that getting the regulatory answers from the EPA is critical for manufacturers and customers alike, right? I am going to try to make this as short as I can. The EPA came out and gave a draft back in July about what the changes they were making to the 2027 January 1 rule. Basically, they said they were going to allow non-conformance penalties if you chose that, which means you could carry the old engine that we had and still sell it, but there would be a penalty. Heavy duty was around $6,700, medium around $4,400 plus FET on the heavy duty engine. Or you could bring on your new technology, which would meet the 0.035 milligrams, whatever it is, NOx. The law has been written for a while.
Rusty Rush: In doing that, you could also use credits to buy that down from 0.65, to 0.35. So you really had different choices. They got rid of the warranties, they said, because they are supposed to be a 10-year warranty on aftertreatment, excuse me. And it was going to go back to the regular one-year standard warranty on aftertreatment, not 10 years. Also, some other provisions inside that really were not quite as expensive, but some other provisions they had out there. Now that is a draft. So it was up for review, a commentary period. All the comments came back. And we kept hearing we are going to get the final decree in November. In the last couple of weeks, I am hearing that we are not going to get it in November.
Rusty Rush: There has been some things that have gone on, I think, in the EPA that are going to delay it. And possibly, I do not know this for a fact, but possibly we are going to be told just to work off a draft. We will get the final decree out in January or February, but it has got to go in the 1st of January. So it is kind of up in the air as to exactly is that really going to stay the same? Are they going to make adjustments? Will they make NCPs up or down? We do not know. But you are going to have to go off the assumptions that the draft will stay the same, I believe, unless they do come up with a final decree. That being said, all the manufacturers are taking different paths, and that is fluid also. I do know that PACCAR is all in on NCPs.
Rusty Rush: I know that Cummins is in on NCPs through the end of September, rolling in new technology. International is going to go with NCPs for probably four months and then roll into the new technology through the summer. Freightliner is not going to do that. Freightliner is going with the new technology right out of the bat, right out of the chute. Volvo, I feel sure, I know they have got new technology. I think they might have a mix. So my point to you would be that it is all different across the board. I have never seen a law, and I am pretty old, right? In fact, I am really old. So I have never seen an EPA law or decree where it was not the same for everybody on one particular date.
Rusty Rush: It is sort of in some ways punted the full implementation of the 1 January 2027 EPA law to where it is sort of spread out. Some will come in on 1 January, some may not do it till the following year. You do not know. NCPs, there is no close on the date on it, but it would probably go up a rather large amount on 1 January 2028. So I would imagine that it will allow from a customer perspective, I do not believe we have had time to truly test these engines. That is my personal belief. So I do believe it gives customers a chance to not have to roll right into this new technology, because everybody is aftertreatment is a little bit different. All the manufacturers are going about it a little bit different.
Rusty Rush: I think from a customer perspective, I would be leaning towards wanting to pay some NCPs, that is my personal opinion, and roll in and test the new technology before I go all into the pool. Let us dive into the shallow end, not the deep end, right? Let us ease our way into it. If I am a customer, that is how I would approach it. I am not a customer, I am just a dealer. I have talked to many of them, obvious. I just came back from ATA, and that is definitely how a few of them talk. I am sure some will go in with the proper assurances, but the manufacturers we represent are going to ease into the pool. It is going to be the best way for me to tell you, as I just went through. It is all over the board.
Rusty Rush: And with still uncertainty driven by our great government that cannot seem to write a final decree. I know there is a lot of legal ramifications. They have to be very careful with the changes. They have tried to make it easier for customers. By allowing NCPs, most customers would prefer that, and then test. I do not believe customers have been given enough time, in fact, I know they have not, with anybody's technology on the aftertreatment to test it. Most folks want to run this stuff for over a year plus before they roll it into their fleet, because we have seen throughout history that new technology is not always running just right out of the gate. There are adjustments that have to be made, and sometimes they can be major adjustments.
