Rush Enterprises Inc (RUSHB) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Rush Enterprises Incorporated's third-quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference may be recorded.

It's now my pleasure to turn the call over to Marvin Rush, Chairman of the Board. Sir, the floor is yours.

Good morning, and welcome to our third-quarter earnings release conference call. On the call today are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and CFO; Jay Haselwood, Vice President and Controller of Rush Enterprises, Inc.; Derrek Weaver, Senior Vice President, and General Counsel and Secretary.

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 this 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, 2011, and in our other filings with the Securities and Exchange Commission.

Let's update you on the third quarter. We are pleased to announce that the Company's gross revenues totaled $745.1 million, a 7% increase from growth revenues in the third quarter of 2011. Net income for the quarter was $14.9 million or $0.38 per diluted share. We ended the quarter in a strong financial position, including a record high cash balance of $230 million.

Aftermarket operations accounted for 65% of the Company's total gross profits in the third quarter, and revenues reached a new record quarterly high of $210 million -- $210.7 million. Our third quarter absorption rate was 113%. Aftermarket growth this quarter was a result of our continued focus on service solutions such as mobile service, mobile text, and vehicle upfitting and body installations.

Continued service of aging fleet units and service in the energy section also contributed to our third quarter parts and service and body shop revenues. Rush Class 4 through 7 truck deliveries increased 16%, as compared to the third quarter of 2011, and outpaced the US medium duty market, which only increased 11%.

Our third quarter light-duty sales also increased 21% over last year. Our light and medium duty sales growth this quarter is a result of increased new truck sales to national medium duty fleets across the country, our ability to deliver vocational vehicles from our inventory, and the solid performance of our Peterbilt, Navistar, Hino, Isuzu, and Ford franchises.

As expected, Class 8 new truck deliveries decreased by 8% compared to the third quarter of 2011, and 19% compared to the last quarter. This is the result of reduced order intake over the past several months caused by the general economic and political uncertainty surrounding the impeding elections.

Let's look at the industry outlook. Given our customers' hesitancy to purchase prior to the election, we anticipate that Class 8 truck deliveries could decline as much as 10% in the fourth quarter compared to the third quarter. This decrease in new truck deliveries, combined with reduced seasonal activity, could result in as much as a 10% decline in our parts, service and body shop revenues during the fourth quarter.

Industry experts forecast 2013 US Class 8 retail sales of 207,500 units. Until current economic and political uncertainty subsides, we believe it is premature to predict next year's climate. We anticipate that our order intake will increase by the year-end, but that would not result in an uptick of Class 8 truck deliveries until the second quarter of next year. Industry analysts also forecast the Class 4 through 7 retail sales to reach 160 units in 2012 and 186,000 units in 2013.

We are very pleased to announce that we signed an agreement to purchase certain assets of the dealership group in Ohio that operates International, IC Bus, Isuzu, and Idealease franchises. We plan to complete the acquisition by year-end, and expect it to be accretive to future earnings. The Ohio Group had unaudited revenues of about $250 million for fiscal year ended October 31, 2011. When completed -- when complete, the newly acquired locations will operate as part of the Rush Truck Center's Navistar division.

We also relocated our Phoenix, Arizona full-service dealership into a newly renovated facility in September, tripling our service capacity in this market. And finally, we would like to thank all of our employees for their contributions to our performance for the quarter. We believe our employees and our results validate our service-first, customer-solution market strategy. Our employees and our strong financial position will continue to allow us to move forward with our strategy initiatives for growth.

We are now prepared to answer any questions you may have.

(Operator Instructions) Brad Delco, Stephens.

First question, Rusty, just thinking about the quarter and I think where things shook out relative to some expectations, my view was you probably -- you could have probably cut costs in places if you wanted to, to focus on near-term results, but it sounds like you're setting the business up for continued growth. And I was just wondering if you could kind of maybe take that -- or is that the case? Or maybe expand on that some to say, yes, you are preparing this business model for continued growth, and what areas specifically are you targeting?

Right. No, Brad, if you look at it, there's no question, I have not -- we didn't -- costs were pretty much flat sequentially. If you look at the difference between this quarter and the second quarter from a sequential basis, we had one last working day which turned into a holiday -- which was really about 2.5 points of absorption, okay? So you would have gone from 117 to 113 in reality. Total G&A costs were just slightly up. They were up so slightly it was hard to measure.

