Rush Enterprises Inc (RUSHB) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to the Rush Enterprises, Inc. fourth-quarter and year-end 2009 earnings release conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Rusty Rush, President and Chief Executive Officer. Please go ahead.

Good morning, and thank you. With me this morning on the call are Marty Naegelin, our Executive Vice President; Steve Keller, our Vice President and CFO; Jay Hazelwood, the Controller of Rush Enterprises; 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.

All right. Let me give you an update for the year for 2009 and the fourth quarter of 2009. The truck industry's severely depressed economic conditions continued throughout 2009, which proved to be one of the most difficult operating environments since the early '80s. Class 8 retail truck sales in the US were down 31% compared to 2008 and retail sales of medium duty trucks were also down 36% compared to 2008.

Aftermarket parts, service, and body shop sales were negatively impacted by excess capacity throughout the year, 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 at our truck centers declined approximately 14% and 19% respectively compared to last year.

Additionally, the construction equipment market in the territory we serve in Southeast Texas declined 60% compared to 2008. As a result, our new and used construction equipment sales revenue declined from $62 million in 2008 to $23 million in 2009.

Despite these dismal market conditions, we remained profitable and continued to invest in our future. Our profitability is primarily attributable to our continued expense management, which helped us achieve an annual absorption rate of 95.7%.

During 2009, we reduced general and administrative expenses by 11.5% versus the previous year. In 2009, we opened two new facilities and expanded other existing facilities and we are on schedule to open our new 109,000 square foot Rush Truck Center facility in Oklahoma City in 2010. The Company also added Hino and Isuzu franchises to some of its markets to help make up for GMC's departure from the truck market and the loss of some GMC franchises.

We led the commercial vehicle market as a provider of alternative fuel trucks, buses, and aftermarket services and rebated several million dollars to municipalities and fleets who have been early adapters of these technologies.

Finally, we continued to expand our breadth of product across vocational markets with the launch of Rush Towing Systems, which represents Jerr-Dan carriers and wreckers in locations in Texas, Oklahoma, and New Mexico.

Now let's give an outlook for 2010. We believe 2010 will be a difficult year also. Industry experts currently estimate US Class 8 retail sales for 2010 to be at 114,000 units, up from 97,000 units in 2009. However, we believe Class 8 retail sales will only increase slightly over 2009 to approximately 105,000 units. Currently industry projections for the US Class 4 through Class 7 retail sales in '10 are projected to be 123,500, up from 111,415 units in 2009.

We expect to see a slight increase in truck sales during the first quarter of 2010 as compared to the fourth quarter of 2009. We expect truck sales to be extremely sluggish in the second and third quarters as new technology begins to gradually gain acceptance in the marketplace.

We continue to believe that our parts and service operations will be the first areas of the business to show sustainable improvement as the current fleet continues to age and excess truck capacity is utilized. We hope to see an uptick in our parts and service operations in the second quarter, but do not anticipate that any significant increase in retail truck sales will occur until late 2010. However, the current record high fleet age coupled with dwindling excess capacity should lead to significantly improved truck markets in 2011 and 2012.

Our balance sheet remains strong and the Company was able to generate positive cash flow despite the worst market conditions in well over 25 years while making significant investments in technology and facilities. We are confident in our strategy and our ability to execute.

Thanks to our employees, we remain a financially strong and profitable Company. Their perseverance and hard work during yet another extremely challenging year has put Rush in an excellent position for economic recovery.

Now we are prepared to answer any questions that you may have. I will forward it to the operator and you can go through the instructions, operator.

(Operator Instructions) Jamie Cook, Credit Suisse.

Good morning. A couple quick questions. One, Rusty, could you make a couple comments on what you saw in terms of aftermarket service I guess as we look into January and February, how that compared sort of to the fourth quarter? Just whether you are seeing any encouraging signs there? I know last year you sort of did this time of year but I don't think it was sustainable.

Where used equivalent prices are trending relative to where they were last quarter and what you think that delta needs to be before we buy new. And then last, Steve for you, assuming sort of a flattish demand market, how we should think about EPS more broadly, just given some of the cost-cutting efforts you guys had in 2009. I am assuming we should still have a better year than -- in 2010, we should still have a better year than 2009 even in a flat market. I just want to make sure I'm interpreting that right.

Yes, Jamie, I guess I'll take them one at a time (multiple speakers)

That was it for now.

