Rush Enterprises Inc (RUSHA) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the Rush Enterprises Inc. third-quarter 2009 earnings results conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Rusty Rush, President and CEO. Please go ahead, sir.

Good morning, and welcome to our third-quarter 2009 earnings release conference call. On the call today with me are Marvin Rush, Chairman of the Board; Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; Jay Hazelwood, Controller; and Derrek Weaver, our Chief Compliance Officer.

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

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 risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements.

Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2008 and in our other filings with the Securities and Exchange Commission.

Now let's review the third quarter. The truck industry's severely depressed economic conditions continued through the third quarter. As a result, the Company experienced depressed truck and aftermarket sales.

Class 8 retail truck sales in the US were down 33% from the third quarter of 2008, and continue to be on pace to their lowest level since 1983. Retail sales of medium-duty trucks in the US were also down 32% during the quarter. Aftermarket parts, service and body shop sales were negatively impacted by excess capacity again this quarter, as many customers have been able to utilize their excess truck capacity to delay repair and maintenance expenses. Our parts and service sales and gross profit in our truck centers declined more than 18% and 21%, respectively, compared to the same quarter last year.

Additionally, the Construction Equipment market in the territory we serve in southeast Texas declined 77% compared to the third quarter of 2008. As a result, our new and used Construction Equipment sales revenue declined 62% during the quarter.

Despite dismal market conditions, we remained operationally profitable. Our profitability is primarily attributable to our continued expense management, which helped us achieve a respectable absorption rate of 96.4% during the third quarter, despite the decline in aftermarket gross profit.

As explained in the earnings release, the Company earns federal income tax credits on the sale of alternative fuel vehicles to tax-exempt entities. These credits are reflected as tax benefits in the Company's consolidated statement of operations. A portion of these tax credits are passed back to the tax-exempt customer and are reflected as SG&A expense in the Company's consolidated statement of operations.

The net effect of the federal tax credits and the pass-through payments to tax-exempt customers contributed approximately $2 million, or $0.05 per diluted share, in the third quarter. These alternative fuel tax credits and the amount passed back to customers are directly attributable to truck sales. Accordingly, the Company believes the tax credits and the amount passed back to customers should be considered operating items when analyzing the financial performance of the Company.

During the third quarter, the Company adjusted the valuation allowance related to its GMC inventory because it was able to dispose of some of the inventory at higher prices than originally estimated, which resulted in a pretax earnings of $1.5 million, or $0.02 per diluted share, in the third quarter of 2009.

Now for an outlook on the future. We do not anticipate a significant truck pre-buy to occur in the fourth quarter of this year, as lingering depressed conditions in the overall economy and tight credit continue to negatively impact freight movement, causing continued excess capacity and depressed trade values. These factors have forced both vocational and fleet buyers to lengthen their replacement cycles beyond historical norms, most likely extending any substantial upturn in new truck purchases well into the second half of 2010.

While we may see a two- or three-month spike in order intake as certain customers choose to replace aging equipment with pre-emission engines, we expect it to be temporary and for order volumes to return to the depressed levels we have recently experienced until the broader overall economy improves. Without a significant pre-buy as we move into the traditionally slower season for parts, service and body shop sales, we anticipate the next six to nine months could be very challenging.

Currently, the industry analysts forecast 2010 US retail sales of Class 8 and medium-duty trucks to remain at historically low levels of 119,500 units and 123,500 units, respectively. We have diligently controlled expenses throughout this downturn, while maintaining the high level of customer service expected from our dealerships.

Our balance sheet remains strong and we remain confident in our employees and the Company's ability to weather the remainder of this economic and market downturn and be well-positioned for growth in the future.

Now I will turn it back to the operator, and we are prepared to answer any questions that you might have. Operator?

(Operator Instructions) John Barnes, RBC Capital Markets.

Hey, Rusty. Hey, guys. Good morning. Rusty, can you talk a little bit about as you look, the mileage is clearly down on the fleets. And it sounds like, when we were at ATA, a lot of the carriers were talking about extending the lifecycle out to four years on the -- the trade cycle out to four years.

Given that you've been through a couple of cycles like this, do you think that is a permanent change, or do you think it is solely in response to this economy, and that once you start putting some more miles back on the trucks that you will [flip] back into more of a normalized replacement cycle on a go-forward basis?