But most of it involved an extra -- one last working day and one extra holiday. So -- but our view is a long-term view. As we look forward and look at our platform, it's about customer solutions. And the infrastructure building, and as I mentioned on the last call, the investments that I'm making and that we're making as an organization over the next -- well, over the next few years, really, over the next couple of years -- we believe will bode well for us as we continue to move into the future.

I'm not at all disappointed with the quarter in any way. And we are going to do our best in the fourth quarter to possibly tighten a few expenses down, but nothing to stop the momentum that we feel we have on our side moving forward into the -- you know, finishing up this decade as a customer solutions organization, service-committed company.

Got you. Appreciate it. (multiple speakers)

And I think the results will bear that out as we go forward.

Yes. And then I guess I've got to ask a question on the deal. It sounds like, given the size, I think I heard $250 million last year. It's a relatively large deal for you guys. Can you talk a little bit about why the seller is selling, I guess? And what made you attracted to the deal and what you expect out of that business next year?

Well, for one thing, it moved us into a region in the United States that we really haven't been in the past, up there. It is a very high traffic density state, Ohio is. One of the largest truck states. One of the top 10 as far as truck traffic goes in the United States. We think Navistar is an extremely strong brand there. It is the number one registering truck in the state of Ohio.

As far as the deal, as far as the guys, the transaction and the motivation for the seller, I think there was -- you know, you'd have to talk to the sellers. There was a couple of owners in the organization, and I think they felt it was -- they felt comfortable selling and we felt comfortable purchasing. You know, I don't make those decisions on that side of the fence.

But the opportunity presented itself and we felt it was the right fit for our Company. And we're excited about it. We think that there are -- they've done a good job of putting together four or five organizations, a group we're purchasing over the last 8 to 10 years.

And we look forward to even consolidating those further, especially consolidating them into our network, and bringing our customer, broad customer base that runs through that state, and works in that state, from both a over-the-road and a vocational business perspective -- even in the oil and gas play that's going on up in that area. So, we're excited about that, and we feel it's going to fit in real nicely with our organization as we go forward.

Got you. And maybe last question for you, Rusty, thinking about next year, and I respect the fact that you guys think it's a little premature to predict the climate (multiple speakers), but --

Yes.

Let's just assume that it -- let's just say for, without arguing, it's a flat kind of environment year-over-year. What do you think the pluses and minuses are in your business or what you've invested in over the last 12 months, be it parts and service, or more medium duty? Or what essentially, I guess I'm asking for is, is growth for you an environment where maybe the market won't necessarily allow that?

Well, we look for -- the growth areas for us are driven -- I'm going to get pretty philosophical -- are driven by customers. Okay. And you look at what we've done. The opening up of CDS in two locations in less than -- in the last year. Okay. Which is upfitting and vehicle, almost vehicle -- slight vehicle remanufacturing. You know, to go into a customer and saying, what do you need us to do? How can we best make a full package?

Without you -- without a customer having to take a product, take the truck, ship it to one place, ship it to another place to get it rigged up, we can do the whole package now. And we're going to continue to expand that out. Our investment in mobile technicians, whether it be mobile trucks, whether it be staffing stats that we put inside our customer's shops, whether it be taking over the shop as a whole -- I mean, our approach is to be -- we're there as a solution.

Yes, we sell trucks, but we are a solution provider. And that's what we firmly believe in, and that's where our investments and our focus will continue to go in the future. You know, we've obviously expanded our market share in the medium duty side with a couple of board acquisitions; we're continuing to expand it in the Navistar side. We look forward to seeing that growth.

And let's take a moment here. That's in spite of the issues. I mean, I'm going to get to address this question in Navistar. We're obviously firmly committed long-term to Navistar and their growth. Have they had issues in the interim strategically? Yes, of course. But we believe that with the engine platform changing, and the alignment of the Commons product from a 15 liter perspective, and the Commons aftermarket treatment on their 13 liter engine, which will be coming out next year, we'll get their market share back closer and more into the historical range of where we believe they belong. And that's probably 50% higher than where they are now.

So, and we believe the opportunities for service on that side of the business are extremely strong for parts and service. So -- or we wouldn't be making that investment in Ohio that I referred to a minute ago, with these stores and building out our network. So we're very comfortable with that.