Where do you want me to start, Jamie, okay?

You have a good memory.

The first part of the year is difficult to get a read on when you go into January and February from a parts and service perspective. A lot of times budgets are new. Obviously customers have new budgets. So 40-something days into the year, I don't like to use that as just a guidance. But I will say this, it's not down. Parts and service are not down, possibly slightly up. But is that sustainable?

I think we need to go a little further into the quarter. we need to finish the first quarter to see. Again I reflect back on since about April or May of last year as I've continued to say we've been just pretty much bobbling along the bottom within a 3% to 5% range in parts and service, which is just normal variability. And that's pretty much where we are at right now.

January looked good, okay, but is that sustainable? I'm not sure, but I would expect -- you want something from me -- I'm going to tell you that I can't give you any bullet points and any exact reason other than my gut tells me that I do expect it to get better in the second quarter. I do expect parts and service, just my feel of the industry, to start getting better in the second and third quarter. Hopefully in the second quarter is what we're hoping.

But I can sit there and point to any anecdote or any exact bullet point that's going to point that out right at this moment.

On used trucks pricing, we feel very good about it. I think used truck pricing is -- we are not in that diving mode that I think we were the last couple of years around this time. I think especially with new technology fixing, we will support that, we will support US truck pricing even going further into the year, where you won't have the declines maybe we've seen the recent last couple of years in the second and third quarters.

I think our used -- actually our used trucks sales price was up in the fourth quarter. I feel pretty good about the stability going forward in used truck pricing.

And that was a sequential -- up sequentially in Q4 --?

That was sequentially. That was over third quarter, that's correct.

Okay, any magnitude or -- even if it's small?

I'm sorry, Jamie?

Can you -- a magnitude of how much we are up sequentially?

It was up, what was it, Steve, 4000? What were we up third to fourth quarter in used truck pricing? This is just obviously -- there's a mix issue. And it could be mix but it's pretty standard when you look at the whole quarter.

Jamie, our average sale price for used trucks in Q3 was about $33,700. In Q4, it was up to $37,350.

But still significantly down over where it was prior year, but --

Right, but you had 44,500 a year before that.

But it's a good sign and just see the used market is firming up out there, okay? I hope that's sustainable. I believe it should be sustainable given you've got new technologies coming on which are going to just increase the cost of new products. So that gap between the two will continue to widen.

So you've got to believe it will be sustainable going forward or at least solid with no big -- outside of normal depreciation, you won't see anything big hit on it.

As far as you said, as far as earnings per share, obviously, Jamie, I don't talk about earnings per share. Most of the expense cuts that we had were in place by the end of the first quarter. We had been -- we had gone through expense cuts throughout 2008 and into 2009, and they have been pretty much there for the whole year of 2009, especially by the end of the first quarter.

You know, some of the offsetting factors, and I'm not sitting here to downplay that we won't be able to perform slightly better, but with a flat year, it's hard to look at any huge uptick from an earnings per share perspective if the year is flat year-over-year. Because I do expect overall as we get later in the year, I don't have control of interest costs and I would expect the interest rates will creep up. I mean we've been in obviously times we've never seen before from an interest cost perspective throughout this country as we try to get the economy revitalized.

I would expect those costs to rise later in the third and fourth quarter, so I feel good about continuing where we are at. I don't anticipate taking any huge expense cuts as long as the market sustains where it is at at this moment. So we will continue as I've said to manage, to manage, to manage looking for that window of opportunity that we do believe will come. It may be later this year -- into 2011, 2012, but the closer we get down the road given we are at an all-time high from a fleet perspective is the age of the fleet.

I know how much parts and services and pent-up demand has been put off, but I am excited regardless of recovery for the economy, I do think our industry will have more of a V-shape recovery when we do get into it.

Okay, I appreciate the color. Good job in a tough market.

You bet. Thank you, Jamie. We continue to work at it.

Bill Armstrong, CL King & Associates.

Good morning, Rusty. On the parts and sales, what is going to drive improvement in the second and third quarter? Is it just the aging fleet or do you have some fleet owners maybe telling you that they are planning to increase their parts and sales -- parts and service purchases?

