Rush Enterprises Inc (RUSHA) 2024 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprise Inc Reports third-quarter 2024 earnings results. (Operator Instructions) Please be advised that today's conference is being recorded.

I would like now to turn the conference over to your speaker today Rusty Rush, Chairman of the board, Chief Executive Officer and President. Sir, please go ahead.

Well, good morning and welcome to our third quarter, 2024 earnings release call with me on the call are Jason Wilder, incoming Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General counsel and Corporate Secretary. Now, Steve 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, 2023, and in our other filings with the Securities and Exchange commission.

Thanks for joining us this morning. I am pleased to report that we had a solid third quarter. We announced revenues of $1.9 billion and net income of $79.1 million, which comes up to $0.97 per diluted share. In the third quarter of 2024, we incurred a onetime pretax charge of $3.3 million due to Hurricane Helene related property damage, excluding this charge, EPS would have been $1 per share. And once again, we are happy to declare a cash dividend of $0.18 per share for both class A and class B common stock.

And as we have experienced over recent quarters, the industry is still dealing with low freight rates and high interest rates, and these difficult operating conditions are keeping demand for class 8 trucks on the low side. Given these headwinds, we're proud of our performances.

While the over the road carrier segment faced some challenges. We saw good activity from class eight vocational and public sector customers. Medium duty demand also held up well helping us outperform in Class 4 through 7 sales. And despite a tough used truck market, our strategy is paying off and contributing positively to our earnings. In the aftermarket space we saw a slight revenue improvement over the second quarter, particularly in service sales which outpaced the market.

Diving deeper into our aftermarket results. Our parts service and body shop revenues reached $633 million down slightly 1.6% from the third quarter of 2023. But up from the previous quarter, despite the ongoing freight recession, we are finally seeing slight sequential growth in aftermarket sales through over the road customers. The first growth we have seen since early 2023.

The refuse and public sectors continued to be strong for class 8 aftermarket sales and our class 4 through 7 aftermarket sales were healthy across the board, though we expect some seasonality to adversely affect the fourth quarter. We anticipate beginning a gradual return to a more normal market conditions in early 2025.

Looking at truck sales, we sold 3,604 new class 8 trucks in the third quarter. Accounting for 5.3% of the total US class eight market and 1.6% in Canada AC T. Research forecast for 264,000 new class eight sales in the US and Canada in 2024 down 12.5% from last year continued low freight rates and high interest rates contributed to a 3.5% decline in class eight retail sales from last year's third.

And economic uncertainty continues to weigh on class eight carriers. Despite these challenges, we are pleased with our third quarter results, specialty markets like vocational and public sector remain bright spots for us as we and we expect this trend to continue into the fourth quarter.

We saw a slight uptick in orders at the end of the third quarter. So we expect that our fourth quarter, class eight truck sales will increase slightly compared to our third quarter results. However, with high inventory levels across the industry, we anticipate that pricing will remain competitive making sales challenging. Through the first half of 2025 our class 4 to 7 new truck sales reached 3,300 and 79 units in the third quarter, accounting for 5% of the US market and 2.9% in Canada AC T research projects, us and Canadian class four through seven drug sales to be 273,000 units in 2024.

Up slightly roughly about 2.5% from last year. Demand remains strong in this medium duty space across all segments and our efforts to diversify. Our customer base is paying off on the used truck side. We sold 829 units in the third quarter, up 1.8% year over year. Although used truck demand is still weak, we continue to successfully execute our strategy which led to positive results in the third quarter. Depreciation rates for used trucks have stabilized and we continue to manage our inventory levels effectively to meet market demand lease and rental revenue was almost flat year over year down just 4 by 10 of 1%. However, we are optimistic that rental utilization rates will increase in the fourth quarter and we expect to see moderate growth in our leasing and rental revenues as we move into 2025.

So far, it's been a challenging year for the virtual vehicle industry, but I am incredibly proud of our team's hard work. Their dedication has helped us manage our expenses and stay on track with our sales initiatives allowing us to keep delivering value to our shareholders despite these challenging times and I am confident that we will finish the year in a solid financial position.