We've also made a lot of investments into natural gas. As I've said before, I want to be on the leading-edge, not the bleeding edge. And we've got, I think, half a dozen stores that now, that have natural gas ready to hit base, dedicated to natural gas. And we will continue to evaluate -- any new stores we're building, we just are breaking ground on a store in San Corpus Christi that we had never had a location there. That will have a natural gas store.

We've got a store -- a new store going into Ardmore we'll open up in December, where we're quadrupling the size of that store. They'll have dedicated natural gas base. So anything we do in the future that we built from ground up, we'll have natural gas dedicated base. So that we're prepared, especially in the areas where we feel it's needed, where we see the growth being to take care of, which Ardmore and Corpus Christi happen to be in areas that we think will be high-growth areas for that technology.

So, all these things we feel bode well for us as we go forward, and fit into a long-term plan. Yet at the same time, I'm still a focused-earnings guy. So don't worry, we're not going to sell the short-term off of the long-term. We're still going to be what we've always been, and that's a high-producing company, so.

Got it -- well, yes, Rusty, my point was, can you grow earnings in an environment which is flat? And I guess there are puts and takes (multiple speakers) --.

My point is I look forward to, yes, we like to think we could. We're making the investments -- that's what these investments are all about, is to expand the margin that we make per truck sale, to expand not on the truck itself, but on all the other stuff. And someone's getting in the pipe stream. So why shouldn't we be doing that?

We have the capital, we have the wherewithal, we have the expertise. If we don't have it, we'll go -- we'll acquire it or we'll get the expertise or we'll grow it internally with our focused training programs, our management training program we've had in place for 15 years, which has facilitated all the growth that we've had in the past, and will continue to facilitate the growth we have in the future.

So we are trying to check all the boxes, do all the right blocking and tackling, as they would say, to meet the goals -- to meet the Company's goals and my goals, which they have for sure, so.

Yes. And then, Steve, I apologize, just one quick housekeeping. Do you have a backlog number that you had at the end of the quarter?

We haven't put that together yet. That will be in the 10-Q.

Okay. All right, guys. Thanks for your time. I'll get back in queue.

Sure, Brad. Thank you, Brad.

Neil Frohnapple, Northcoast.

Hi, guys. Congrats on the acquisition.

Hey, thanks, Neil.

Is there any additional color you can provide on the acquisition regarding a rough breakdown of truck unit mix between heavy, medium-duty and light-duty?

Neil, I really don't want to get into that. It's a little premature. You know, the deal is set to close by December 31, and I wouldn't mind shedding a little more color on that. Obviously, we have some; but as we work our way through it, we have just announced the acquisition.

I'm, in fact, spending the next two days traveling and meeting most of the current employees that are there. I'm visiting all the stores and locations again over the next couple of days. So, we'll get some more color as we go forward, but I'd say, as we said in the press release, it will be accretive to earnings.

Sure. Okay. And then what do you anticipate directionally for medium-duty deliveries in the fourth quarter? You know, we saw a nice step-up in the fourth quarter last year. I'm curious if we could see something similar this year, given there's going to be a tough comp?

Yes -- hold on a second, let me pull that sheet. I've got Class 8's in my head. Medium-duty -- up slightly, but maybe up slightly -- 5% or so is what we're looking at right now. (multiple speakers)

From the third quarter?

Yes, sometimes you remember about medium-duty is we have a lot in stock. So a lot of times what happens in the medium-duty business, because a lot of it, even though we sell to national fleets, we do a lot of mid-size and small customers also. And a lot of these folks will wake up, their tax accountant will show up and see them on the 1st of November and say, hey, you want to pay less taxes? You've got an eight-year-old truck here. You should go reinvest. You've lost appreciation on that; you can take advantage of the 50% [before year's] out. You know, these types of things.

So, that usually is where you get the bump up. You remember last year, tax law change, but it changes again this year. So, it's not as dramatic this year as it was last year. But that's sometimes hard to see in my binoculars as I look out there. So, but if we get that, then you might even see a little better number than what I'm talking about.

Okay, great. And then one more for me. What have you seen happen with Class 8 used truck prices over the last few months? We've heard they've been declining modestly. And I was just curious if you're seeing similar trends in your network?

Yes. I would tell you so. I would tell you that probably the hardest hit piece is your late model used. Remember, your late model used is your lower model, it's late model, higher dollar used. Well, when your new truck sales decline -- which we all know has happened across the country and happening right now -- especially the small guy who's usually buying the used truck, remember a lot of new trucks are driven by large companies, big fleets, et cetera.

