Rush Enterprises, Inc. (RUSHA) 2026 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc., reports third-quarter 2026 earnings call. (Operator Instructions)

Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Rusty Rush, CEO, President, Chairman of the Board. Please go ahead.

Well, good morning, and thank you for joining us for our third-quarter 2026 companies call. With me this morning are Steve Keller, our Chief Financial Officer; Jody Pollard, our Chief Operating Officer; Jay Haselwood, our Vice President and Controller; and Michael Goldstone, our Senior Vice President, General Counsel and Corporate Secretary.

Before we get started, I'll turn it over to Steve for a few 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 discussed in our annual report on Form 10-K for the year ended December 31, 2025, and in our other filings with the Securities and Exchange Commission.

Thanks, Steve. We had a strong third quarter. Revenue was approximately $2.1 billion, up 12.4% from a year ago, and net income was $78 million and $0.65 diluted share, landed 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.

Rent conditions have continued to get better following a prolonged downturn, and we're encouraged by what we're seeing as we move through the fourth quarter.

The quarter also demonstrates the value of the diversified business we build. We serve a broad range of customers across multiple parts of the commercial vehicle market, giving us different avenues for growth as conditions improve.

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 three mobile service locations across six states. This is a great strategic fit and another step forward, providing customers with more of the products and services that they need to operate their fleets.

Parts of the service and collision center revenue was approximately $680 million, up 5.8%. And aftermarket operations generated nearly 63% of our total gross profit.

Our perception ratio was 128.3%. Demand included 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're delivering from our black holes should also help create additional parts and service opportunities.

At the same time, we're 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 a good visibility in the strong fourth quarter and first quarter of next year.

All those 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 time issue.

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 to serve customers as manufactured capacity tightens.

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 quick equipment quickly.

Used truck demand was also available. We sold 1,913 used commercial vehicles, up 5.5% over the last year.

With demand particularly strong amongst smaller fleets, 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. Revenue was $98.2 million, up 5.3%, driven by improved rental utilization, along with continued growth in full-service and contract maintenance.

We expect rental demand to remain healthy next year, as some customers consider alternatives to buying higher-priced new vehicles.

Overall, I'm pleased with how the business performance. 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 flow.

Going forward, our focus remains pretty straightforward.

Serve our customers well, make it easier for them to do business with Rush, and continue investing where we see attractive opportunities.

That's 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.

With that, I'll take your questions.

(Operator Instructions) Andrew Obin.

Good morning. Rusty, maybe you can just -- we talked about it, Rusty. Steve, maybe we can talk about just regulatory uncertainty and how it impacts your customer behavior going to '27. Thank you.

Sure, Andrew. Well, it's a great question, Andrew. I could probably ramble on for 20 minutes talking about it, but there's no question that getting the regulatory answers from the EPA.

Is critical for manufacturers and customers alike, right? And most people, you may remember, I'm 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 tech dollars, which would be, meet the .335 milligrams, whatever this NOx, the law has been written for a while.

In doing that, you could also use credits to buy that down from 0.65, okay, 2.35, okay? So you really had different choices. They got rid of the warranties, they said, because they're supposed to be a 10-year warranty on afterlife, or after treatment, excuse me. And it was going to go back to the regular one-year standard warranty on after treatment, not 10 years. And also some other provisions inside that really weren't quite as expensive, but some other provisions they had out there.

Now, that's a graph. So it was up for review, a commentary period. All the comments came back.

We kept hearing we're going to get the final decree in November.

Now, in the last couple of weeks, I'm hearing that we're not going to get it in November. There's been some things that have gone on, I think, in the EPA that are going to delay it.

Possibly, I don't know if it's for a fact, but possibly we're going to be told just to work off a draft. We'll get the final decree out in January and February, but it's got to go in the 1st of January. So it's kind of...

It's up in the air as to exactly is that really is going to stay the same? Are they going to make adjustments? Will they make NCPs up or down? We don't know. Okay. But, you have to go off the assumptions that the draft will stay the same, I believe, unless they do come up with the final decree. That being said, all the manufacturers are taking different paths.