I would like to extend my sincere gratitude to all our employees for their hard work this quarter, they stayed, they stayed focused on our long term goals while continuing to provide top notch service to our customers before we wrap up. I personally want to thank Mike mcroberts who as we announced will step down as COO on October 31st.

Mike has been invaluable to us and we are glad he is staying on as a special adviser and Boardman, I would also like to congratulate Jason Wilder who will step in as our new Clo on December 1st and I have full confidence in Jason and expect a smooth transition with that. I'm happy to take your question.

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

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

Hey, Rusty. Good morning.

Well, good morning, Mr Oen. How are you.

Today? I'm doing great. Just a question. You know, you had constructive order commentary particular into the quarter and you know, at the same time, I would say, I think ac T forecasts no retail, so recover until second half of 25. How do you bottom? How do you balance sort of the commentary that you've made in the press release? It seems there are multiple references to this bottoming out with the uncertainty that we're still facing in the first half of 20 five.

Well, when I say, I think I was talking bottoming out as far as our customers business, right? As far as the truckload carriers, the haul for hire carriers, I believe, you know, freight has been bobbling on the bottom for them, right? From a and contraction of rates. I think it's, you know about over with. If you read some of the reports that I've read in the last couple of weeks, you'll see that most carriers do believe they've been bobbing on the bottom. You know, and, and, and that's where they're at. So I think we're getting a little bit mixed up here is the customer base and what I see for our business and when I said, when I talk about our business and I said we've had some uptick in order intake.

Understand, you know, people are still thinking sometimes that or I know they're not, but, you know, we had two years of allocation. Well, we've gotten back this year and what the way it always was, right? I couldn't have told you back in Q1, we were going to have this great of Q3. It's just shortened windows, right? And some of that order uptick that I talked about that we had in the last six weeks, let's say maybe not, let's say go back two weeks. But the prior six weeks, we, we, we did have pretty solid order intake, but a lot of that is for Q4 built. Okay?

Not all of that is 2025 built. In fact, the majority of it was going to be built in the fourth quarter. So we're in shorter lead times, but obviously, I'm very pleased with the fact that we're adapting as a sales organization to what we historically live in where you're living in 90 day lead times. Right? Okay. That's really what I was reflecting. We're not living in nine month lead time. So, you know, it was nice to see the order intake pick up and we're still trying to sort out 2025.

But some of that stuff that we're building in Q4 will roll over to be delivered in Q1. I couldn't sit here right now and tell you, I've got Q1. We don't have it all sold out, right. But I am confident as we have shown in the last two quarters that we have the ability on top of our game. You know, we were, I'll be H1st with you, a lot of people were a little lax coming out of allocation, but we're getting back on top of our game and making it happen, just like we have for decades, but if not even better.

So, you know, our customer base is bobbing on the bottom, but we're, I think taking advantage of short lead times, it's just, you know, it can be a little more nerve wracking. But, but that's because you, you got conditioned to allocation for a couple of years with nine month lead times. Now you're back to more normalized 90 day lead times, you know, even less, sometimes 60 to 90 day lead times. But I feel good that there is still going to be some business there. It may not be quite as I believe we can make what we're doing. How would I say that I don't see any big uptake in orders until the back half of next year. When we start thinking, you know, when our customers on the over the road side, we're doing real well and vocational.

But, you know, it's still the biggest piece of what we do there. Truckload side is still a huge, large piece and the small carriers are not that large carriers are being, you know, conservative in their outlook as they get their businesses right there or is back in shape and, but that will come back. But I do not expect for us, I do expect for us to continue along the lines of where we have been performing from a volume perspective. But a big uptick coming in the back half of next year is people, you know, start to think about all2,027 the, the technology, the costs, they're going to go along with it, plus the performance that we're not sure of going out into, you know, 27.

To be H1st, we meet the new EPA regulations. So anyway, that's a long rambling answer, but that's how I answered, you know, that. So we're we, that's what I see customers overload. Customers not doing great, but both on the bottom looking for some uptick here as we move into next year, which we hope will drive further sales in the back half of next year and into 26 but feel solid about. We can continue the performance. We did and.

Yeah, thanks so much and, and just a commentary for you. As I said, look, when somebody like you starts getting marginally less negative, you know, just let's keep it there. But I, I think you are getting more positive, but at least your press release got more positive.