But the smaller to midsized person will sometimes look for that second truck that might be a 350,000 mile late-model truck. Well, when your new truck sales come down, that part comes down too, you little later-model sales. Okay? So we're seeing a little softening from a demand perspective on that.

Now I'll be honest with, I personally look forward to pick up next year as I see new truck sales picking up, as we get into the latter part of the first quarter and into the second quarter. So -- but your mid-priced uses remain fairly -- it's lost a little. It hasn't depreciated as much as the late-model, but both of them will have to come down a little bit in value. But I believe that should stabilize.

Because when you look at the used truck business, it's usually a pretty simple look. It's two things. You've got supply and you've got demand. Well, we expect demand to remain relatively flat to where it was earlier this year. At the same time, supply, when you look back at the 2009 year, which was 2010 models, and 2010 year, which was 2011 models, were two of the worst years in 40 years in this business. So, your supply side -- there's no -- supply, you know what supply is. It can't change. We can't go back and rebuild new trucks from '09 and '10. So you realize that is your buffer to having too much valuation loss on the used side.

Okay, great. Thanks so much for the color, Rusty, and good luck.

No worries.

Jamie Cook, Credit Suisse.

Actually this is Andrew Buscaglia on behalf of Jamie Cook. (multiple speakers) So, yes, I just want to hear maybe just a little more commentary just generally on what your customers are saying and seeing in terms of visibility. I know you talked about the election; kind of after that, things should get a little bit better. But are they talking about 2013 yet? And just like (multiple speakers) I'm interested to hear your commentary.

(multiple speakers) Sure, you bet. No, we've seen -- since I spoke to you all last in July, we have sequentially probably seen probably a 15% or so pickup in quoting activity. Maybe 20 and some -- you know, 15% in August, another 15% in September. That's all sequential. So it's picking up.

I think everybody is just -- we're waiting to pull the trigger here. And middle of November and beyond, I think once everybody understands where we're at, then people will make the investments, and understand how much capital they want to invest. There's going to be an investment. It's just a matter of how much investment there is, based on people's feelings as to what they feel they should invest, given their look at the future of the economy and of tax, and of all these other things that go into these decisions made by business people.

So, it's just a matter of how much, in my opinion, as to -- when we talk about that, what's the volume going to be? How much investment is going to be made? And I think that will be driven by a lot of people's opinions of what comes out of here in a couple of weeks -- from today, actually.

So, I guess we will see where it goes. I don't think there's any question. We'll get our typical seasonal pickup in order activity or intake, whether it be starting in the middle part of November on into December and January. I look for a pretty strong order intake months and everyone should also.

So we'll be able to tell everybody's feelings by the amount of increase we have. How strong is the pickup? And I guess that will be told from those numbers that we see in those three to four months that -- when I say that, I mean November or January and February. We'll get a really good feel as to where things are at. You know, but the activity has picked up on the quoting side, no question -- especially in the truckload side. (multiple speakers)

Okay. All right, and then -- yes, and just kind of switching gears in terms of the energy market driving -- I know it's -- that felt like it would be a big driver for you guys. Anything interesting you're hearing on that through the year-end or even into next year?

Well, you know, I've said all since the first quarter release, I've said our energy sales from a capital goods perspective, from a truck perspective, would be a little backwards of last year. It'd be strong in the front half, front two-thirds really of the year, and then decline over the back part. And that's what we're seeing.

Our service activity has remained strong through the current quarter. A couple of soft spots, as people shifted rigged work, I think rigs were down 5% or so, I looked at the other day. But as it shifted from gas to oil, we're watching it, we're keeping our finger on it real closely. And so we've seen a little bit of softening there. Nothing like maybe on the truck side on the capital goods purchased, but I think the rig activity, like I said, was down 5%.

So we're still working a lot of -- doing a lot of service parts and service work around that sector. I think one thing that bodes well for us in the next year or so, as you look out, is our Ohio acquisition. They do have something, I believe it's called Utica Shale up there, that may come into play over the next year or two. And given our relationships, which we believe are the strongest in the industry throughout that in our service, which is stronger than anyone throughout to the oil and gas service -- oil and gas business, we look forward to being able to take care of any customers that may be working in that area of the country also, as we go forward.

So we're -- we are excited about the overall prospects. The service -- I think the service prospects remain strong, and we would hope that maybe by the back half of next year, the capital goods side would pick back up again on that side of the business. As they catch up with their buying, you know -- it was extremely strong purchasing there for a while and I think it's a catch-up right now on that side.