Yes, I would tell you that I would agree with that. Once we get on a more -- the economy gets better and we started putting -- utilizing the trucks more, that we will trend back towards shorter trade cycles.

Now, will it ever get back to where it was, when times were very robust? There is a lot of factors involved in that. Not just utilization, but also trade values, things such as that. But I do believe that as we look back, we saw it extend out -- you look back to 1999, when trade cycles had been highly shortened to three years. And they extended out through 2002, 2003, only to condense again as we moved into 2006.

So I would look for things to continue as historical -- as they have in the past, that once we get into a better economy where trucks are being utilized more that you will definitely see some compression in the cycle, only to -- move inside of that 3 to 4.5 year range, would be what I would tell you.

Okay. And what do you think is the timing on a recovery in trade-in values? And how do you think that influences the decision on a go-forward basis? If we get a bunch of equipment out there that is a little older or some more miles on it by the time it is traded in, who is the buyer of that stuff? How much of that stuff are you willing to take in trade and put on your lot as used equipment? And do you think there is a market for a year-older truck with [finally] miles on it?

Well, a lot has to do with miles. When you look at it, yes, there is a market for a year-older truck, as long as your mileage doesn't get -- as long as your miles are not too far out there.

So I anticipate -- we've been through this numerous times, and I see no reason that we will not be able to move the market. It will just move maybe into different type of markets. And instead of being intra-, it may be just interstate, moving inside of state, or more regionalized type hauls. Not even regional, but inside state hauls.

So depending on the product, it does have a market. And also, if things open up overseas as the product extends, the price gets cheaper, and it becomes obviously more attractable to the overseas market as it opens back up, as the economy gets straight worldwide.

Okay. In terms of your maintenance operations, last quarter, you indicated that, I guess, kind of the dollar spent per ticket in the maintenance shop was down. That is not surprising. Could you give us an idea what it looked like in the third quarter kind of versus the second quarter and --?

Basically along the same lines as the second quarter. As you saw, absorption didn't move a lot from second to third quarter, and tickets have not moved a lot. It has been -- as I've stated before, since about April, I would tell you we've been pretty much, as I would describe it, bobbling along the bottom from a parts and service perspective, within about a 4% range of gross profit per day av -- which is what we monitor things off of.

So I haven't seen any upturn, and I really haven't -- it's, as I said, bobbling along the bottom month-to-month.

Okay. All right. And then lastly, on the alternative fuel vehicle sales, is there a way to smooth that out? Or is it because you were dealing with municipalities it is going to be as lumpy as it was?

John, this is Marty. I would tell you that I do a lot of the work on that. And it just so happens that in the third quarter of this year, we delivered some trucks to a municipality. So it really is predicated upon how many trucks you deliver in any given quarter. So it will fluctuate.

All right. Are you seeing any change in that demand, just given municipal and state budget concerns, or --?

No. I mean, it is really driven by whatever the municipalities are looking for. Obviously, I don't think what we are seeing is we are not forecasting in the fourth quarter for the number to be the same. That's for sure. It was a large number in the third quarter.

Sure. Okay. Thanks, guys. I appreciate your time.

Jamie Cook, Credit Suisse.

Good morning. My first question, Rusty, you talked about the 2010 industry outlook, I think, of like 119.5 for heavy. Is that -- are you -- is that your outlook, too? Do you believe that, and how do we think about the first half versus the second half?

And then I guess just my next question, to build on John's question, it sounds like the tax credit is not going to be as big in the fourth quarter. How do we think about the fourth quarter or profitability in that context?

Well, I will take those in reverse order.

Okay.

When you look at profitability, as I said, as I used the term when it comes to the back end of the business, bobbling along the bottom. I would look at the second and third and fourth to be pretty similar, to be honest with you, Jamie. Just a very difficult environment that we continue to manage through.

I do believe that when you asked about deliveries into the first quarter -- I mean all of next year -- I do believe first-quarter deliveries will be up. I believe you are getting some spike right now and a little bit of order intake. But it's not going to be sustainable because the economy won't sustain it.

I look for first quarter to be up, trending down the latter second and third quarter. And hopefully, the economy will pick it back up in the fourth quarter. Because there has to be pent-up demand. Coming off -- you know, you look at '07, '08, 2009, and going into -- you're almost all the way through 2010. There has got to be pent-up demand, looking at the type of delivery years that we've had. So -- and as lifecycle is being extended.