And that's fluid also. I do know that PACCAR is.

All in on NCPs. 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 back, right out of the chute.

Volvo, I'm sure I know they've got new technology. I think it might have a mix. So my point to you would be that it's all different across the board. I've never seen a law. I'm pretty old, right? In fact, I'm really old.

So I've never seen an EPA law or decree.

Where it wasn't the same for everybody on one particular date. So it's in some ways hunted the full implementation of the January 1, 2027 EPA law to where it's spread out. Some will come in on January 1, some may not do it till the following year. You don't know NCPs, there's no close on the date on it, but it would probably go up a rather large amount.

In January 1 of 2028, so I would imagine that it will allow from a customer perspective, I don't believe we've had time to truly test these engines. That's my personal belief. So I do believe it gives customers a chance to not have to roll right into this new technology.

Because everybody's after treatment is a little bit different, okay? I can talk forever, okay? All the manufacturers are doing about it a little bit different. So I think from a customer perspective.

I would be, leaning towards wanting to pay some NCPs, that's my personal opinion, and roll in and test the new technology before I go all into the pool.

Let's dive into the shallow end, not the deep end, right? Let's ease our way into it. If I'm a customer, that's how I'd approach it. But I'm not a customer. I'm just a dealer. So, but I've talked to many of them. Obviously, I just came back from ATA, and that's definitely how a few of them talk. Now, I'm sure some will go. In with the proper assurances. But, the manufacturers we represent are going to ease into the pool.

This would be the best way for me to tell you, as I just went through. So, but it's all across all over the board is to and with still uncertainty driven by our great government that can't seem to write.

A final decree, but I know there's a lot of legal ramifications. They have to be very careful with the changes. They've tried to make it easier for customers. By allowing NCPs, most customers would prefer that.

And then test. I don't believe customers have been given enough time, like I know they haven't, with anybody's technology on the after treatment to test it. Most folks want to run this stuff for over a year plus before they roll it into their fleet because we've seen throughout history. That, new technology is not always running just right out of the gate, right? There are adjustments that have to be made, and sometimes there can be major adjustments. I mean, I go back to something that's as simple as going to death, which we did in 2010, in fact, when we went to, the blue to the death, like Europe, SCR technology.

I'm going to tell you, there was clogged particular filters all over this country, okay, craps 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. So, people remember those scars, so they would, in my mind, prefer to roll into it.

I'm done. Like I said, I could talk forever about it. And, you've got my opinions on it. It may not be everybody's, but they're mine. And so that's, they're not trying the lay of the land, which is different depending on who you're talking to.

And we're waiting. 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 tree comes out.

It can get a little messy in my mind if we don't get into Korea.

Thank you. Rusty, no, great. I appreciate your comprehensive answer. And 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.

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. Now, as they ramp slowly up, I know. I mean, I know both my manufacturers are running, at full tilt, okay? Well, what happens is you put a big strain on the supply base.

And it's not always just the number one supply base. It's not your Tier 1. 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. But then you can't guarantee them because the Class A market is always what it is. It's a little volatile. And so you're asking them to, ramp up.

80%, then you can't guarantee and ramp down and so then they gotta, it's about hiring people, training people, getting going and giving them, so it does put a strain. So what I'm saying is that really on that Tier 2, Tier 3, there are some cases of 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. And it's not one OEM, it's all OEMs that are affected, okay? So don't let, I think, some people make it, but it's no, it's the OEMs we represent, it's the ones we don't represent. So 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, you're short this lens or something.

Well, you're not going to just stop the truck and lay it on the line. You're going to take it off, make sure everything's fine, get it tested, and put it in a back plot till you get that piece. Then you're going to go put it on there. So it's just you got to touch the vehicle two or three times.

And when that happens, it didn't happen. 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 it because some of it could get delayed into Q1. So I think that's why we feel pretty good about Q4 and Q1. Now, I can't tell you much about Q2 because I don't think anybody, no OEM has much backlog. I got, we all got a little. Passed, with the new engine stuff. So I feel, but I'm, remember, we're a dealer, so we're on the tail of a dog.