All right. All right, thanks, Rusty. Thanks, guys.

Tim Denoyer, Wolfe Trahan & Co.

Rusty, as we look at parts and service revenue going into the fourth quarter, I know it usually steps down a few percent just because of fewer working days, are you going to see a little bit worse than normal step-down just because of the potential drop in some upfitting in the fourth quarter, as new trucks sales step down? Or how would you characterize it?

One thing I want to address real quick, Tim. In the opening comments, there was one line in there that I think we -- it said 10% down in truck deliveries. There was a line about possible 10% down in truck parts and service revenues. Now that was in there. That's not true. I don't foresee that.

Do I see a slight decline? Yes, given less working days and other things -- slight decline being revenue possibly down. It's a tough time of year for that -- 4% to 5% maybe -- I'm hoping, I believe that's where it will come in at. That all being -- so that's typical of the season. But I do expect us to do a little -- a pretty good job on the expense side in the fourth quarter. We typically do.

Our guys are -- they're not -- this isn't their -- they're not rookies. They understand how to manage the seasonality of our business. And I would look for us to execute properly at the store level, and keep that absorption number, as I stated earlier -- I stated to Joe. I talked to a few people on the phone this morning. I would look for that absorption number to remain at least where it was in the third quarter.

Okay. Great. And in terms of the construction market, I know it's not a huge one. And you talked about most of the big markets already, but how is quoting activity on construction-related stuff? I think last quarter, you said you'd probably see some orders within 6 to 12 months. Is that still tracking?

Yes -- you know, I would say yes. I'm not going to get into exact numbers; it's a little tick-up. I mean, I had one nice, real nice order in the quarter, the biggest order I've had for mixer trucks since 2006. So I'm not going to get into numbers. But that's a good sign, right?

And I'm seeing other slight things moving around on that. So, I would expect that to continue to accelerate over the next three years, and I am making investments so that I make sure to capture more than our fair percentage of it. (laughter) So, yes I don't think that goes anywhere but continues to continue to move up.

As I've always said, that's why we diversify so strongly in where we sell trucks. It's truckload, it's oil and gas, it is construction. It is the crane business. We're in the wrecker business. We're in all these different sectors and there's a reason for it.

So if we get some softening in sales in oil and gas, and the refuse business -- excuse me -- one of our big ones, I forgot there when I was rattling them off. We have experts in our stores in corporate who are dedicated to each of these markets. And we're committed to always taking care of each of these markets with the best expertise possible, so that one of them softens, then we're there with our customer base and the other one as the other one picks up.

You know, that's hopefully the balancing act we try to play, and not just be over the road, truckload getting salesperson, sales organization. We're not. And we're -- we stay focused on that continually.

Okay. And if I can just throw one more in on the acquisition, is there anything you can tell us at this point about the purchase price and/or margins? I'm guessing it's probably not up to normal Rush margins. Is that fair to say?

You know, I don't want to -- I really -- can you give us a little bit to give color on there. It's very much in line and I think we're comfortable with it. If I'm comfortable with it, then you're going to have to be comfortable with it. How's that?

(laughter) All right. Thanks, Rusty.

And that -- the purchase price actually moves if inventory goes up and down. (multiple speakers)

Right. It has to do with real estate (multiple speakers) --

And it moves materially because these are material items that move. So we don't like to come out front and give you a number that's going to change materially by the time we close.

Yes, you've got floorplan involved, you've got all this other. I mean, it's strictly asset, it's not a corporate -- not buying a C-Corp here, so.

And Steve, is it fair to say that the inventory is going to continue to be a source of cash in the fourth quarter?

Not like it was in Q3. If you remember at the end of Q1 and Q2, we had some equity in our inventory from a cash perspective. We're back caught up. Our inventory is fully floored, so you're not going to have a dramatic pickup like you did in this quarter. And you have timing issues.

Honestly, we have some trucks that delivered late in Q3 that we didn't pay off until the first couple of days of October, so that cash balance is probably about $15 million higher. You always have those timing issues in and out of your inventory and floorplan (multiple speakers)

(multiple speakers) We go both directions.

-- they could go either way. But I would tell you that I don't expect inventory levels to increase greatly. We're not doing any stock buying or anything at this point. But it would be more normal than what you saw in Q3.