Rusty Rush: I go back to something that is as simple as going to DEF, which we did in 2010, okay, when we went to the blue to the DEF, like Europe, SCR technology. I am going to tell you, there was clogged particulate filters all over this country, okay, traps and stuff. Our shops were full of these kinds of things as we rolled into that. Even something that had been running for years in Europe, we had issues with implementing here in the US. People remember those scars, so they would, in my mind, prefer to roll into it. I am done. Like I said, I could talk forever about it and you have got my opinions on it. They may not be everybody's, but they are mine.
Rusty Rush: And trying the lay of the land, which is different depending on who you are talking to, and we are waiting to hear, "Oh, it would be great if we could at least get a final decree," because no one likes working off a draft. And then you get stuff on order and things happen, and the decree comes out. It can get a little messy in my mind if we do not get a decree out.
Andrew Obin: Thank you. Rusty, great. I appreciate your comprehensive answer. Maybe another question is, on any potential disruptions to OEM's ability to ship trucks to you, given potential supply chain constraints over the next couple of quarters, how that thinking has evolved, and what do you think, given that, both shipments and orders will look like over the next couple of months? Thank you.
Rusty Rush: Sure, that's a good question. Anytime you ramp up like these manufacturers have, some of these folks have had six to eight increases or more throughout the year. As they've ramped slowly up, I know both my manufacturers are running at full tilt. What happens is you put a big strain on the supply base. It's not always just the number 1 supply base. It's your Tier 2 and Tier 3 suppliers that you're asking to add people, add all these resources, and ramp up for a big six-month period. You can't guarantee them because the Class 8 truck market's always what it is. It's a little volatile. You're asking them to ramp up 80%.
Rusty Rush: You can't guarantee them ramp down, and they got to it's about hiring people, training people, getting going and giving them. It does put a strain. What I'm saying is that really on that Tier 2, Tier 3, there are some cases in Tier 1, I'm not going to get specific, that have popped up here in the last couple weeks, that are going to make some of these deliveries get stretched out. It's not one OEM, it's all OEMs that are affected. Don't let, some people make it, but it's, no, it's the OEMs we represent, it's the ones we don't represent. What happens is you're trying to keep the lines running good, and what happens is you're short what I call Tier 2, Tier 3. You're short this gauge or you're short this lens or something.
Rusty Rush: You're not going to just stop the truck and leave it on the line. You're going to take it off to make sure everything's fine, get it tested, and put it in a back lot till you get that piece. Then you're going to go put it on there. It's just, you got to touch the vehicle two or three times. When that happens, and it happens, this is nothing unique. This happens every time you have this big surge in manufacturing and order activity. It does cramp the supply. It does slow down the deliveries. I've got numbers of what my Q4 should be, but I'm not going to guarantee them because some of it could get delayed into Q1. I think that's why we feel pretty good about Q4 and Q1.
Rusty Rush: Now, I cannot tell you much about Q2 because I do not think anybody, no OEM, has much backlog. We all got a little past the new engine stuff. Remember, we are a dealer, so we are on the tail of the dog. We are not manufacturing. We are delivering to customers, which typically takes 30 to 90 to 128 days, depending on if it is over the highway or goes into vocational businesses, if it is bodies and things like that. That is why I can fairly confidently say I feel good about Q4 and Q1. Q2 to be known, but remember, we have had six months of backlog. By the way, it is going down every day because order intake is not going to be super strong. As it goes down and as we get clarity on emissions and we get clarity on pricing, because there is inflationary pieces inside of this besides engines.
Rusty Rush: It is not all just engines. OEMs and customers, or dealers, of course, including me, but really, there will be a meeting of the minds on pricing. When I told you about all those different technologies, Fred, on the new stuff, it is really interesting right now because the different technologies, I am jumping out further than your question, by the way. The different technologies have different cost factors to them, and different OEMs or different positions coming out of tariffs and stuff. It is really a pretty complex game out there right now. I know it is going to get sorted out. As backlogs decrease, we will get sorted out because there is demand out there. I know there is demand for next year. I have talked to customers. It is just this fog we are in of clarity on emissions and clarity on future pricing, right?