So we're not manufacturing. We're delivering to customers, which typically takes 30 to 90 to 128 days, depending on if it's over the highway or goes into vocational businesses, if he bodies and things like that. So that's why I can fairly confidently say I feel good about Q4 and Q1.

Two to be known, but remember, we've had six months of backlog and it's not, and so it's, by the way, it's going down every day because we're not, or intake is not going to be super strong, but as it goes down and as we get clarity on emissions and we get clarity on pricing. Because there's inflationary pieces inside of this, besides engines, not all just engines. So OEMs and customers, or dealers of course, including me, but really there will be a meeting of the minds on pricing. But when I told you about all those different technologies on the new stuff.

It's really interesting right now because the different technologies, I'm jumping out further than your question, by the way. The different technologies have different cost factors to them and different OEMs are different positions coming out of tariffs and stuff. It is really a pretty complex game out there right now. I know it's going to get sorted out. It's backlogs decrease. We'll get sorted out because there is demand out there. I know there's demand for next year. I've talked to customers. It's just this, fog we're in of clarity on emissions and clarity on future pricing, right? But it'll get sorted out here in the next 60 days and we'll get back to normal. There could be a little bit, there could be a small blip?

For my back half of Q1 and something you do, but it will get sorted out because the demand is there. The age of the fleet is up, okay?

So regardless about growth, the replacement demand is still there going into, next year, which is why I think you see, ACTs out there. I don't know if it's 10% or something. I don't have it in front of me right now, but it is up a 10% there. Now, something to change according. Course. But, because we'll start the year off, in my mind, with a better Q1, because that's deliveries than what we did last year. So I know I'm 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 don't see anything. I don't see anything that's going to blow it all up. But you're also fighting.

The law which basically means the engine has to get built prior to December 31 if you're using old technology Or should I say I think it goes down to you have to set the crank in the block. That's how it really reads but you will build old engines into January. Okay like there's a 5% piece of the government put in their decree. I know I'm getting too deep but So we will build old engines into January. So if you look at it.

There's still another, what, a little less than three months of building old engines, right? So, but the supply piece to your first question is going to be able to stretch it out a little bit, right? Which I'm fine with. Let's just get it all delivered. I don't look for anybody to not take their equipment, okay? The demand is there. It's just a matter of getting it all built, which just stretches out. It's just a timing issue on that piece of it.

Thank you very much for this comprehensive event, so I appreciate it.

You bet you. Probably might be confusing, even if it's comprehensive.

Brady Lierz, Stephens.

Great, thanks. Good morning, Rusty. 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 your larger over-the-road accounts? Are you also seeing strength, from your smaller unassigned accounts too?

And then just any, how sustainable you think this growth is into 2027?

Right.

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, right? They were starting to flatten out a little bit, which is nice to see, right? That means you're starting to get to the bottom of that piece of your business, because that is typically your more profitable piece. But from a mixed 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, right? I could tell you at the end of the quarter, the two, we measure things, and per day, how much gross profit per day we produce in all our shops.

And August and September, August being the best month of the year, September being the second best month of the year per day average. So that was encouraging, right? So.

We'll 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's less working days, right? Yeah. We have basically three less working days, right? And a working day to us is worth three plus million dollars a day in gross profits. So we will be battling back.

In Q4, we always do.

Some years it's two, this year it's three, the way we look at it, we strip out the holidays. So, when you put the figure of the holidays in. So that will be a seasonality battle, but that's every year. So, what you're really hoping for is, like you said, underlying good, strong growth.

Understanding seasonality, that happens every year, right? But know that underlying growth is strong and solid, and for right now, it appears to be that way.

Also, we're helped by the delivery of vehicles. Anytime we're 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 over the road business, right? There's still a little bit that goes with it, updating that we do to get trucks ready to go to the end user. So that's always helpful too. So, it looks like it's --

We will still maintain that with a gradually improving customer base and more trucks to deliver, which will create more gross profits from that perspective for parts and service.