Got it. Thanks very much, guys.

Bill Armstrong, CL King & Associates, Inc.

Question -- back on SG&A, I was wondering if there were any areas within your cost structure that may be getting deleveraged? I'm thinking that you've got some dedicated natural gas service bays and associated technicians that you've put investments into. But nat gas trucks are still a pretty small part of the overall on-the-road fleet. Are those areas that may be getting deleveraged or -- am I looking at that right?

Well, I don't know about deleveraged. We continue to invest a lot in training. Okay. You know, there's a lot of training and equipment stuff that we're purchasing to structure ourself up for the return down the road. This is an investment business, so those things have to go on continually for us to continue to drive absorption over the long-term.

I mean, I look forward to the day I can get them running 120% plus. So, but if I don't make the investments now and properly train, and there's a -- the training we do nowadays is unbelievable from my perspective, when I look back at where technology was 10 years ago and where it's at now, with all the different aftertreatments and engines and natural gas, to your point, and things like that.

So we're going to stay on the front edge of that curve. So from that perspective and an investment perspective, could you peel some of that back? Could I [ride] absorption a little higher in Q3 a couple of points? Probably. Is that the right thing to do? No, not from my perspective, it's not. So we will continue to make the investments that we feel bode well for us in the future.

Okay, quick question on the Ohio acquisition. It looks like there's seven cities mentioned in your press release. Are we talking about seven dealership locations or might there be more?

No. There's more. I think there's 8, if I'm not mistaken. There's a couple in Columbus. I'll be there tomorrow morning. (laughter) There's two in Columbus and there's one in all the other cities. And we look forward to -- like we do in any territory -- we look forward to looking at that territory, you know, assessing the territory, assessing the needs of the market, and you know, like I'm building a new store in Corpus Christi right now on one side. We will do that over the next couple of years. And if we feel there's needs for more stores, given what we see is a very good truck population and density up there, then we'll do what we believe customer demands are. And we'll facilitate those with our investment.

Got it. Then just one last question. I missed what you said earlier to a question regarding medium-duty shipments in the fourth quarter. Did you say it would be up slightly versus Q3?

Yes, our projections are, right now maybe up 5%. But I could tell you that there should be a possible upside in that, because a lot of times the customers that make those investments, you know, people typically keep their medium-duty trucks longer, medium-sized businesses and delivering goods, et cetera. If they've had a decent year, and they've got a big tax bill to pay and their tax accountant shows up, that's why we've got ready-to-go trucks rigged with all different bodies.

I don't care if you're in the landscape business, the wrecker business, the box business, the reefer business, whatever, we've got trucks ready to go and sell. So when a lot of times in that industry, November, December, they wake up and they want to pay less taxes, and they run out of depreciation, so they make the investment. They get a 50% depreciation this year on it, so they will take advantage of that, because that backs out again next year based upon current tax projections, tax law projections.

So, that could have some upside to it. But yes, it's up 5% right now is our projection, but I don't know, I'm always hoping that we'd have even some upside to that.

Yes, that would be up 5% versus Q3, not versus last year's Q4?

No, I'm looking at Q3. I'm going sequential.

Got it. Okay.

Sequential is a whole lot more real-time than year-over-year in this business. Right? Especially given the economy of this country the last four or five years. (laughter)

Right. Okay, great, thanks.

Chaz Jones, Wunderlich Securities.

Rusty, quick question on the recent UD announcement in terms of them not shipping (multiple speakers) --

Right, right, right.

-- medium-duty trucks to the US. Could you maybe just touch on that and what type of impact that might have on you? Do you have any stand-alone dealerships? And is it going to impact inventory in terms of any potential charges?

No. You'll see no negative impact to us. We had eight locations but those volumes have been declining over the last couple of years. I think we have seen that we don't see any impact from a go-forward basis. And yes, no stand-alone stores. No. That was always -- that was one of those incremental ancillary deals that we had.

Volumes had dwindled to a high of two years ago of 200 units. So as you can see, not a whole lot, to 110 or 120 last year. And as they have been priced and pulled out of the marketplace, I don't think we were projecting delivering more than 40-something this year, and I had 20-something in inventory. So we've already agreed with the UD folks and worked out a deal. So we see no real downside.

Yet at the same time, we will still remain parts and service dealers for UD franchises. So they still have a commitment to the trucks that are on the road. And you know, we look forward to continuing to service those customer needs. The markets that they played in, that cat forward, the heavier cat forward market, were very, very small markets to begin.