What, what, what, what, what, what are you seeing? You know, II I think, you know, I always have a question about the economy because what are you seeing? Because you do touch a lot of verticals, right? You touch a lot of off road, you know, Caterpillar today. Maybe not the most exciting numbers. But what are you seeing on construction? What are you seeing in oil and gas, outside of truckload industry? You know, what does the economy look like? Are you feeling more positive, more negative into 25? Thank you.

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

Now, remember it is not the same piece as much of a percentage of our business as it was a decade ago by any stretch. But even if it's, oh, I don't know, 5 7% piece of what we do, it was, it's ALL20% construction that was up from a CapEx perspective, right? You know, you're seeing the flow of money coming through from the infrastructure bill and, you know, we, we've been limited a little bit on some of the vocational products but some supply shortages on the transmission side, but that I think is going to smooth itself out later in the next year. That was really an issue we dealt with in the back half of this year. But demand is strong, you know, refuse and demand still remains strong around that sector.

Municipal is pretty solid. You know, it, it, it's, it's very Andrew but, you know, you're always waiting for the struggle guys to really get back into it. And, but, you know, I see that happening more in the back half of next year, private carrier purchases earlier this year were extremely strong. You know, that's one thing when you look at our, our business model. That's what I try to drive. The focus is we really have diversified, our business model sometimes when it comes to our customer base and our geo geography, which geography can have a lot to do with. It, depend on what's going on. I mean, California is tough, you know, we're performing out there, but given the new Carloss, you know, my order intake out there is 50% of what it was. But you know, that stuff will smooth out. That's the good part. It's just one steak for me. Right?

I mean, I can go on and on and say, you know, me, I can talk all day about the business because I love it. And, but the good part is we've got a pretty, very diversified customer base that we deal with. We're not just tied to big, I don't big, you know, 1,000 truck orders. Ours is a much more diverse customer base. So it allows us to navigate these waters and perform the way we do. So I, yeah, you said I was, I was laughing at what, how you phrase that Andrew, you know that there's going to be a pre buy at sometime to drive orders.

But we've been able ac T has next year going down 10% or so. Right. I mean, but they've come up 10% from where they came into this year. So I'm not so sure the numbers they have out they got like 2 3,200 and 34,000 for the US this year and like 272 17, 216, something like that for next year. I don't, I will say this. I see no downside to that. Now, I do see it, you know, more in the back half, but I see no downside to it. So, you know, I feel good about the next couple of years. We just slugging it out to a tough spot through the first half of the year, but I think we were slugging it out right now. And you know, you see the performance of the company. That's all I tell you.

This is great. Thanks so much.

Daniel Imbro with Stevens. Your line is open.

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

Thank you, Dana. Good morning to you, sir.

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

Right? No, II I will say this, our inventory, we've been working on it all year. Okay. And it's in better shape now than it was six months ago. Okay. Or say three months ago, you know, we had with the big, with the downturn, you know, last late last year and everybody used the allocation. We had a bunch of, you know, small order fallout, which turned into what we would consider stock inventory, but we have been managing it inside of all the numbers.

Extremely, I would tell you, well, we've been making sure it's mark to market every quarter and I feel that has helped us start to disperse of inventory. And so I feel we're headed in the right. I feel a lot better about it than I did without getting too deep deep into how I manage it or how we manage it. I feel better about it now than I did in April. I can promise you that. So we got our arms around it and we've been able to, to drive it down over the last 60 days. We, we turned the corner and been taking inventory down regardless of what the overall, you know, the overall, we got 90,000 class eight units or so largest inventory ever across the, across the country of the US, right?

So, you know, but I feel better about ours and that the numbers are posted for everyone else. I feel a lot better about ours. Now, we're not perfect yet, but I know we're heading in the right direction. I know we shut the stick at all and you know, having our inventory continuing day by day to get in better shape and I feel decent about it, as I'm saying. So is it perfect where I want it?

No talking about used. You said something about you. Look, our used folks have done an outstanding job while we, we used to carry, I don't know, 45% more in inventory than we currently do. So we saw where the volumes were and we got, we got our inventories down, you know, I want to tell you where we would carry 2,500 units. We got our inventories under 1,500 we're turning them and that's the key piece of inventory and used, you can turn used trucks. If you're not turning your used trucks in under 90 days, you're going to lose money.