No, I think it becomes a matter of capacity equaling out with demand. As you know, we have had a lot of excess capacity parked on the fence, not utilized, as that becomes more in line and I think there's no question it is becoming -- getting more in line gradually and it has been I think for the last quarter and a half or so, last four or five months, six months. It's been equalizing out as that capacity has to be put into play. It has to be repaired. A lot of people have done just like -- it's been hand-to-hand combat no matter what part of this business you are in. if you are on the customer side or the dealer side for all of us.

Just survival and they haven't spent money keeping the excess capacity repaired because they haven't needed it. So as they put that back into play, I would expect you to see parts and service ramp up first. That will be the indicator that I believe before you can -- to get the capital purchase to the trucks themselves, especially given we're going to be adapting new technology and people have to get familiar with it and also accept the costing of it. But the real driver will be the equalization of capacity and tonnage.

Okay. You mentioned that Class 8 sales in Q1 are likely to be a little bit higher than Q4 and that's not typically your seasonal pattern. What do you think is driving that?

Slightly. We are working off -- we are talking about -- when you get into these kind of times, you know, you're not talking about big volume numbers, percentages. I hate to talk about percentages when you are talking about such low numbers now compared to historical numbers in the past. But it is the trail. It's the delivery of the pre-2010 emission vehicles that were built --.

If you remember we had an order intake blip back in October. When it finally jumped one month up to -- what was it -- 22,000, 23,000 -- and it went right back down to 11,000 or 12,000 if I remember correctly in November. And out into January, it was pathetic numbers -- you know, of order intake.

So this is basically the delivery of those units that you saw, the uptick. The fourth quarter was better overall than the second and the third, if you look at it on a quarterly basis. But it will be the delivery of those units out into the first quarter.

Now but remember when I say slightly, you are talking about -- what were we around 950 or 960 units I think in the fourth quarter? But compared to the first quarter of next year, it will be down. So it goes up slightly, so it goes up 100 and some odd units and you say it's up -- it goes up 150 units and you are up 16%, what is that? The fourth quarter -- first quarter last year was 1266 units. So I don't expect it to be that high.

So again, I don't want to talk about percentages. If I talk about absolutes, it slightly up, but I don't know what that really means a whole, whole lot. But that's what's driving it. It is the delivery of the [old] units that were ordered back in October, November.

Okay, a question for Steve. Any estimate as to what kind of tax rate we ought to use for 2010?

Obviously if you look back at '09, our tax rate was affected greatly by these alternative fuel tax credits. I'm going to give you an answer. Assuming we don't have those this year, I'm not telling you we won't, but historically our tax rate has been in the mid to high 30s and I would expect it to return there. In years where you have depressed pretax income, you have states that tax you on a gross profit versus a pretax income level, and that can drive your effective rate up higher. So if we have another year, don't see any of this pickup and have lower pretax earnings, it could creep into the low 40s.

So we are working on the Q1 rate estimate now. It will probably be low 40s and then when the market returns to more normal levels, I would expect it to go back into the historical ranges of 36%, 38%.

Okay. Then last question was in the medium duty truck sales, how many bus units were sold?

In the quarter, let me pull that for you.

The quarter or the year?

Quarter.

In quarter roughly 81 units, sir.

81, great. Thank you.

Chaz Jones, Morgan Keegan.

Good morning, guys. Maybe I could start off with an easy one. CapEx expectations in 2010, maybe how that's being allocated.

Chaz, CapEx in 2010 if you break up '09, we tighten the screws pretty hard on that from a routine CapEx perspective. You know, historically we have spent roughly $1 million a month or so, $10 million to $12 million a year. This year we spent slightly over $5 million. Some of that might catch back up a little bit next year and we will have probably roughly $8 million and that piece of it is generally cash spend for CapEx.

The other piece we have is related to -- I throw in construction projects and SAP into one bucket. In 2010, we probably will spend another $4 million to $5 million on SAP and we've got a few construction projects that we have on hold right now. Should we start those later in the year, we could spend another $5 million to $10 million on those depending on start date.

Then finally, your last piece if you are looking at the cash flow statement is leasing units. This year we had a little stronger year than normal for in-service. We were about $45 million of leasing units in service. About $24 million of that $45 million were acquired via capital lease and the remainder were actually purchased.

Next year we expect that $45 million to be in the range of $35 million and I am not sure today what the mix will between purchase and capital lease. That is customer driven.

Okay, so ex the leases, could be anywhere from $15 million to $20 million or $30 million? Am I following that right?

Ex-leasing?