I sit here and I have told many people, I believe 2000 -- and I hate to stretch it out that far -- but there is no way that 2011 and 2012 -- it would be hard to see them not being outstanding years in the truck business.

You're going to get this little spike here for a quarter here, possibly. I believe there will be a slight, slight pre-buy going on now, that they're ordering, and they will be delivered into the first quarter. But after that, as people will adjust, I think that's more pull-forward than anything else, so people trying to pull forward, if they can, and trade a little. But it is not going to be sustainable until the economy gets back, so --.

So in that context -- and it is sort of unfair -- I'm not asking for a forecast (multiple speakers). You've been doing this a long time.

Yes, I know. It's very difficult.

So what's -- is 2011 the big snapback? Because I don't think most people are assuming it. I think people are just assuming gradual recovery. So is it more 2010? Maybe you are flat to up '10 and then 2011 is the big snapback?

I think it is a big snapback. I think people assume based upon the overall economy. But the history of this industry is it is very, very volatile. And when you get the age on the fleet that you are going to have, and as miles start to be driven, as capacity starts to be eaten up, and trucks are utilized and they are aged, they are going to experience quite a bit of maintenance issues, and that is just not acceptable.

So I do expect -- and you're going to have -- by that time, you will have cleared out the used trucks built from the 05, '06 pre-buy, and used truck values will be up. And so I think all of the indicators, when you look at them, are there for -- I'm not here to predict 2011 and '12 and be the -- I'm not here to be the prognosticator.

Come on, Rusty, you're that good. We won't hold you to it.

Yes, right. Thanks, Jamie. But it would not surprise me to see us get back to a couple, 200,000 plus years. Okay?

Okay.

And I mean, I don't --

And you are endorsing the 119?

The 119, you know, I can see it being that loaded in the front and loaded in the back and weak in the middle. But that is a very difficult thing. But I do expect you will see better deliveries in the first quarter of the year. I don't think there is any question.

Okay. And can you comment what are you hearing or if you have any data points on what you are hearing on the SCR engine versus the EGR engine, and your customers' preferences?

You know, Jamie, I think --

Well, I mean, I know you are more SCR, but you know --

I believe -- I'm sure the manufacturers of both technologies will eventually -- say I'm playing middle-of-the-road, but I do believe that they will both figure it out at the end of the day. Historically, that has always been the case in this business, and they will.

Of course, depending -- you know, there is a lot of things in here about -- as far as the -- how is the fuel economy going to be on one engine compared to the other. And because of the downturn we've been in, I don't think there has been as much testing, pretesting going on, to allow me to really give you a solid answer on that. Because I don't believe we've had as much -- as many miles put on our test engines as we have historically, say, compared to the last change.

Okay. And then anything you are hearing on a preference, as we come out of this, on a 13-liter engine versus a 15-liter engine?

I still believe for your large-truck-load guys, 15-liter is going to be there. 13-liter will gradually continue to grow, especially with shortening of hauls and things like that that are going at the customer level, as you look at length of hauls shortened, etc.

But still in most environments, running across the country, the 15-liter big-block engine will be the preferable engine -- in that environment. As you get in -- depending on which location you talk about. I mean, I could sit here and break down 20 different locations. But I do still believe that when it comes to the big, over-the-road, running east to west across the country, that the 15-liter engine will be the preferred engine of choice.

And then just last question, on your construction and forestry business. Some of the other construction OEs that have reported so far have been a little more optimistic about what they see going forward and that the construction markets potentially have bottomed.

I guess I'm just wondering what you are seeing. I know the quarter was tight, but what you are specifically with -- you know, oil prices back where they are. That bodes well for your region. Just how you are thinking about that.

Right. I would tell you, Jamie, that we believe we are definitely on the bottom. As you saw (multiple speakers) where in our territories, it would you as to how low they've gotten.

Yes, let me talk about that a little bit, Jamie. When he says on the bottom, our current run rate is severely depressed to what it was in the spring of this year, even. In an annual number, I think the projections for 2010 are going to be actually below 2009 -- in our market.

Really? Okay.

Now, based on our current run rate, I don't think they will be below that. But I think that if you take it in total, 2010 will be softer than '09, because '09 was decent in the first part of the year.

Got you.

And as you know, we are very heavily oil and gas driven, being in Southeast Texas.