It's just as simple as that because unlike new trucks, used trucks depreciate every day. New trucks are on MS Os. We used obviously the title used vehicles and they're not like fine wine. They don't get better with age. So you've got to make sure you keep your turn right. And I feel really I'm very, very positive, but please, we have used restruct departments have performed or at least, you know, and manage our business for the year. That's been a that's been a plus for this year, over last year. A nice plus where it's not anything the size of our new, it's nice to get, you know, we're in a hand to hand combat sometimes.

Right now I tell people right hand to mouth. So we, you know, you just keep slugging it out so we can get some from the used truck department that you didn't get last year. It makes up for some of the softness that we're having, you know, have all over the road business in the new side. You know, and you know, when you get into the overall business, I mean, I'm going to, if there's one thing you haven't asked out, anybody's asked me about that, I'd love to talk about and that will be when we get a chance to talk about the expense management of the organization. But I'll be quiet and let you ask me.

It's like you're looking at my question list here. Rusty. I was going to ask next on the cost out. You've got, you took out a lot of OpEx in the quarter, I guess. First, can you maybe just talk about where you guys are pulling costs out of the business? And secondly, I guess, how do you think about the sustainability of these cost takeout? Obviously, we're at a cyclical trough and how much can we keep out of the business as the business improves next year? Where do you see opportunities to further reduce it. How is that cost management? Shape it up?

Sure. Well, I back in, you know, we saw flattening out, right. And, you know, we went and I went to everybody back in April and said, folks, you know, the parts and service business typically we, this is, let's talk about parts and service strip, truck sales out of it, truck sales is what drives the s we run this business in one side. G&A on the other side. Okay. S is typically remember just reflective of truck sales because that's where your commission is. That's your variable piece on the truck sales side. G&A, is that where you really run your business? Right.

That's the dealership business without drug sales, drug sales. Take the SP so the G and a piece we looked at it and said, look, I don't see the seasonal uptick that we typically get in the summer and guess what? We didn't have it. We didn't get it. We have been fairly flat lined yet. At the same time as I've tried to tell people that's the flexibility of the business model. I've told them for years and we're way better than what we used to be at. And that's, you know what we call absorption and that's a numerator and denominator, denominator being expense, you got gross profit from parts and service above it.

If you don't see that growing, if you see it flattening, then you've got to make some expense adjustments driven by what you see on the parts and service gross profit side. Now we, as you saw we were down, up slide, I talked about revenue being down. We're actually got a little bit margin, took a little bit of a margin hit, but at the same time, go back to April. We decided we had to make some adjustments and we did, I mean, when you look at our G and a piece, I mean, we're ALL4.5% sequentially to Q2, we're ALL7.7% from last year's Q3. I am so proud of the organization. I can't tell you how proud I am for doing more with less. So. Yes, sustainability.

It is. Look our goal when we go to start back, if it starts to ramp back up, right? And you have to add some people back because remember when you're doing service and you're doing selling parts, it takes people, I'm not loaning money. I'm working on equipment. But at the same time, you try to keep a order, a certain percentage of that gross profit. And we historically have done that. That's what's driven our absorption number of 50 points in 20 years. Okay. So, but you know, to run it, we still run it. If you told me, we would never have picked up anything in Ross Private. In the, in the summer months, you're still dealing, you know, you still got inflation, you still got payrolls, you still got everything going up on you yet. We remember to basically maintain a pretty flat absorption rate by working that expense number.

I would expect going forward if it does start ramping up. Like I'm hoping it does next year. You know, I mean, right now we're working on all our budgets for next year. We're not getting way out there. We know we're going to try to have mid level, we hope for at least mid level parts of the service growth right now, I'm waiting the budgets to come back in and we're helping drive them to the field. So if we do go, so if we pick up say six points or something like that, and most probably we try to keep half of it, right, which will drive more money to the bottom line.