Rusty Rush: It will get sorted out here in the next 60 days, and we will get back to normal. There could be a little bit, there could be a small blip, for my back half of Q1 and stuff in Q2, but it will get sorted out because the demand is there. The age of the fleet is up. Regardless about growth, the replacement demand is still there going into next year, which is why I think you see ACTs out there, I do not know, they are up like, I do not know if it is 10% or something. I do not have it in front of me right now, but it is up 8%, 10%. They are now subject to change, of course. We will start the year off, in my mind, with a better Q1, because that is deliveries, than what we did last year.
Rusty Rush: I know I am going past your question, but yes. Back to your question, it will get stretched out due to supply constraints. They will get built. In my mind, I do not see anything that is going to blow it all up. You are also fighting the law, which basically means the engine has to get built prior to 31 December if you are using old technology. Should I say, I think it goes down to you have to set the crank in the block. I think that is how it really reads. You will build old engines into January. There is a 5% piece that the government put in their decree. I know I am getting too deep, but, we will build old engines into January. If you look at it, there is still another, what? Little less than three months to build the old engines, right?
Rusty Rush: But the supply piece to your first question is going to stretch it out a little bit, right? Which I am fine with. Let us just get it all delivered. I do not look for anybody to not take their equipment. Okay? The demand is there. It is just a matter of getting it all built, which this stretches out, it is just a timing issue on that piece of it.
Andrew Obin: Thank you very much for this comprehensive answer. Appreciate it.
Rusty Rush: You betcha. Probably may be confusing even if it is comprehensive.
Operator: Thank you. Our next question comes from the line of Brady Lierz of Stephens. Your line is now open.
Brady Lierz: Great. Thanks. Good morning, Rusty.
Rusty Rush: Oh, good morning.
Brady Lierz: Thanks for taking our questions. Parts and service revenue growth was really strong this quarter. Can you just talk about some of the drivers of that growth? Was that mostly kind of your larger over-the-road accounts? Are you also seeing strength from your smaller unassigned accounts too? How sustainable do you think this growth is into 2027?
Rusty Rush: Well, first, I do believe it is sustainable. I don't look for it to be dramatic, but it's nice to be even gradual good growth. I would tell you national account growth was there, but also smaller accounts didn't decline as dramatically as they have been the last couple of years. They were starting to flatten out a little bit, which is nice to see. That means you're starting to get to the bottom of that piece of your business, because that is typically your more profitable piece. From a mix perspective, what growth we had was more in the national account piece. It maybe wasn't as strong as it had been, but it was there.
Rusty Rush: I could tell you at the end of the quarter, the two. We measure things in per days, how much gross profit per day we produce in all our shops. August and September, August being the best month of the year and September being the second-best month of the year from a per day average. So that was encouraging. We will see. Remember, though, in Q4, we do have seasonality. We do have holidays. Q4 is always the toughest, especially November and December, as we roll into it, just because there is less working days. We have basically 3 less working days. And a working day to us is worth $3-plus million a day in gross profit. So we will be battling that in Q4. We always do.
Rusty Rush: Some years it is 2, this year it is 3, the way we look at it, when you strip out the holidays. So, when you put the figures, the holidays in. So that will be a seasonality balance, battle. But that is every year. So, what you are really hoping for is, like you said, underlying good, strong growth, understanding seasonality. That happens every year. But know that underlying growth is strong and solid, and for right now, it appears to be that way. Also, we are helped by the delivery of vehicles. Anytime we are delivering more new vehicles, some of the work, there is work, especially in our vocational businesses, where we add equipment or get them prepared, pre-deliver them, add stuff, sticker them. Even on our over-the-road business,
Rusty Rush: There is still a little bit that goes with it, of upfitting that we do to get trucks ready to go to the end user. So that is always helpful too. So, it looks like we will still maintain that with a gradually improving customer base and more trucks to deliver, which will help create more gross profit from that perspective for parts and service.
Brady Lierz: That all makes sense. Thanks for all the detail there. Maybe just lastly on used truck sales.
Rusty Rush: Yes, sir.
Brady Lierz: They stepped up nicely in Q3. How are you thinking about used truck sales, especially, just going back to Andrew's question earlier about the regulatory uncertainty, are you seeing any tailwinds to used truck sales from that? Or just any thoughts into 2027?