Okay. All right, great. I appreciate it. I will get back in queue. Thank you.

Tom Albrecht, BB&T Capital Markets.

I know everybody is coming at this from several different angles, Rusty, but here is my question. When this thing gets started, it is not going to be the whole industry. It is probably going to be those fleets with good balance sheets. The rest of the industry, maybe it is 80% of the industry, is going to need some sort of a profit recovery, and they probably play into the '11, '12 results.

But the fleets that you talk to with a good balance sheet, a good competitive position, what are their primary resistance points to buying in '10? Is it the '10 truck? Is it the value of used tractors? Or is it their own performance?

Tom, I would -- you know, I would take that and answer that with your first two. Is it -- it's -- valuation on used is a big issue right at the moment, because used values are still depressed. I mean, we are in the process of eating up -- still going through all the 2007 model years that were built in 2006 trucks, some of which weren't put into service for 12 months, as you are well aware of, if you remember back.

So we are still working through that large year, with very difficult environment on the used truck sales sides because of the credit environment and other issues that are out there. So that will continue to be one other hindrance.

That, to me, you are seeing some slight -- you will probably see some slight pull-forward right now going on as we speak -- it will be delivered in the first quarter, some of it -- from people that are able to do that. But only if they can, and that would be somewhat resistance to being the first guy running with either SCR or whatever technology that they may be running. Even though they are not afraid of it, I don't believe. They would prefer not -- they don't want to be the first guy in the barrel, okay?

So you've got some people that are -- there is a little bit of purchasing going on right now, ordering. But that is just a blip from the people that are able to because their balance sheets afford them to. And I agree with that comment.

But I do believe as utilization goes up, Tom, that -- remember, we sell not just to the fleets. Everybody gets so caught up in talking just about fleets. You got to remember, we are 40% into vocational markets, and that is one of the things we are fighting real heavily right now. I mean, if it wasn't for -- the only vocation market that I can think of that we are doing decently well in at the moment is the refuse market. You look at oil and gas, you look at construction, you look at the [claim] business, you look at any of these other sectors that we are in, it is a very, very difficult environment in those.

So when that picks up and like the ready-mix business picks up, from a Rush perspective, we are tied a lot to that; not just the over-the-road fleet. So as the economy -- I'm hoping, and I'm not going to play off of on the government's influence into this -- but as I hope is maybe that picks back up during the second half of next year.

Along with the utilization on the large fleets have (inaudible) picked up -- they are overmiling their trucks and they are going to have to trade. And that is why I believe 2011 and '12 will be pretty strong years. But I still think we are a little ways away from that. And we are probably nine to 12 months away from all those things taking place.

But I feel pretty confident, after four years in a row, of '07, '08, 2009 and then almost through 2010, of what are -- well below what are accepted replacement standards, there is going to be a strong bit of pent-up demand that will need to be taken care of as the economy picks up.

Let me follow up on that then. The 2010 engine has, I guess, two levels of concern itself. One is just the uncertainty of a new engine. Some people are comfortable, others are not. But then there is just the price tag.

As we move into, let's say, the first five or six months of 2010, if truck orders remain pretty unimpressive, will those large announced price increases on the engines hold? I know that isn't totally up to you, but what is your read on what is going to happen with that dynamic?

My read would be this, pretty simple. As you know -- let's step back and look at the last engine change in 2007. They didn't hold, okay? They didn't hold, but we were coming off of big years. You were coming off the two largest years in the Class 8 truck business, so margin had been built in at the manufacturers' level.

We are not afforded that right now. There isn't margin. All you've got to do is go through your OEMs and look at it, and look in their reports. There is no margin built in at the manufacturing level.

So I see no way that this is not passed through. Okay? Maybe there is some slight deterioration, but there is not enough margin at the OEM level to take out at. Because the margins aren't there like they were coming off of 2006, as you come into -- off of 2009.

Okay. That's very helpful to hear. I appreciate it.

Chaz Jones, Morgan, Keegan.

Good morning, guys. Nice quarter.

Thanks, Chaz.

Rusty, could you give us any sense on the heavy-duty trucks that were sold in the quarter? Was the pre-buy material in those thousand trucks?

Well, I would say a couple of our -- some of our large fleets did purchase -- have already purchased here in the third quarter with slight trail into the fourth. So that would -- here, if you look at our overall Class 8 deliveries this year, we are about -- we are off about five points better than the overall Class 8 market. So a couple of ours have already purchased in the third quarter, to be honest with you.