So sustainability is there, there's no question in my mind that, that we'll be able to sustain it because it's not, we're doing it where we're at now. It will take a little bit more expense if gross profit and sales revenue start to go up in parts of service. But that's your goal is to keep part of it. But it takes people to, you know, to sell parts, to work on trucks, to do things. So our model is driven by what goes on, right? We have the flexibility to adapt to whatever the market throw at us or whatever we're able to take from the market because remember, we'll keep trying to take share. Our goal is to continue to take share. We're going to continue to add outside parts and service sales people where we can give them a solid book of business to go call up on as we try to take share, you know, no matter what the market is and on the service side, we're going to try to continue to add text. We didn't do that good job this year on that piece of it.

But at the same time, we just finished our senior leadership conferences last weekend and with about 300 FK table here in town. And you know, we're going to get back. That was one of the big messages to everybody. We're going to get back because we do expect business to be a little, you know, have some better, better growth next year.

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

Good question. No, it's always a struggle, right? It's a struggle on the entry level. Technicians. Right. That's where your turnover comes in. Technicians. I don't want to get too deep in the weeds here. But, you know, it's level one through 55 being the old experienced guy. Right. This can do anything and it's at level 12. If you got some secret sauce for it to help me, I sure appreciate it. We, we do a lot of, we do a lot of things. We sort of have a lot of efforts around, you know, retention on those ones and twos.

And is that, I think there was a study here recently we saw, was it 40% 40% of your level one and two are out of the business in two years. Not, they're going to do something else. They get, they don't want to, they think they want to be technicians, but 40% of them are out of the industry. So you can see that's a hard road to hoe. Right. And so, but we keep, we keep, we keep plugging away at it and, you know, that's one of the big things is, you know, it's difficult, it hasn't changed and it's still very difficult. We work with tech schools, we work with high schools, we work with, have a whole different, we have recruiters.

We, we go out, it's a multipronged attack and it's something I think we'll always be battling, even though being a technician, it's nothing like it was 25 years ago with all the technology that's been put in the trucks. Okay. It's a whole different job and it takes a whole different skill set. But it's still, you know, sometimes a very difficult, we'll, we'll, we'll get, I, I have all confidence and we're not, we're trying to grow 150 to 200 techs a year. About five or six years ago, we tried to grow it too many.

About 500 realize that wasn't going to work. That was we, we couldn't support it that way. But we've really worked hard to try to level set the jobs and bring in more jobs that will be beneficial for a level one and two because they can't go to a level four I can. So you've got to make sure that you're feeding them, you know, the proper work and, you know, I feel good about our ability to hopefully get our, you know, technician. It's really the turnover for that level one, level two, technician. I think we're going to, we're going to make some, I'll make much progress this next year in that area.

Appreciate all the color and best of luck.

Thank you.

Ian Zaffino, Oppenheimer. Your line is open.

Hey, guys, thanks for taking my question. Appreciate it.

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

Well, obviously I never talk about M&A until I do it. There's a little out there, you know, I'm always working a little bit. We had, we actually had a little M&A in the quarter. You know, we, we, we added a new small stuff, right. We added, you know, we added a small deal up in Nebraska. But we're, I don't have any large M&A I'm working on right now. There's couple other small things there. They may, I don't have anything big to announce that I could tell you and I wouldn't tell you anyway.

So I did it. So, you know, I don't see that there's this huge rush of people trying to get out of the industry at the moment, even though it wouldn't surprise me as we get further into the next two years with looming 27 EPA regulations going on and some people don't try to get out prior to that. I'm not seeing it right now, not for those reasons. But there's not a lot of big M&A going on right now that I, that we, we have going around. I, I, we're constantly looking.

So if anybody out there wants to bring me a deal deal that I need in an area. I'm not, I'll be happy to look at it. So, but I mean, I know it's just a roundabout question, but I'm never going to tell you what I'm doing anyway when it comes to M&A, until I do it. So, but if it's not, there's not a lot of big activity at the moment. But I wouldn't be surprised as we get further along down the road towards January 27, 1 EPA that M&A activity picks up prior to that.

Okay, thanks. And I, I guess I know you did that Navistar deal that went quite well. So I knd of like to see.