Rusty Rush: Sure. Yeah. Without question, we are seeing used is solid. We are managing our inventory as well. We are actually, I think because the used market has been a little better, some customers are disposing of more of their selves, and we are not taking as large a fleet trade packages as we have in the past. Now, when it is bad, they always want you to take them, right? When it is good, they like to sell them themselves. Not all the time, but you see that trend inside of it. So we are going to maintain solid used truck results, I believe. Steady as it goes, should I say. Stable. Sometimes used is the one thing in the world that will bite you, but I do not see any bites on us coming in the future for the next few quarters, and I believe it will still be solid next year.
Rusty Rush: Just remember, with these new truck pricing going, what is fixing to happen, you are just increasing the spread. That helps used trucks maintain value when new truck prices go up. We are still not anywhere close to back to the percentages that we were, oh, 3 or 4 or 5 years ago, because new truck prices have shot up 30%, 40% in the last 5 or 6 years, and used truck values have not. So percentage-wise, we are still way under. If you go back to historical, going to the last decade or other decades, we are percentage-wise still bigger gap than ever. So I do not see any big hit in used coming right now, my friend. I expect them to stay good and strong.
Rusty Rush: I am not going to sit here and say, I know I have read where some folks, big rental leasing companies, "Oh, they are going to be up 10% next year." Like for like. I am not going to say that, but I can see them up a little bit and make this strong, and good and solid in my mind. Let us see. If some of these technologies did not work out as well in its aftertreatment, there is more to it than just the aftertreatment. There have been some hardware changes inside some of these engines, that are going to come out. If you had something like that happen, you could see used truck value shoot up, okay? I am not here to predict that or say that. My point being, they should hold in, be good, and we should have good, strong, steady as it goes.
Rusty Rush: If we have got any issue, it is getting used trucks right now, okay? We have got buyers out there, we are buying used trucks, besides trading for used trucks, too. If there is any issue right now, like I said, it is just having the right good enough inventory. We are managing it well, and there have been times in my life we have had, when you are in a different position. So I feel pretty good about where we are at.
Brady Lierz: That is all very helpful. Thanks again for the time this morning, Rusty. I will pass it along.
Rusty Rush: Always. Thank you, sir.
Operator: Thank you. Our next question comes from the line of Cole Couzens of Wolfe Research. Your line is now open.
Cole Couzens: Hey, guys. It sounds like outside of EPA uncertainty, you believe demand is still pretty strong.
Rusty Rush: Yes.
Cole Couzens: Coming out of ATA, what gives you the confidence that this order lull is temporary heading into 2027?
Rusty Rush: What gave it to me? Because people still said they had demand. Remember, they are taking a lot of trucks, okay? Besides all the diversity in people's choices of technology, which drives different pricing from the OEMs, besides all that, they are taking a lot of trucks right now, and they know that customers know, and I am always wide open about everything. Customers know that they do not have a backlog next year. So they are going to push back on pricing for a bit, but they are taking all these trucks in the back half of the year. We are building at an extremely high rate right now. We really are. Well, those trucks have to be in service, which means they have to out-service other trucks if they are replacement. So they have to take trucks out of service, put trucks in service, and that takes a little time for them, too.
Rusty Rush: It's not like going to the races, jumping out of one truck, or truck into the next one. There's a little more to it than that, because you got to get the other truck ready for disposal, which means you got to fix it up, the used truck. The new truck needs to be ready to go on the road. So that takes them a little time. I know that people said they have strong demand, but they're not going to be in a really big hurry. I don't see that. I'm not saying that's built, that's just not what I see. I talked to a lot of people. Right up front, I'm sure that as we get closer to that timeframe, look, this industry at times, I've seen this industry have 3 or 4 weeks of real true backlog in it before.
Rusty Rush: In the just-in-time world we've created over the last decades, many a few decades, people can ramp up and get ready and deliver pretty quick. So I think as they roll all this in, they still have a lot to buy next year. I saw some CapEx budgets that were talked about. It just may not be smooth as you go because of these other issues. So that's what gives me the confidence. Plus, I look at the age of the fleet, and it's up higher. I talk to people that their fleet, if they want it X, it's X. It's up almost a year higher than what they like. Which, what? That leads to higher maintenance isn't it, that they're paying, right? And they want it not as reliable. Less reliability, the older your fleet is.