So maybe the backlog doesn't look quite as strong in the fourth quarter.

No, I wouldn't tell you probably not quite as strong. But, and you know, I would -- as I said, it's still an ever-moving target, with the ability to change quickly on a dime because of such short lead times that we've been -- experienced over the last year, and continue to.

As I said, though, I think we will get a little bit of blip in deliveries in the first quarter -- the overall industry will. But a lot of ours may have already been -- some of our large fleets may have already been spaced out in the first three quarters of the year, that were going to purchase and trailing into the first part of the fourth quarter.

And then on the absorption side, your commentary in the press release kind of sounded somewhat concerned, just because of the seasonality of the parts and service business. I realize you are very sensitive to your service reputation.

Are there any levers you can pull maybe over the next couple quarters without doing something that would damage the level of service and try to hold up that absorption level?

Well, I can tell you we will continue to manage it with the diligence that we have managed it over the last two years. And we will continue to monitor it very closely, basically on a daily basis.

It is hard for me to answer, because there is a fine line that we walk, between maintaining those customer service levels that we are known for, to get short-sighted in how you handle a customer in a down market like this, when you know that a better market is just around the corner. You cannot come up short on the service side of the business, or you really -- you take the chance of damaging that relationship as the markets are closer to getting better than they are to getting -- than they were to turning worse here a couple years ago.

So is there is some leveragability? Sure, there is probably a little bit. And we will do our best to capture what we can from that leverage perspective, yet still maintaining that level of service that allows us the customer base that we have and are very proud of.

Another question I had is certainly a lot of talk on the TL side -- [one is] lender leniency here in 2009. Are you concerned at all about the implications for the used equipment market, if we start to see, maybe over the next two or three quarters, some of these finance companies pull the plug on what I would call zombie truckload carriers?

That is quite a term you've got there, Chaz. I would -- no, no, because it is going to be part of it. It doesn't bother me. Those trucks have to come back to the marketplace somehow. And whether it comes back through the carrier trading them or the finance company repoing them and bringing them back to the marketplace, they have to come back into the market place in a second and a third life, whatever that might be.

But there is no question that financial institutions, whether they be commercial or bank, given all their other issues that they've had to deal with, putting it lightly, over the last year and a half or two, have had to be lenient to many, many commercial users.

I don't think just truck operators either, not just truckload carriers; but to many, many different segments of the economy. Because they've had a lot of issues to deal with, as we all know, on many other fronts.

Do you think we will have distanced ourselves enough by 2011? Obviously, I realize there is a lot of pent-up demand, but distance ourselves enough so that there is enough credit in the market to support 200,000 trucks?

Sure, you bet. I do believe that. I mean, you've seen some of the earnings report out from the big guys. They are not that bad, given the environment we are dealing with. If there is one thing I can say, it is how corporate America handled this economic recession of historical proportions over the last couple years, from an expense management perspective has been -- I think -- I like to feel we've been right in line with how corporate America has handled this. I've been very encouraged by how people have maintained some slight sense of profitability, by reacting and making the proper decisions and managing it very, very closely.

Last one, and I'll let somebody else have it. Any changes you are seeing in the acquisition environment?

I'm sorry, ask --

Any changes you've seen recently in the acquisition environment?

There are some opportunities out there, and we will continue to pursue them now, whether they make sense for us and fit into our overall strategic growth plans. So I do believe that there are some opportunities, and we are continuing to look at them on a daily basis, Chaz. But, you know, I'm not going to get into further detail about that right now.

Understood. Appreciate the commentary.

Gary Lenhoff, Ironworks Capital.

Rusty, can you comment on pricing? I'm not sure if it is the GM liquidation or something else, but it looks like your units were up Q3 over Q2, but your new and used truck revenues were down.

Really, Gary, it had more to do with mix on the Class 8 side. We delivered some fleets, not as much vocational business, but it tied to bodies and things like that. So there was some fleet business in there in the third quarter, and that is truly -- that was the issue behind it right there.

There wasn't hardly -- there was very, very little vocational. There was no oilfield business in there, where you've got some rather large expenses, bodies. There was no mixer business, very little garbage -- there was garbage business, but most of that was they paid for the bodies directly and not through us. So it was just weighted toward the fleet side of the business.