That all makes sense. Thanks for all the detail there.

Maybe just lastly on used truck sales, they set up nicely in the third quarter.

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 any thoughts into 27?

Sure. Yeah. Well, that question we're saying, used is solid, right? We're managing our inventory as well. We're actually.

I think because the used market's been a little better, some customers are disposing of more of their selves, and we're not taking as large a fleet trade packages as we have in the past. Now, when it's bad, they always want you to take them, right? When it's good, they like to sell them themselves. Not all the time, but it does. You see that trend inside of it. So we're going to maintain solid used truck results, I believe, steady as it goes, should I say.

Stable, no big. Sometimes used is the one thing in the world that will bite you, but I don't see any bites on us coming in the future for the next few quarters. And I believe it will still be solid next year. Just remember, with these new truck pricing going, what's fixing to happen, you're just increasing the spread. That helps used trucks maintain value when new truck prices go up. We're still not anywhere.

Close to back to the percentages that we were three, four, five years ago, 'cause neutron prices have shot up 30%, 40% in the last five or six years. And you thought values have it.

So percentage wise, we're still way under, if you go back historical going to the last decade or other decades, we're percentage wise, still bigger gap than ever. So I don't see any big hit in youth company right now, my friend.

I expect them to say good, strong. I'm not going to sit here and say, I know I've read where some. Some folks, big rental collation companies, oh, it'll be up 10% next year, like for like. I'm 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.

But, let's see. I mean, if some of these technologies didn't work out as well and it's after treatment, there's more to it than just the after treatment. There's 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 your truck value shoot up, okay? But I'm not here to predict that or say that. So my point being, they should hold it and be good, and we should have a few strong studies that goes.

We've got any issue, it's getting used trucks right now. Okay, we've got buyers out there. We're buying used trucks besides trading for used trucks, too.

So if there's any issue right now, like I said, it's just, having the right good enough inventory, but we're managing it well, and there's been times in my life with it, when you're in a different position, so I feel pretty good about where we're at.

That's all very helpful. Thanks again for the time this morning, Russ, you'll pass along.

Always. Thank you, sir.

Cole Couzens, Wolfe Research.

Hey, guys. It sounds like outside of EPA uncertainty, you believe demand is still pretty strong.

Coming out of ATA, what gives you the confidence that this order lull is temporary heading into 2027?

What gave it to me? Because people still said they had demand. Now, remember, they're taking a lot of trucks, okay?

It's an interest. Besides all the diversity in people's choices of technology, which drives different pricing from the OEMs. Besides all that, okay, they're taking a lot of trucks right now, and they know that customers know, and I'm always wide open about everything customers know that they don't have a backlog next year, so they're going to push back on pricing for a bit, but they're taking all these trucks in the back half of the year. We're building 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're replacement. So they have to take trucks out of service, put trucks in service. And that takes a little time for them too. It's not like, going to the races, jumping out of one truck car, truck into the next one.

There's a little more to it than that because you got to get the other drug ready for it 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 Bill that's just not what I see I talked to a lot of people it will it right up front I'm sure that as we get closer to that time frame.

Look, this industry at times, I've seen this industry have three or four weeks of real true backlog in it before. So in the just in time world we've created over the last decades, 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 wanted X, it's.

X, it's up, almost a year higher than what they like, which what that leads to higher magnets in there that they're playing, right? They want to unless, not as reliable. That's reliability the over your fleet is. So it's there, and they're slowly even though we, I believe there's legs. Let's look at our, I'm talking about the over the road business. I look for vocational to be good.

Next year have got better than this year. It's been steady as it goes. But the over the road is still 70% of what's going on.

And while, we know what happened going back to last January, spot rates shot up 30, 35 at one time, they peaked it around 50 up year over year and they leveled back down in the 30 springs 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 got more dedicated, depends on who you're talking about. But we, I still believe, and it's the real, it's caused by a constraint of what drivers and things like that was supply side. It wasn't demand freight side driven. It was supply. I do think the economy still seems to be, I can't believe how well the economy is weathered all this.