Yes.

Ex-leasing -- you are going to probably be -- yes, $20 million to $25 million.

Give us a tough question, Chaz.

Let me ask you about this towing equipment service that you are rolling out, Rusty. It seems like it's very complementary to what you do on the service side, but is there anything strategic there just aside from continuing to expand the breadth of your product offering in trying to give more customer touches?

Yes, Chas, it falls right in line with the way we attack all vocational markets as we segment them out and put expertise to each individual market, whether it be the crane business, whether it be the refuse business, whether it be the mix of business, whether it be the towing business. It's the way we attack the market and how we go about attacking it and supporting our stores throughout the country.

We support it from a corporate perspective with expertise in each of those individual markets that we drive into the local markets that we like to believe allow us to capitalize and then execute on what we are trying to get accomplished. So it falls right in line with our past initiatives on those other arenas.

How quickly, Rusty, could you kind of roll this out at additional location?

It just -- Chaz, I wouldn't bet -- again, it just fits in line. I would hate to get into that. From an overall perspective, yes, we will continue to roll it out as we become more successful and gain ground just like we have in these other arenas. We've been in the crane business for over 12 years now. We've been in the refuse business for over four to five years with focused efforts. And the mix aside for a couple and -- not that we weren't selling them prior, but putting huge focus on them with expertise and support staff and from a service perspective.

Remember in all those markets there's one thing that's more important than anything else, and that is service. So how we service those individual markets, not just go sell those markets but support them service-wise throughout our contiguous network is the most important. But it takes time to build up that infrastructure to support it service- wise to differentiate yourself from the competition that allows them -- that gives you the advantage you hope on the sales side of the process.

So we are going about it like we always have, Chaz, just building it brick by brick but always staying focused on it.

Okay, and then maybe just another big picture question. Certainly some of the large TL carriers it seems have discussed about permanently extending the age of their fleet, just given the rising cost of equipment. I don't know if certainly you have seen anything specific on that end. But assuming again just kind of theoretically if that were a trend to kind of play out in the market over the next couple of years, what type of impact would that maybe have on you?

I would think of the one hand maybe it may mean that sales never really recovered to like 250,000 unit year, but on the other end of it, it could help your parts and service business.

Well, I do think -- to say that, I still believe I get this question because there's a lot of change. There's a lot of change in distribution right now and how things are changing out there from my customer's perspective, so I'm watching it closely. But I do believe that it will not decrease, that the truck market over the next 10 years will remain from a 10-year -- take a decade and comp the last decade to the next decade, I do believe it will ramp pretty flat.

You say why? Because as the models change, as intermodal becomes more of a fit and you get more regionalized hauls and the reason is because first off you're going to have some GDP growth over a 10-year period. Maybe that will offset -- I believe that will offset the change in miles, the lack of miles that are driven as you don't have trucks going all the way from coast to coast as intermodals become a bigger part of it and you come more regionalized type hauls. I think as you well know, a lot of our large truckload carriers, their average length of haul has gone down over the last couple of years. But that's just a changing in the model.

I don't believe it's going to -- I expect the numbers to be relatively flat. I expect them to be more stable. And why you say would they be more stable? Well, we don't -- at least for what we know and the knowledge we have on the horizon, we do not see federal regulations. We don't have three years which we had prior. Remember we went to an October 2002, which was a 2004 Federal Emissions Law. Then we went to the 2007 Emissions Law. Then we went to the 2010 Emissions Law, which unfortunately didn't drive a peak in '09 given the overall economy. But at the same time, it did drive in 2070, it drove purchasing cycles differently over the last decade.

So I don't see that on the horizon so I would think a more stable, more -- if there is such a thing in the Class 8 business, which historically has been very difficult, it is feast or famine, very cyclical. But I think all of those things combined, I expect Class 8 truck sales from a decade perspective to a decade perspective to look pretty flat because you are starting this decade with the oldest aged fleet there ever was.

So you've got to remember our starting point here as we look forward over the next decade. So I don't know if I answered your question. But I hope you got flavor for my thoughts on it.

No, I think that helps. Last thing I had was just on the construction equipment market. That has been real tough for you guys here as of late. Should we expect anything to change there as we look in 2010?