Okay, so medium-duty and used truck pricing were pretty much in line Q3 over -- versus Q2?

I don't have -- let me see -- I'll have to pull the medium up here real quick.

The medium was pretty flat, down $800.

Yes, medium was down $800 a unit, so fairly flat.

Okay, great.

And used was -- what was used? Used was obviously substantially down year over year.

Right.

It was around $34,000 compared to $44,000. I think on the last conference call that's what I said -- you want to see the effect, if there had been a -- used trucks had been depressed going especially last year -- that $10,000 spread there speaks for itself.

Yes. Okay, great. Steve, the $1.5 million associated with the GM inventory, is that a credit to cost of sales in new and used trucks?

That is in your -- it is split between those two cost of goods sold line items on the income statement you see. About $1.37 million was related to a reduction in your cost of sales on trucks, and the remainder was in the parts and service line item.

Okay, great. And last question, it looks like, again sequentially, your capital lease obligations increased by about $10 million. Are you leasing -- using capital leases more now? What -- is that is just a one-off?

That is generally driven by the customer's decision on what they want to do with the unit. We had a particular customer who it was highly likely that they moved their unit out of the state it originally was domiciled in. So when we have a customer in that situation, generally, we will do a lease-to-release and that will show up in the capital lease side versus a conventional purchase.

Got it. So that is associated with the fleet (inaudible)?

It is on our leasing company. It is not the fleet (multiple speakers) as Rusty mentioned a minute ago. It is in the pack lease.

Okay, great. Thanks so much.

(Operator Instructions) Bill Armstrong, C.L. King & Associates.

Good morning. Regarding the alternative fuel vehicles, is this mostly school buses, or can it be all different types of vocational vehicles?

It will be a mix of vocational vehicles. CNG, LNG, a lot on the West Coast there, from that perspective. School buses in Texas. Just a mix between those different applications.

Is this a type of vehicle that you are seeing taking up a bigger percentage of your overall sales mix?

Oh, that's difficult to forecast. I can see -- yes, will it continue to grow? Yes. Is it going to grow at some astronomical pace? No, especially as we get into -- clean diesel is really just about as clean as natural gas when it comes to a carbon footprint perspective.

But there are many areas -- lead, like I said, with the school bus out on the propane side, and especially in the California region, where natural gas is becoming a preferred source of fuel. Especially on your local haul stuff, where you don't run into the issues that you have on over-the-road from a refueling perspective and things like that.

And as the government continues to push that with tax advantages and monies towards that and they try to clean the air up in some of these certain areas, it will continue to grow. But it's not going to grow at some astronomical pace, okay?

Right. Can you disclose how many of those vehicles you sold during the quarter?

How many do we have, Marty?

You know, I don't have that off the top of my head. But I know there was on the Class 8 side right about 60 or so, and then -- to one customer. And then I would have to go back and look up. I know year to date on the bus side, we've sold 174. But I don't exactly have the quarter number.

And the number that you are looking at is largely impacted by the size of unit you are talking about. Those 60 units that were sold to that one customer were large units that had a large per-unit rebate available. So buses don't even come close to that. They are about a third of the rebate available that those 60 units were. So that is why it was so large this quarter.

I see. And just to understand the accounting, on the SG&A, how much of the pass-through was in SG&A? Or I should say, how -- what was the pass-through amount that is in the SG&A line?

It's -- a majority of the tax credit that we allow, we pass back through. But the exact amount we don't disclose, because it is largely dependent on tax planning strategies as to when we will be able to take the tax credit. So what we try to disclose is that a majority of the amount we get, we pass back through.

Okay. And then final question, you've sold 637 medium-duty trucks. How many buses are in that number?

Oh, let's see right here -- hang on a second here -- 76 buses.

76. Thank you.

(Operator Instructions) [Basilio Lucas], Morningstar.

Good morning. Thank you for taking my question. Just kind of a follow-up. You had mentioned, regardless of the method in which the truck is taken over, whether it is from a bank kind of repossessing a truck from a carrier that is going out of business or if it is a fleet selling it, is there a preferable method, or -- that those come onto the market, that is more beneficial for Rush? So is it easier to negotiate with the bank because they are desperate to get rid of the truck and just want their capital back, or kind of a fleet owner?