The war I ran, 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, to help drive it. Right now it's been, if you remember a year ago, it was, the government was cracking down on, non-compliant drivers and this and that. All these supply side things.

So all of this has been driven by the supply side. I still think there's going to be some legs for some demand, okay, coming next year, just by novice opinion. So, 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. They're better than what they were. But there's still a lot of cost, right? So they're still, even though they're getting better freight rates, they're spending a lot of it. Most people are up 10% in driver pay, right? And plus the other cost of the equipment and things like that. So I just believe, so it keeps pressure on the supply side, but I believe demand's coming and people wanted vehicles. It's just a matter of we're taking a lot right now.

I need to get clarity on pricing and technology, and I'm going to buy a lot of trucks, okay, because I need to. It's as simple as that, even though I don't make it a simple answer.

That's super helpful, Rusty. And 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. I'm assuming there's some mixed headwinds in there, but can you expand on what's driving that?

I would tell you, look, margins this quarter from a truck perspective were one-tenth less than two of the last three quarters. So to me, they were flat. So I hear you, they were a hair higher. They were in the eights still, okay? It was 8, it was 8.1, and it was, at one time it was 8.5 back a year ago or so. And really truly it's a mix. We're getting more fleet business, okay?

A small guy comes in always a little later. I'm 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 doesn't, okay?

I don't see margins getting any less, for sure. And I see, there's some. Upside to truck margins in my mind in the next couple quarters. Okay. When it comes to aftermarket, our parts business grew better than our service business. And your service margins are well more than double what your parts margins are, right? So we were only like we're only off one quarter.

We were off one. We weren't as good as we were a year ago, that's for sure. We're, 1% off, but pretty similar to where we have been. And it's mainly a mixed perspective with, better growth in parts than we have in service. So that would be my best answer. And again, also on that, remember I'm doing what I said earlier, I said my growth was in the national account fleet business.

That's not as good a margin as a small person, right? So, again, it's more of a mixed thing. And I for sure believe we can get it back.

It's just been -- but I'll take it. Like I told somebody the other day, they said, well, gosh, why would you want to grow? Why would I want to grow that? Because if the small guys were hurting worse, I got to get growth somewhere. But it might come in a little bit less margin, right? And that's really what it's about. It's a parts and service mix and it's a customer mix thing. But when the small guy comes back, you'll see those margins get back up.

That's helpful. Just one quick follow-up on the supplier delays. Can you -- where is the actual bottleneck and is the expectation that should start to abate as we enter 2027 or do you see this being, like when does this end?

Well, that all depends on demand. Okay. The bottleneck is across the board. As I said, in Tier 2 and Tier 3, these OEMs have well more 1,000 plus trucks that are.

All really built except for two little parts or something, right? And they're parked out back. So that bottleneck, it's across the board. It's not one particular thing. There's only one Tier 1 thing that I've seen in the last few weeks. And I think people are trying to work their way through it. I'm not going to get specific about that.

So those little things will get once, unless we get some orders, it'll be no problem come February. All right. So, but I do expect us to start getting, but that's still a ways off because as I said, I walk through my customers are not in a big hurry to take Q1 trucks. They're in servicing all these trucks. I know people that some people, their orders, 50% of what. What they bought this year are coming in Q4. Well, that means they're going to end service through Q1, and they'll buy and get trucks on delivery for Q2, but that'll happen. But that's still a ways off, okay?

And with all the uncertainties I talked about, I got time, they'll 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 I can't, it's not my money to spend. It's theirs. But you got to be careful because I do think when it hits, it's going to hit hard, fast and big, right? I think when orders pick back up, they're going to pick back up quickly, okay?

Because some people aren't going to want to miss, okay, and have what happened the back half of this year. Well, not everybody got everything they wanted the back half of this year.

Especially, your smaller customers. So it'll happen. It just, it's 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'm aware of, but I do know there was a lot of talk about demand that's needed, demand out there but there's time in their mind because they got so much coming here in this back at part of this year in service so I'll just it could be a slight little bubble in the going to be when which we transition to new technology but it's not going to be a big one and it won't last long I have confidence in that okay thanks Rusty I'll turn it back you bet.