Jazz, this is Marty. Quite honestly, the Houston market that we serve, which is a 20-county Gulf Coast area, is projected to be flat or down in 2010 versus 2009. And if it's any consolation to us, we are one of the better performing construction equipment markets in the country. So I think the road in 2010 is going to be a difficult road, just like it was in 2009.

But again, I will pipe in. I'm excited about late 2010 and 2011. You've got to remember in the truck business especially, Chaz, we have been down in '07, '08, '09, and now we're talking about running to -- we've never gone through a four-year cycle like this. And I realize there's obviously macroeconomic factors driving a lot of it. But industry-wise, usually we are on a rebound out already.

So it just excites me about 2011, the platform where we've got the Company positioned to take advantage of it. But I can't make a market, but I do expect certain vocational markets to start picking up when it is -- also along with the truckload perspective. As I look out there, I expect oil and gas to be stronger in 2010, especially the latter half of the year. As you know, we play pretty hard and big in that vocation. So I'm excited about going into 2011 and 2012.

Chaz, this is Marty again. As it relates to the CE side of the business, we are very tied to the oil and gas markets as well. So while we are projecting a tough 2010, as you know, Houston is very tied to oil and gas. A lot of Texas and Oklahoma is. And if oil and gas picks up, we could see an interesting recovery in the second half of 2010 in that business as well.

You don't want to -- we are not sitting here banking totally on it, but there are indicators out there that say that industry is picking back up again after a very, very sluggish 2009.

I know it's been frustrating, but you guys continue to do a great job with the hand you've been dealt.

You know, when you go to Vegas, you don't ask -- you don't know what cards you are going to get but you play the hand and you play it to win. And we've positioned ourselves to win at the end of the day.

As I've said before, I believe we've done well in the last two peaks of the cycle, in 1999 and 2006. We believe we've got the Company well positioned to execute again. When the markets do come back and continue to try to remain profitable even though not where many of us would like it but at the same time, the quality of the earnings is -- this Company and these people in this organization, I tip my hat to my employees that managed extremely, extremely hard in very difficult times and I know they will continue to do it.

Great, I appreciate it, guys.

John Barnes, RBC Capital Markets.

Good morning, guys. Let's see, a couple of things. Rusty, going back to I think Jamie's question on aftermarket services in January and February and as you look at it in the fourth quarter, you've talked in the last couple of calls about just ticket size. Had it been down and that type of thing, have you seen -- has not begun to stabilize? Is that where that bobbling along the bottom --?

Yes, we've stabilized on the parts and service business. It's been stabilized now for about the last seven to eight months. It is bobbling, as I say, bobbling along the bottom. We took quite a dramatic hit from a gross profit perspective. I mean you're talking -- fourth quarter was off 21% year-over-year. But that is in line with where we were in the third and earlier in the year, it was 19% for the year. So it has stabilized.

And so I believe there's no place to go for it but up. I don't see any going dramatically any lower and as things begin to recover, as I said earlier, as capacity balances out with freight tonnage and excess capacity is put into play and maybe certain vocations in the vocational business -- you've got to remember how big a player we are in the vocational business, but certain vocations maybe come on board, like I said oil and gas gets a little better.

And I don't look for construction to be -- housing to be a whole lot better this year, but gosh knows it's going to have to be by 2011. So you mix that in and you look at some of the areas how depressed -- the depressed areas we are in and where we've had to fight hard and whether it be California, Southern California, Arizona, Florida. I think we all know what the housing markets have been like in those areas as those somewhat have stabilized or maybe begin to slightly recover later in the year.

You know, I believe we will start to pick up. Those are some of the -- when I said my feelings are that we will start to pick up second quarter I hope. I can't sit here and give you any exact bullet points. I just believe that that's the case. I have been wrong before, but I will stand by my thoughts that the second and third quarter will hopefully will begin to pick up parts and service wise.

Okay. Two things. With your comments on pickup and parts and service and with maybe a potential uptick in used truck sales and that type of thing, where do you think you stand in terms of inventory? Do you think you are well enough positioned especially on used trucks -- do you think you are well enough positioned on inventory that you've got the right amount in place if there is a reversal and a sudden uptick in demand there?

Well remember, used inventory is something you've got to turn fast. I can't -- compared to new and medium duty truck inventory, you must -- remember one thing about a used truck is, it loses money every day that goes by. At least a new truck is on an MSO and not an non-titled vehicle. So you may be able to hold it in inventory for a while.