Rusty Rush: It's there, and they're slowly, even though I firmly believe there's legs. I'm talking about the over-the-road business. I look for vocational to be good next year, if not better than this year. It's been steady as it goes. But the over-the-road is still 70% of what's going on. While we know what happened going back to last January, spot rates shot up 30%, 35%. At one time, they peaked at around 50% up year over year, and they've leveled back down in the 30s range year over year. But people started rolling their contract rates. People that have more dedicated stuff, it takes longer to roll it in if you're not, if you've got more dedicated. Depends on who you're talking about. But I still believe, and the real constraint of what drivers and things like that, it was supply side. It wasn't demand, freight side driven.
Rusty Rush: It was supply. I do think the economy still seems to be. I can't believe how well the economy's weathered all this crap. The war in Iran, the fuel prices and everything else. But the economy continues to show through somehow. So I do believe still we're eventually going to get some demand, help drive it. Right now it's been, if you remember, a year ago, the government was cracking down on non-compliant drivers and this and that, all these supply side things. So all this has been driven by supply side. I still think there's going to be some legs for some demand, okay, coming next year, just my novice opinion. So, if you add that in, folks haven't been really able to grow a lot because there's a lot of driver cost. You're seeing some of the releases.
Rusty Rush: They are better than what they were, but there is still a lot of cost, right? Even though they are getting better freight rates, they are spending a lot of it. Most people are up 10% in driver pay, right? Plus the other cost of the equipment and things like that. So it keeps pressure on the supply side, but I believe demand is coming and people wanted vehicles. It is just a matter of we are taking a lot right now. I need to get clarity on pricing and technology, then I am going to buy a lot of trucks, okay? Because I need to. It is as simple as that, even though I do not make it a simple answer.
Cole Couzens: No, that is super helpful, Rusty. I guess maybe just a question on margins. You guys had strong revenue growth in both commercial vehicle and aftermarket sales, but margins are still down year-over-year.
Rusty Rush: Yep.
Cole Couzens: I am assuming there is some mixed headwinds in there, but can you expand on what is driving that?
Rusty Rush: I would tell you, look, margins this quarter from a truck perspective, were 0.1 less than two of the last three quarters. So to me, they were kind of flat. So I hear you. They were a hair higher. They were in the 8s still. Okay. It was 8.1, and at one time it was 8.5 back a year ago or so. Really and truly, it is a mix. We are getting more fleet business, okay? A small guy comes in always a little later. I am hoping and expecting to maybe start seeing some improvement. I think our mix is going to get a little better as I look at it going into Q4. I need to see. I got to make sure what gets delivered on time and what does not, okay? I do not see margins getting any less. Sure.
Rusty Rush: I see there is some upside to truck margins in my mind, in the next couple of quarters. When it comes to aftermarket, our parts business grew better than our service business. Your service margins are well more than double what your parts margins are. So we were only off 1 quarter-over-quarter. We were off 1. We were not as good as we were a year ago, that is for sure. We are down 1% off, but pretty similar to where we have been, and it is mainly a mixed perspective, with better growth in parts than we have in service. So that would be my best answer. Also on that, remember, when I said earlier, I said my growth was in the national account fleet business. Well, that is not as good a margin as a small person.
Rusty Rush: Again, it is more of a mixed thing, and I for sure believe we can get it back. I will take it. Like I told somebody the other day, they said, "Well, gosh, why would I want to grow that?" Because if the small guys were hurting worse, I have to get growth somewhere. It might come at a little bit less margin. That is really what it is about. It is a parts and service mix, and it is a customer mix kind of thing. When the small guy comes back, you will see those margins get back up.
Cole Couzens: That is helpful. Just 1 quick follow-up on the supplier delays. Where is the actual bottleneck, and is the expectation that that should start to abate as we enter 2027, or do you see this being
Rusty Rush: Yeah.