Avi Jaroslawicz, UBS.

Hey, thank you. Good morning.

Good morning.

So just 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 December 31st, that it's not going to get an NCP in 2027.

So 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?

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're a little more sophisticated than 40 years ago, okay?

It's a little harder to do in the world we live in now. Used to, manufacturers would stack them up big, right? But remember, they don't operate -- they don't operate that way. Everything's just in time. People don't operate like they used to. They don't have warehouses and parts and stuff when the manufacturers don't. So, but there is.

I think a 5% carry rule, it's just a matter if they can get them built.

I'm not sure. I don't want to speak for everybody where they are, but I expect everybody to build into January. I don't know if that's three weeks, two weeks, four weeks, probably three or four weeks into January if they can get the engines. And I I'm not I can't answer that question. I said the old rule, I think it still is cranks got to be laid in the engine by December 31 doesn't mean totally complete. 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's what they'll do.

So, that would tell you.

If you're going to have some already online trucks and remember, just because the manufacturer builds 200 trucks a day, he's probably got a thousand trucks going through there, right? They don't build it in one day or more. So you got all that going through. There's a week plus that's already in the factory. Then you got a 5% carry. So that gets you.

Once a month, 80% or something, they're 12, 8.5%. So that gets you close to about three to four weeks of build into January. And I would imagine that would be the goal of most of the man. You have to ask them. I'm sure that's their business, but that'd be my guess. So, that gets you three or four weeks of January, and then we're going to go to whatever we're going to go to NCPs. And by the way. If you're a customer, all you're going to do is make an NCP plus whatever for your model and inflation. And that's the part that's being negotiated out right now. Okay. So what the NCP is. We know costs have risen. So just find that little piece. So I don't 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'll just, it'll come to a cost factor, but it's real simple to figure out because the NCP is what the NCP is. The only problem is we're working off a draft. Okay. And you got to hope it stays the same. So it does get a little confusing there. So again, I would, but remember I am, we're on the tail of the dog. So I expect us to have a solid Q. One, but I need to wait and see what gets built and delivered in the fourth quarter because of all this, supply issues, right? So I don't have clarity as to exactly how everything falls out.

I feel pretty good about those quarters, but I'm just not sure, so I feel good about. 2-4, I feel decent good about Q1.

Q2, I'll to get to, but we've got time. So, as they sort out all these issues, I keep repeating myself about and talking about, I should understand them right now.

But that's where we're at. That's truly where we're at. So I'm not going to try to quantify it because I don't know about shortages and things and stuff gets delayed for, a couple weeks here or there is, and what, where it goes, what, is it going vocational? Does it go here? Does it go there?

It'll all be all right.

Okay, appreciate that. Yeah, I mean, 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, pretty much.

Through March, that takes you pretty much through Q1, okay, and then there, I've got some uncertainty in Q2, but I've still got 20.

Of time, okay, because we've got to sort out the pricing and technology here real quick, and we'll get that sort out in the next 60 days. I'm confident, okay.

Gotcha.

I'm telling you there's going to be demand. I believe there will be demand. I don't look for demand to go away. It'll just got these uncertainties, man, and it'll get itself sorted out. It always does.

All right.

On this pricing dynamic.

So, if I'm understanding it correctly, it sounds like the OEM's underlying, core pricing to cover costs and whatnot.

Is that somewhat dependent on what the final NCP is going to look like?

Isn't there thinking of it as like a, maximum price that can be absorbed for next year and it's just a question of whether, part of that goes to their margins or is just passed through?

Well, from what I hear, we know that we've had some inflation, more than the Feds want, right? Well, it happens in the truck business, truck world too, manufacturers. They've been absorbing. You can see margins and stuff.

On, it's not hard to go find them, even the whether it's even the Europeans have spun off their truck divisions it's really 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're trying to recover some costs.

Plus NCP. Or if you're doing new technology, who knows what it costs, okay?