But yes, I am going to answer your question, you've got to continue to turn that used inventory, John. It's not like fine wine. It doesn't get better with age. So -- but as far as the levels we are at, I am very, very comfortable with where we are at. In fact, we are still always looking. We will be looking to trade with customers. We always are able to trade and we will continue to look to trade and value properly.

When I say used truck sales are better, I'm going to just say used truck values seemed to have stabilized. I don't want to make it sound like some V-shaped deal in used trucks. But after the last couple of years, you know, it's nice to see what you believe is some stability there along used truck values. It doesn't mean they're going to ramp up significantly higher right now. That's just not right because used trucks continue as I said to get older.

But remember when new truck sales do ramp back up, there will be [rates] to be taken but I think we'll be able to help continue to support it and we are always circling around to answer your question, I'm comfortable with where we're at but we have to continue to turn it. It's not something you hold for a year or something like that. It is not a product you do that with.

Sure, as you look at the next recovery, whether it's late this year or into 2011, 2012, do you foresee any type of mix change in your business that's maybe a little bit more weighted towards the used side versus new? Or do you think the historical ratio will kind of hold?

No. When the real recovery comes, it will be -- historical ratios will hold. For the next couple of quarters possibly a little more weighted to used. Excuse me, not in the first but in the second and third as people begin to learn to accept new technology and accept costing on new technology.

So -- but they also have to give rates that support this costing on that new technology. There's a lot of factors that go into it but as capacity equalizes with freight, then you are allowed to get some pricing. And I'm hoping our customers are going to see a little air -- get a little breathing room and be able to get a little price and be able to take margins up a little bit slightly in the second half of the year. Currently I don't see it out there a lot right now. But you've got to believe that it has flattened, that our customer base is not taking the margin hits that they have taken over the last couple of years. And they will be able to get some pricing as we get that equalization and capacity and tonnage.

Okay, and then can you just give us a little bit of an update with regard to the GM -- the remaining GM inventory? How quickly you think that kind of runs off and how much money are you still due from GM as you wind this down?

We are due the money that General Motors was supposed to pay us, which obviously was factored all into that write down. It has already been booked for, okay? It has been booked as a receivable. But we can't receive that money until he finish getting rid of all their product and stuff. We're down to negligible units, 15 to 20 units, okay.

So in fact, we will be looking and taking it store by store going over the next couple of quarters and getting the remaining payment from GM for us going ahead and closing. That doesn't mean we won't be representing them service wise on out into the future. I don't want anybody to -- we are still going to be doing parts and service for General Motors, but as far as a General Motors franchise truck selling dealer, we will be gradually shutting down those locations.

Then, Rusty, one last thing, just on a longer-term picture. The severity of this downturn, you pointed out that you all have been down in '07 and since then. Have you given any thought to kind of exploring your current footprint and understanding there might be some limits as to how much you can grow? But would you foresee the changes in the footprint and maybe deemphasize or exit certain markets and take a chance it may be a different market that may be is better in the next cycle than it was in this prior decade?

I don't plan on exiting any markets. I plan on adding markets without exiting. How's that? I'm not going to add a whole lot of flavor to that. I'm going to let you take it from there. But no, I don't see changing by marketplace. I still believe when we put this -- started putting this thing together back in the '90s, we still felt that the growth area of the country would continue to be the southern part of the United States. And I continue to believe that Texas, Oklahoma, I believe California will still be very viable. You know Florida is having a difficult, difficult environment, but it too will one day come back. I don't look for that to change a lot. I look for Colorado and Arizona to be very viable markets.

We will look to expand our footprint maybe across East to West across the Midwest part of the United States. You know, from -- layer on another layer. So it's important for me to have -- continue to have geographic diversification yet contiguousness.

So as you layer across -- as you look to layer with -- I'm not going to get into details -- with products and services across - -to expand the geographic footprint, that's what we will be looking. I'm not going to say which products and which services but if it's a Rush Center, it's a Rush Center and I can take care of customers. That continues to differentiate myself as I go to market.

And the more areas I can take to access to take care of a customer regardless of representation excites me as to what -- how we differentiate ourselves going to market. So I hope I answered that, but I don't look to shed myself of any assets or any operations that we have at the moment.

Yes, it was a great answer. Just one quick follow-up, you know, as you layer the next layer in, is the product more important to you or is the ability to provide the service more important?