Well, if it was a fleet owner and I was selling him a new truck, that would obviously be preferable to me, okay? But the flip side of that is if you do take competition out, then it probably will benefit some other customers, as you take that truck and put it into a different application and different market.

So it may benefit some of my customers to take some of maybe that capacity out of their area. Because normally if a guy is in that kind of trouble and he is trying to compete against someone who is running superior equipment, he is probably running inferior equipment that shouldn't be used in that application. So to pull it out of the market and put it into proper application would probably [be] beneficial to a lot of our customers.

But again, the best method would be for them to buy a truck from me and let me take it in trade.

But at least from a margin that you would earn on the truck, whether you are buying it used from the bank or you are buying it used from a fleet owner, is there a (multiple speakers)?

Well, hopefully I am not buying it from a fleet owner, as I said; hopefully, I'm trading for it. So the overall package, I'll probably do better there.

Now if I'm out buying it from a finance institution, I might be buying it fairly -- I might be buying a distressed piece, so I might be purchasing it at a fairly low level. So my opportunity on that piece, just by itself, might be a little greater. But I don't get the other part of the equation, which is the sale of a new truck, which at the end of the day is what drives the train. The sale of a truck in our area is what drives, at the end of the day, parts and service and everything else down the whole lifecycle of a truck.

Got you. Thanks for that. And then just my last question, obviously there was a huge pre-buy kind of the last couple of years. Do you have a sense of what percentage of those pre-buy or trucks that have maybe been sitting on the sidelines that are in good condition that actually could be used today, so they would push back the purchasing cycle even further?

I don't believe there is -- well, first off, the pre-buy was 2006. So it wasn't -- that was three years ago. So it hasn't really been the last couple of years.

Yes, that's right. I guess I meant between 2005 and 2006, you looked at --

We are continuing to eat that excess capacity that was sold up. Every day that goes by, that order intake is lower, you are still -- there is attrition. And I realize it may not be as fast as it was because utilization is not what it is when the cycle is right.

But my feeling is that as we get towards the last half of next year, we will have gotten through all of this. And the age of the fleet that is out there is because you are going to look and you are going to say, well, a four-year-old truck was built in 2007, as you get towards the end of 2010 -- or should I say a 3.5-year-old truck. And you look at the volume and the amounts that were sold in '07 and '08 and '09 and in through the first part of 2010, and there is going to be --.

And that is why I keep saying I believe that 2011, latter half of 2010, with just some slight economic -- slow, steady economic recovery, capacity will be coming out of the marketplace, because replacement, by anybody's standards, is much higher than what we have been experiencing from an order intake perspective, regardless of usage.

So my answer is that I am very confident and comfortable that we get through a fourth year -- I've never seen one of these cycles go four years like what we are looking at here. So as I look at historicals, they are usually not wrong too often.

And I've heard the story -- or a couple people saying that during the kind of pre-buy in 2005, 2006, individuals bought extra trucks and literally Saran-wrapped them and kept them in inventory, and so that they can --. And obviously, like you said, as the days go by, more of those are kind of pulled off of the shelves.

But do you have a sense that there are a lot of -- putting quotes -- new trucks or trucks that were purchased during that last cycle, but haven't been used yet?

Well, no. I don't know of anybody that has, as you quoted, Saran-wrapped them. Now, did capacity, did freight times go down right at the end of 2006, in October, start down as they were taking delivery? Yes. But what that did was basically prolong when they were able to put them in service.

But within 12 months, they were all in service and running. Don't think anything other than that. I can promise you they didn't buy big warehouses and park them in there and hold them out until 2009, waiting for some time frame. That didn't happen.

Some of them, there was a prolonged introduction of in-servicing them, but nothing like what you're kind of describing there.

Great. Appreciate it. Thanks for taking my question.

Chaz Jones, Morgan, Keegan.

I had a quick housecleaning question. Do you have the revenue for heavy-duty, used and medium-duty -- the revenue number?

Broke out? You are talking about on the used?

Yes, on the truck segments.

You want heavy-duty?

Medium-duty and used.

Class 8 is 116 million. I'm going to round these for you. Medium-duty is 37 million. And used is 25 million -- 25.5 million.

Perfect. Thanks.

And with that, we have no further questions.

Okay. Well, we appreciate your time, and we'll look forward to talking to you with the fourth-quarter release sometime in the first part of February. So until then, thank you very much.

That does conclude today's conference. Thank you for your participation.