Cole Couzens: When does this end?
Rusty Rush: Well, that all depends on demand, okay? The bottleneck is across the board, as I said, in Tier 2 and Tier 3, that these OEMs have well more, 1,000-plus trucks that are all really built except for two little parts or something, right? They are parked out back. That bottleneck, it is across the board. It is not one particular thing. There is only one Tier 1 thing that I have seen in the last few weeks, and I think people are trying to work their way through it. I am not going to get specific about that. Those little things will get, unless we get some orders, it will be no problem come February. I do expect us to start getting. That is still a ways off because, as I said, I walked through, our customers are not in a big hurry to take Q1 trucks. They are in servicing all these trucks.
Rusty Rush: I know some people, their orders, 50% of what they bought this year are coming in Q4. That means they are going to in-service through Q1. They will buy and get trucks on delivery for Q2. That will happen, but that is still a ways off. Okay? With all the uncertainties I talked about, "I got time," they will tell themselves, "because I know the OEMs don't have any big backlogs next year." Now, they better be careful. I would tell a customer that. I do expect acceleration. I can give you reasons why you shouldn't hold off, but it is not my money to spend, it is theirs. You got to be careful, because I do think when it hits, it is going to hit hard, fast and big. Right? I think when orders pick back up, they are going to pick back up quickly. Okay?
Rusty Rush: Because people aren't going to want to miss, okay, and have what happened the back half of this year, where not everybody got everything they wanted the back half of this year. Especially, your smaller customers. It will happen, it is just a timing thing. I have confidence it will happen. The people's needs, as someone asked me a minute ago, was there a lot of orders given out at ATA? Not that I am aware of. I do know there was a lot of talk, a lot of talk about demand that is needed, demand out there. But, there is time in their mind because they got so much coming, in this back half part of this year to in-service.
Rusty Rush: It could be a slight little bubble as we transition to new technology, but it is not going to be a big one and it won't last long, I have confidence in that.
Cole Couzens: Okay. Thanks, Rusty. I'll turn it back.
Rusty Rush: You bet.
Operator: Thank you. Our next question comes from the line of Avi Jaroslawicz of UBS.
Avi Jaroslawicz: Hey, thank you. Good morning.
Rusty Rush: Good morning.
Avi Jaroslawicz: So just in trying to think about what Q1 could look like. So it sounds like as long as the engine is produced, even for the most part by 31 December, that it is not going to get an NCP in 2027. It sounds like some of the supply bottlenecks are downstream of engines. So are you thinking that the OEMs are just going to stock up on as many engines as possible and what do you think the spillover into Q1 could look like?
Rusty Rush: Well, if they could, they would. But there are regulations as to how they can do that. I can remember in the old days when they would have warehouses full. We are a little more sophisticated than 40 years ago. It is a little harder to do in the world we live in now. Used to, manufacturers would stack them up big, right? But remember, they do not operate. First, let us go back. They do not operate that way. Everything is just in time. People do not operate like they used to. They do not have warehouses of parts and stuff, or the manufacturers do not. But there is, I think, a 5% carry rule. It is just a matter if they can get them built. I am not sure, I do not want to speak for everybody where they are, but I expect everybody to build into January.
Rusty Rush: I do not know if that is three weeks, two weeks, four weeks, probably three or four weeks into January, if they can get the engines. I cannot answer that question. As I said, the old rule, and I think it still is cranks got to be laid in the engine by 31 December. It does not have be totally complete, but the cranks got to be in the block. So, I would imagine OEMs, some for sure, will want to carry as many as they can legally, and that is what they will do. So, that would tell you are going to have some already online trucks. Remember, just because the manufacturer builds 200 trucks a day, he is probably got 1,000 trucks going through there, right? They do not build them in one day or more. So you got all that going through. There is a week plus that is already in the factory.