Product is always important. Product and rent are always important. But as we brand Rush, service is important. As I keep telling everybody, I've said forever, service sells trucks. Trucks don't sell service. So how we service and how we service a continued -- a customer base that continues to consolidate and become a larger customer and not as fragmented as it was historically and how we do that and how we go to market from our service perspective, it's still probably the biggest driving factor for me.

Don't ever think the product is not important, no, but we drive the service piece of the equation and that's why I like to believe -- that's why we are very, very proud of our customer base and look forward to continuing to grow that. We will still take care of the smallest of operators, the one truck operator. But as our customer base continues, as our customers continue to consolidate, giving a consolidated solution is far more -- is very, very important and especially -- because when we keep investing in the systems, in the business systems and the different things on the back room that we can drive efficiencies into that larger customer that other people can't across a larger geographic network. So I hope that makes some sense to you.

Absolutely. Thanks for your time, Rusty.

(Operator Instructions) Basili Alukos, Morningstar.

Hi, guys, good morning. About what you were talking about earlier as you look out into the second and third quarter of this year that your gut tells you that your parts and service business will increase and one of the things you alluded to was the aging fleet out there. I'm just wondering if maybe carriers will decide to -- because their trucks are so old and they have foregone all of the parts and service that they might just decide rather than repairing it -- it's so old and they might skip that and then just decide to purchase a new truck. Is that a concern at all?

It could be a concern, but then I win on the other hand, right? So once the economy picks up, parts and service will pick up. Remember I still get a lot of parts and service selling new trucks with rigging up trucks and doing (inaudible) things like that because the vocations we are involved in. But I would expect our customer base to want to get some -- know that the freight that they are hauling, that the consistency of the tonnage, that the growth they are seeing, it is real and it is not just a blip. So they are going to want to see some consistency in their business probably before they go make that huge CapEx expenditure where they have obligated themselves out for a few years.

It's a little easier maybe to take the excess capacity until you've got a real good feel that it is sustainable off of the -- that's typically what happens off of the fence and put it in place, spend a little money on it, but not commit yourself out for 100,000 X dollars for the next few years, go fix that product for $3000 or $4000, you know. So until they know that the business is sustainable that they are foreseeing.

Also couple that with the fact that they again got to get comfortable with new technology and new costing. So that's typically how it works and I would expect it still to work that way. Your scenario is possible. Anything is possible, anything is possible, but it's not how I would see it.

And I guess -- it's a good point you do make parts and service on new trucks or you'd either win the customer if you sold them that new truck, I just look at your margins in parts and services naturally more profitable (multiple speakers).

Sure it is. No question about that, and that's what we are out there for. So -- but the reasons that people will spend it from their perspective are the reasons that I gave that I believe it will be typical of a normal cycle. It will be typical just like a normal cycle that money will be spent first. It's easier to go ahead and expense a few thousand dollars than make a $100,000 commitment out.

So until you know your business is sustainable and then when you know your business is sustainable, then you trade that product because then you're comfortable to make that commitment to that type of capital investment.

Got you, and then just one more follow-up if I could. You mentioned that the back half of 2010 into 2011 and then 2011 and 2012 will be extremely strong. Is there a catalyst or something that could change during 2010 that might bring that demand to occur during 2010? Like what economic driver might be out there that you would focus on that if you saw a market improvement then that would suggest that 2010 might be kind of stronger than what everyone is estimating right now?

Well, I guess it's a good question. You know, obviously as you look out there, there's one thing that has driven this economy for a while. It means the consumer has got to consume. If the consumer consumes, that drives demand, gets everybody comfortable and freight tonnage goes up and we rebuild some inventories and there's a lot of things out there. Once the consumer -- at the end of the day, the consumer drives most everything.

So obviously consumption on a consistent basis at the consumer level driving some inventory buildup and some GDP buildup is a simple overall -- housing gets back in line and housing is bobbling back and forth. It's not going to be a great year. It's going to probably be a better year than 2010 but again, when you are driving -- 2009, excuse me, but as you drive into the absolute numbers it's not going to be that great. Percentages are not something you use when you are on bottoms like this. You look at absolute numbers.

But those are two -- obviously as we've always talked, housing, housing and automotive sales are the two biggest things that drive freight tonnage. Every house that's built is worth about six truckloads. So those types of things obviously would be indicators that demand is going to be sustainable and people will really look to jump -- accelerate their purchasing forward. They will get over the sticker shock of new technologies earlier and feel comfortable making those commitments.