Yeah. No, we did a lot of Navistar deal. We did 12 years ago or I guess it was almost 3, 2.5 years ago. We did, it was almost three. It was December 21. That was a big deal. We bought the second largest at that time international dealer and, you know, we'll continue to look, we have more availability on that side of the house and we'll continue to look for M&A around where it makes sense, right? If one, if some shows up, so. Okay.

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

Yeah, I may test started a little bit ago. Yeah, I bet they had good numbers. They were sold out of 3,000 to 4,000 series transmissions back in May for the whole year. So, anyway, but they're managing their sales, they have their inventory. So, yes, vocational continue to be strong, as I mentioned. And, you know, it actually probably cost us some sales because we couldn't get enough transmissions this year in '24. So, you know, that probably pushed some of those sales into '25 so that's a good thing.

We expect that to continue. As I mentioned earlier, I expected most of all my vocational, I expect to continue to be strong through 2025. I'm not going to look out in the '26 on it, but we do expect to getting strong vocational sales across the board regardless of which location it's in, driven by the, government spend on those, on those bills, even on the infrastructure bills. And, just that's what we expect. We're still seeing it. And, that's a solid piece for us. You know, we're in the refuse business strong also. So that's solid for us also. And our medium to vocational continues to be strong.

All right, great. Thank you very much.

(Operator Instructions) Avi Jaroslawicz, UBS. Your line is open.

Good morning. Thanks.

Good morning.

So yeah, just noted in the press release that you're hopeful aftermarket sales are around the bottom. Now, just curious what you're seeing there to have some confidence in calling this the bottom.

And also how are you thinking about the ramp back up in sales for after markets? That'd be more muted than normal. Just given the over the road continues to be a more challenged market?

Okay. Well, no, we've, we've seen, as I mentioned, it's been, perhaps markets have been pretty flat and that's why we made some adjustments back in April. That's, what, sometimes flat is a good thing. We cut expense again. So it's not a bad, it's because we didn't see, usually we'll ramp up a little more in the summer than what we did. Given, our geography, even though we are across 24 states, given our geography of where we're at. But I would tell you that there is going into Q4, as I mentioned, there is some seasonality in the press release that it's a little softer in Q4, but that's nothing more than every year, right?

Because you've got fewer working days because of the holidays. So there's, you know, it's like, it's like, you know, if you bill hours right in the shops, right. So you gotta be there to turn wrenches. Well, you know, with the holidays with Thanksgiving and Christmas, up to New Year, you just naturally a little bit slower for those days you lose, then, you know, your air conditioning business goes down a little bit, but there's other things to pick up, but it's just seasonally a little bit softer in Q4, but that's nothing out of the norm.

So, you know, you couple points or so less than a couple three point typically in Q4. That being said, I just believe that is this thing bottoms out from the over the road guys and they slowly ramp back up next year. I would hope by the time we get to summer, I don't see any big ramp up early in the year, but I do see growth in the parts and service business when we get to the seasonal part. Say next May and June around that time line.

I'm not perfect on this, but I do believe we'll see some growth in the parts of more like what we typically get. I expect a more typical summer time, late spring through fall, summer included, of course, ramp up in our parts and service next year. I just believe by that time, I think, you know, I think the spot market is going to be better. I think we've taken enough capacity out of the over the road business. Remember when you look at the numbers we're producing.

Thank God we got a diversified customer base because we still, even though the small customer was off less than what we call our unassigned accounts. But the small which is still 30% of what we do are people, we really don't even know. Okay, they were, our growth was in the national, the big customer. That's where we, where we managed was through that piece of our business. But the small person was off still 8%, 9% year over year. And remember last year, he was all 2 or so in Q3.

So the combination of being all 20% going back comparing '22is quite dramatic for that small customer. So the numbers we're producing are in spite of those headwinds with 30% of our customers. But I do. But, you know, the comps get easier as we're starting to see, we won't have that big downturn in that smaller customer base. I expect the larger customers to come on better. Sometimes they're going, they're going to buy trucks or fix trucks, one of the two.

So I expect that to pick up, as I said, middle of the year next year. And I don't see any big downturn for us outside of normal seasonality because of our diversification over the next couple of quarters. Hopefully that holds true, but that's just my outlook on it right now with the growth mainly, pushed into the back two thirds of next year from a parts and service perspective, we'll continue to manage expenses the way we are and continue to, as I said, in spite of no, shorter lead times and on truck sales, I expect us to keep being able to push out quarters.