Rusty Rush: Then you got a 5% carry. So that gets you, what is a month? 8% or something, do 12, 8.5%. So that gets you close to about three to four weeks of build into January. I would imagine that would be the goal of most of the manufacturers. You would have to ask them. That is their business, but that would be my guess. So, that gets you three or four weeks of January, and then we are either going to go to NCPs. By the way, if you are a customer, are you going to just pay an NCP plus whatever for your model and inflation? That is the part that is being negotiated out right now. Okay? So, you know what the NCP is. We know costs have risen. So it is just finding that little piece.
Rusty Rush: That is why I do not see, especially for folks that are going to be using NCPs, I do not see a big stoppage or some big block in the road to get it done. There could be a little something, but it will come to a cost factor. But it is real simple to figure out, because the NCP is what the NCP is. The only problem is we are working off a draft. Okay? You got to hope it stays the same, so it does get a little confusing there. So again, but remember, we are on the tail of the dog. So I expect us to have a solid Q1, but I need to wait and see what gets built and delivered in the fourth quarter because of all this Tier 2 supply issues, right? So I do not have clarity as to exactly how everything falls out.
Rusty Rush: I feel pretty good about both quarters. But I am just not sure. So I feel good about Q4. I feel decent and good about Q1. Q2, I will have to get to, but we got time. So, as they sort out all these issues I keep repeating myself about and talking about, I think everybody should understand them right now. But that is where we are at. That is truly where we are at. So I am not going to try to quantify it because I do not know about shortages and things, if stuff gets delayed for a couple weeks here or there, and where it goes. Does it go into vocational? Does it go here? Does it go there? It will all be all right.
Avi Jaroslawicz: Okay. Appreciate that. Yeah. It sounds like if they can keep building another three to four weeks into January, then that could take retail sales into pretty much through February.
Rusty Rush: Pretty much through Q4. That takes you pretty much through Q1.
Avi Jaroslawicz: Okay.
Rusty Rush: And then there.
Avi Jaroslawicz: Got you.
Rusty Rush: I've got some uncertainty in Q2, but I've still got plenty of time, okay? Because we've got to sort out pricing and technology here real quick, and we'll get that sorted out in the next 60 days, I'm confident, okay?
Avi Jaroslawicz: Got you. On this pricing side.
Rusty Rush: Demand's there. I am telling you, there is going to be demand. I believe there will be demand. I don't look for demand to go away. It has just got these uncertainties, man, and it will get itself sorted out. It always does.
Avi Jaroslawicz: All right. On this pricing dynamic, if I am understanding correctly, it sounds like the OEMs underlying core pricing to cover costs and whatnot. Is that somewhat dependent on what the final NCP is going to look like? As in they are thinking of it as a maximum price that can be absorbed for next year, and it is just a question of whether part of that goes to their margins or is just passed through?
Rusty Rush: Well, from what I hear, we know that we have had some inflation. More than the Feds want, right? Well, it happens in the truck business, truck world, too, manufacturers. They have been absorbing. You can see margins and stuff. It is not hard to go find them. Even the Europeans have spun off their truck divisions. It is real easy to go find what truck margins are. So I expect manufacturers, I think, are not trying to be anything like gouging or anything. They are trying to recover some costs, plus NCP. Or if you are doing new technology, who knows what it costs, okay? Only you do. But if you are going down the NCP route to begin with, which both of my manufacturers are, you are going to just have to bet on the draft, and then it is trying to recover the inflationary pressures you have had, right? And cover your increased cost.
Rusty Rush: And that gets you to the number you are supposed to be at, and that is where we will get to, okay? It just takes a little time and validation of what those costs really are outside of NCPs. If everybody gets comfortable, and I am not going to get into the numbers of stuff where I really do not want to. But at the same time, it is pretty simple. If you got an NCP, it is NCP plus recovering what your increased costs are. I do not think people are looking for big margins going into the year to begin with. It is not like you know you are going to have demand, but you do not have it now, so you need to go build a backlog. Then you can work on it in the back half of the backlog.
Rusty Rush: But right now, people did work on the back half of the backlog this year, I can tell you, but that was back in June and July when they were building it, okay? That will eventually happen again when we get the demand back for the new technology and the new pricing and stuff. Upfront, manufacturers will be just trying to recover if they went down NCP, whatever the NCP is, plus their increased cost. That is what I am seeing out there. It is just that, again, customers are not in a big hurry. You try to get them in a bigger hurry, they are not. They are taking so many trucks. I have gone over and over this right now, and that is my take on it. Hell, I could be wrong, but I do not think I am. So on where we are at, we are just in this little space right now.