Only you do. So, but if you're going down the NCP route to begin with, which both of my manufacturers are, you're going to just have to bet on the draft and then it's trying to recover the inflationary pressures you've had, right?

And cover your increased costs. And that gets you to the number you're supposed to be at, and that's where we will get to. Okay, it just takes a little time and validation of what those costs really are outside of NCPs. And if everybody gets comfortable, I'm not going to get into the numbers and stuff where they really don't want to.

But at the same time, it's pretty simple. You got an NCP, it's NCP plus recovering what your increased costs are. I don't think people are looking for big margins going into the year to begin with. It's not like you're going to have demand, but you don't have it now, so you need to go build a backlog. Then you can work on it in the back half of the backlog. 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.

That will eventually happen again when we get the demand back for the new technology and the new pricing and stuff. Up front, manufacturers will be just trying to recover if they went down to NCP, whatever the NCP is, plus their, increased cost. I think that's what I'm saying out there. It's just, again, customers are in a big hurry.

You try to get them in a bigger hurry. They're not. They're taking so many drugs. I've gone over and over this right now. And that's my take on it. Hell, I could be wrong, but I don't think I am.

So on where we're at, we're just in this little space right now. I expect everything to sort itself out the next 60 days is all I can tell you.

All right. And just want to circle back on the parts and services. 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.

Doesn't 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?

We could have seen a stronger improvement had the, costs, the fuel and driver costs not spiked as they had or is this maybe a, unrestrained quarter?

Yeah, I would tell you, we feel it. I said one of the things when I said, margins are not as high as they were, say, a year ago. They're in line where they were the last quarter or two, real close. Part of that was mixed and part of it was competitive pressures to your comment, right?

There's 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, right? So they were having to watch their maintenance and their repair budgets a lot tighter. Same thing we've been dealing with for three years in the freight recession, then you get all the fuel spike and it adds more pressure into it.

It's not just one thing, but yes, we know all the costs are up. You can see it inside the earnings releases, okay? So that's going to put pressure on all expenditures, right? And especially as you get to the end of the year and people put out a lot of their budget, you start sitting here in Q4 sometimes.

But, I'm 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's still, tough support.

The overall of what we're trying to accomplish, as I said, this was the best, month we had. When you look at it the way we do, like measuring only by the hour, by the day.

September was the second best month we had so those were encouraging signs, right? So I think there's still underlying Opportunity out there for us like I know there is okay. All we did was bottom out We were really flat really were flat over a few months. I mean, last year into this year it was really flat But we saw some increased.

Demand in August and September. I'm 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, right? And at the same time. We're going to continue to look for M&A. I'll tell you that right now.

I'm on, well, nothing big, but lots, maybe you put a lot of bunch of singles together out there.

But back to your real question, yeah, I, the mix was one thing, it's there, cost pressures put pressure on margins. Right? Because everybody's out there in the marketplace, going after it. So it's a lot of things, right? But guess what? We performed.

In my mind, we performed as well as anybody in this environment that we were in, still on the parts and service side. I'm stripping the truck side all the way from the parts and service side. So we've been performing and continue to perform. We are looking to do have a little maybe next year, probably get some growth tailwinds in that. Last couple of years, it's 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'm not talking about just straight-up growth. I'm about a good solid gradual now we got to find what gradual is, hopefully in the in the med singles would be a nice is what we would like to see next year from a same store perspective and I'd be okay with that because that it's going like that that direction I'm not looking for double-digit parts and service same-store road.

I am looking for Mid-singles, maybe upper, we'll 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're at now, where we're at in margin service feels decent.

Truck may have a little bubble. It's going to be really good in Q4 and Q1. And we'll sort through these uncertainties, and I feel good about the whole year as a whole. But it won't be a straight line. It never is a straight line.

All right. Appreciate the perspective. Thanks for the time.

You got it.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Rusty Rush for closing remarks.

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. So in closing, I'd like to wish everybody a Happy Thanksgiving, a Merry Christmas, a Happy New Year, and just overall very happy holidays this year. So enjoy your families, and we will look forward to talking to everybody in mid-February. Thank you very much.

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