Great, I appreciate it. Thank you.

Brian Sponheimer, Gabelli & Co.

Good morning. I was hoping you could potentially give some color on how your customers are reacting to the new SCR engines maybe for this past month and what your mix has been maybe pre-2010 engines versus 2010 engines thus far.

Hey, it's so slight. Remember that the law was that the engines could be built up until December 31 of 2009, so most of your OEMs, in fact all of your OEMs are still putting in pre-2010 technology, okay? So all we know is the test stuff that was run out in the third and fourth quarter last year, so it is really -- I don't want to get much -- there's no ways to give flavor because I haven't seen it on a broad basis. We have not seen -- we have really just started quoting new technology as people realize that -- they can't -- they were still -- through December there was still pre-2010 technology available.

So to be built into January and February because the one engines were in the pipeline prior to December 31. So really no flavor can I add to it. But as I've always said, I expect all technologies to be fine. If you look back historically, we have had engine emission issues to deal with before and we are not that -- OEMs and suppliers figure out a way to get around it and build technology and build product that more than meets what the demands in the marketplace are.

I am not concerned really about anyone's technology. It gives me flavor on the acceptance of it. I can't give you any flavor just simply because it's not running yet.

Right. As we look towards a potentially weaker second and third quarter, when 2010 emission's engines are the only thing for sale, is there a concern that not only price but also availability of urea could be a hurdle for you particularly in medium truck?

No, not at all. I don't see that as being any issue myself. I mean, it's been used worldwide and globally and all across Europe. I don't foresee it being that big of an issue, to be honest with you. We will support it -- I go back to 2007 when we had to get sulfur fuel, everybody was all worried about that. And I never heard of any problems there, so I don't see any problems with urea going forward here.

Okay, all right, thank you very much.

Basili Alukos, Morningstar.

Thanks. I got something I'd forgotten to ask earlier. So if you look at your absorption rate this year, it came in at 96% and if I recall that's about -- a little bit above what it was during 2005.

Right, and we were about 95% if I remember right in 2005. I'm going off of this old mind of mine.

Yes, I think that is what I saw on a presentation. And clearly revenue, 2005 was a lot better year than what we just experienced. Could you talk about some of the things that -- obviously you've cut costs, but was there a mix shift there that maybe helped increase the absorption rate this period versus what it would have been in 2005?

No, it came from the cost side. Obviously we have been downsizing for well over two years now through 2008 and 2009 we're making adjustments inside the marketplace. So we were ramping up. Remember we were in a different part of the cycle in '05 than we are in 2009. Okay. We were going up the cycle instead of coming down the slide. So we were heavily focused on cost, where at that time we were probably adding some extra cost to create more revenue.

But as overall, I feel much better about our prospects. I mean I had -- I saw question in one of the analyst reports this morning. Well, what do you think about absorption for 2010? I know I am creating problems for myself, asking myself questions. But you know, I've got goals in this Company and I've got goals to get back to 100. Can I sit here and believe we are going to get to 105 in 2010? No. We've got goals to get back to 100 and probably back end driven like I've said, but that's just my feel for what's going on out there.

Is there going to be any huge uptick in absorption this year? Probably not given where deliveries are going to be -- you're probably going to muddle through the second quarters and the first and second quarter. You are already halfway through a year and you hope you start seeing some uptick in late second or mid second. And by the time you really take that onto the third and fourth. But my goals would be to ramp it back up I hope a couple, 3, 4 points this year, and that's what we hope to do as an organization and that's the goal of the Company right now.

But again, if we're able to do that inside of the kind of truck market that I expect, I am really excited about '11 and '12 both from a truck sales, from a parts and service perspective as to how lean we will have the organization and how well-positioned I believe we will be especially as we continue to execute inside a bunch of different vocational markets that we are focused on along with the truckload side picking up. We're just going to keep managing right now, but we do feel good about the horizon that we see out there, no matter when it comes.

Okay, great. That was my last one. Thanks.

At this time, we have no further questions. I would like to turn the call back over to Mr. Rush for any additional or closing comments.

Okay, operator, thank you very much. We look forward to hearing from or talking to everyone again with our first-quarter results here in April. We thank you all very much. I appreciate your time. Bye.

That concludes today's conference. We thank you for your participation.