We expect to deliver a few more trucks in Q4, class eight than we did in Q3. And while I can't tell you what Q1 looks like, I expect us to execute because I can still build your trucks in December. Okay. So it's not like, I may not have the clarity that we had for a couple of years, but I've got the machine and I, and I believe, you know, the folks in this organization and their ability to execute no matter, what the environment is.

That makes a lot of sense. And then I guess also, yeah, I think about the rebound that you're talking about for class 8 and late '25. It sounds like you're thinking of that being more from improvement in the over the road market. To what degree would you say that the pre buying ahead of the emissions regulations would also be a factor in that.

There's no question, both of them for sure. You know, everybody thought you go back a year, pre buy going to start here back half of this year. Well, it didn't, okay, like I said, I can still build your truck in December, so it didn't happen, right? Why? Because they, the over the road guy was getting crushed, you just read all the early reports. I mean, LTL is good, you know, better but you know, the truckload side of it, which is a big piece of it was getting hurt. So what you're seeing is they're going to get healthier that I do believe that capacities finally come out of the market. That's the hardest. I just couldn't take any capacity out.

Financial institutions were more relaxed than I've ever seen them and, pulling the chain and taking capacity out. But that's not my business to run. And, but I think you are seeing that with all the bankruptcies and things coming out, but you still got to dispose of that equipment and that's being done as time goes on, that's happened. So they're getting healthier. So people will start focusing on the regulations coming in, you know, 2027 right? So, but all it's really done is we thought it was going to start earlier a year ago now. It's not. So if you think about it, what you're doing is you're compressing that demand, it's probably going to make the peak get higher. When it does because you're going to have less time to take care of demand. People have been having to run the businesses and manage on it.

Say, look, I'll deal with that '27 EPA rule when I can. But right now I gotta run my business. Look at my OR. As that, is that gets better, the focus will become more on. Hey, I got to get ahead of some of this '27. They're not going to pre buy everything, but they're going to compress and try to buy a little ahead. So they don't have to deal with the new technology and whatever it's going to cost to $20,000 on diesel and the, and then, and then rolling in above electric, everything else is all these rules and regs come about. So they're going to try to prebuy a little bit but driven by the fact also that their business is in better shape. Right? Not in the shape. It's been this summer, okay.

But I do believe it's going to continue to get better as we move through it next year. I believe by the middle of the year that, that their business will be stabilized and they might be getting some rate and now I can focus on, oh, my gosh, we got 18 months until January 27, I need to be thinking, I don't know exactly how that time is going to work out, but logic says that's what's going to happen is one thing settles out, get better, then we can focus on, out ahead of us right now you kind of look at, I'm not looking down the hill, I'm looking at the tips of my skis right. Then we can start looking down the hill and I, once we've got our ski straight and not going sideways. So if that makes any sense, that's how I see the combination of the two.

Yeah. No. That does. Thanks for unpacking that. And then I guess just a last kind of question, where vocational volumes, relative to longer term kind of normal average trying to understand how much runway is left of that market.

I think all of '25. I think I'm not going to look after '26 because that's a little far out for me. But I feel really good about our vocational business in 2025. Where is it compared to normal? What's normal in the truck business would be my question. I don't know what I know what normal is. It's one thing you learn in this business. It's pretty -- it truck sales could have some cyclicality, but I would tell you what, 25% better than what a normal is. I don't know.

I mean, but demand strong is the easiest way for me to say it and continues to be and we look for vocational demand to continue to be strong in 2025. I'm not going to look out into '26 on that yet, but, you know, as we get further into '25 I'll try to get a feel for it because we're not trying to, we're not booking 2'6 business right now. So it's hard for me to see where '26 is going to be. But we are obviously talking about in booking some 2025 business. You know, and, and, and both sides whether it's over the road or, or media or vocational, vocational, we booked more than we have over the road. I can tell you that. So we expect it to remain strong in '25. '26 is going to be hard for me to look at right now.

Hope so.

All right, got it. Appreciate the time. Thank you.

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

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

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