Rusty Rush: I expect everything to sort itself out the next 60 days, is all I can tell you.
Avi Jaroslawicz: All right. Just want to circle back on the parts and service business. So we were hearing over the last couple of months that some of the spike in operating costs put some pressure on demand there, just with some strain on budgets. Does not look like that was something that showed up in your numbers in Q3. Do you think that was a factor in the quarter for your business? Or we could have seen a stronger improvement had the costs, the fuel, and driver costs not spiked as they had? Or is this maybe an unrestrained kind of quarter?
Rusty Rush: Yeah, I would tell you, we feel it. One of the things when I said margins are not as high as they were, say, a year ago, they are in line with where they were the last quarter or two, real close. Part of that was mix, and part of it was competitive pressures to your comment. People were still really tight, especially the smaller guys that may not get all their fuel surcharges. They were having to spend more money on fuel. So they were having to watch their maintenance and their repair budgets a lot tighter. Same thing we have been dealing with for three years in the freight recession, then you get all this fuel spike, and it adds more pressure into it. It is not just one thing, but yes, we know all the costs are up. You can see it inside the earnings releases.
Rusty Rush: That is going to put pressure on all expenditures, especially as you get to the end of the year and people have been out with a lot of their budget, you start seeing and hearing Q4 sometimes. But I am proud of the team. We went out there, as I said, we continued to grow our national account business with a little less margin. Yeah. But it still helps support the overall of what we are trying to accomplish. As I said, August was the best month we had. When you look at it the way we do, measuring almost by the hour, by the day, September was the second-best month we had. So those were encouraging signs. I think there is still underlying opportunity out there for us. I know there is. All we did was sort of bottom out. We were really flat.
Rusty Rush: We really were flat over a few months. Last year, end of this year, it was really flat. But we saw some increased demand in August and September. I am not really wanting to put a number on October yet. We got a big week here to get it all figured out. But I feel good that it will be gradually sustainable. And at the same time, we are going to continue to look for M&A, I will tell you that right now. Nothing big, but maybe we can put a lot of bunt singles together out there. But back to your real question, yeah, the mix was one thing. It is there. Cost pressures put pressure on margins, because everybody is out there in the marketplace going after it. So it is a lot of things. But guess what? We performed.
Rusty Rush: In my mind, we performed as well as anybody in this environment that we were in. Still on the parts and service side. I am separating the truck side all the way from parts and service side. So we have been performing and continue to perform. We are looking to do that a little maybe next year, probably get some growth tailwinds in that. Last couple years has been really difficult. But we are feeling good about the opportunity to grow our parts and service business sequentially better than we have the last couple years. I am not talking about just straight-up growth. I am talking about good, solid, gradual. Now, we got to define what gradual is. Hopefully in the mid-singles would be nice, is what we would like to see next year, from a same store perspective, and I would be okay with that, if it is going like that direction.
Rusty Rush: I am not looking for double-digit parts and service same-store growth. I am looking for mid-singles, maybe upper. We will have to see, depending on the territory, which area it is in the country. But overall, I feel good about underlying demand across the board going into next year. Not where we are at now. Where we are at in parts and service feels decent. Truck may have a little bubble. It is going to be really good in Q4 and Q1. We will sort through these uncertainties, and I feel good about the whole year as a whole, but it will not be straight line. It never is a straight line.
Avi Jaroslawicz: All right. Appreciate the perspective. Thanks, Tim.
Rusty Rush: You got it.
Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Rusty Rush for closing remarks.
Rusty Rush: Well, folks, I appreciate your participation and your listening. This is the longest gap I have between calls because it will be middle of February before we talk again. In closing, I would like to wish everybody a Happy Thanksgiving, a Merry Christmas, a Happy New Year, and just overall, a very happy holidays this year. Enjoy your families, and we will look forward to talking to everybody in mid-February. Thank you very much.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