Now, as an ancillary piece, it was fine. So, but we'll be fine. We have some other products coming into play by other manufacturers that we believe will offset that are going into that market, to be honest with you. (multiple speakers) In fact I think PACCAR has a new product coming out that's going into that market, okay, that will help offset that UD space where we filled in the higher, the heavier cat forward market.

Got it. And then I know you pointed out on the absorption ratio that the 250 BPS from working days, but just out of curiosity, just in terms of other impacts in terms of less prep work on the front of selling fewer trucks. And then on top of that, moving into some bigger facilities, is that sort of temporarily hurt or sort of those new abilities absorption ratios?

No question. I guess I didn't reflect on that and I appreciate you bringing that point up. We still get a lot of parts and service work from delivery of new trucks. Now it's not the main driver, but it's -- it can be up to 15% of our parts and service gross profit. So, you see delivery is down 19%, yes, you can believe there's some effect that happened from there that we would have picked up. So we have to offset that in customer labor deals and customer pay type deals and not off of trucks.

So, that has an effect. Reflective to your point about opening a new store, yes, I just opened a brand-new store in Phoenix which triple-quadrupled the size of 150,000, 160,000 square feet, it's huge. If you're in Phoenix on November the 8th, come on by, we've got a grand opening there.

But their first month there, yes, it reversed from a P&L perspective. But long-term, as we've always said, those are the right things to do. It's like when we open Ardmore later in December, when we opened -- you know, you open a new Corpus Christi store. Heck, look back at -- there's a store I've got that I bought last December in California in Whittier, in Los Angeles at Ford's Isuzu, it was running 30% absorbed. We're up to 70-something, but it's still a drag. But it's a two-year or whatever window until we get our mentality to how to run these locations, and drive that to parts side of the business.

So there's always a balancing act, I've always told everyone. If I just wanted to hit percentages and run the highest, I could do that; but that doesn't drive the top line or the bottom line, really, at the end of the day. And that's what it's all about. It's about a continued investment, balancing that between managing to the right (technical difficulty) [for goals], but taking every piece on its own, and understanding that each location is only as mature as at their different stages in their lives. They have different maturity levels.

So you have to continue to make those investments. And sometimes like in Phoenix, you outgrow it, you become aged; your facility doesn't facilitate the business that's there. So, do you build a facility for just the business you have now? Or do you build a facility that will last you for the next 20 or 30 years? No, you do the right thing. You build something for 20 or 30 years -- but then it doesn't take you 20 or 30 to get there; don't worry. But it might take you a year or so to wrap it up. Do you follow me? So, but we -- look, we've done these things forever, and I'll just let our track record speak for itself.

That makes a lot of sense. And thanks for providing a little bit more color.

You bet. Thank you.

Just one last one. And just maybe to circle back around to Brad's comments earlier on cost, I was a little surprised that SG&A was flat, considering you sold -- and when I say flat sequentially, 1000 less units sequentially, and revs were off $100 million, there wasn't anything in there that was maybe one-time in nature, was there?

No, I don't believe so. Steve's shaking his head with me here. No, I don't see anything really. I mean, that -- G&A was -- now remember, I break S. and I break G&A. G&A was slightly, like I said, not even a [1/10th] up or something, because yes, S. is driven by sales and S. was down, correct, Steve? You know, the sales part of it, because that's commissions. Now the S. part was down. So, I see nothing there that was really one-time.

Okay, great. That's all I had, guys, thanks.

Andrew Obin, Bank of America.

Yes, just a question just philosophically speaking on Ohio acquisition, your Navistar franchise, there's been some sort of -- I don't know how to describe what's been going on with Navistar recently, (laughter) and the whole engine issue. And obviously, you are endorsing the manufacturer with your purchase of this dealership.

But just how should I think -- there have been some public announcements made about the timing of the introduction of the Cummins engine. How should I be thinking -- when you think things at Navistar become normal and the franchises that you guys own are no longer sort of disrupted by this noise about the engine choice? How long does it take for things to get normal at Navistar within your franchise? Thank you.

Okay, Andrew. Well, that's a good question. I believe the introduction of the engine, the Cummins engines, are going to be out in the first quarter. But you know, it takes a little time to get product to market. Remember we're on the end. We're on the retail side. So it takes a little time to get product to market to get customers buy in. You have to work through the issues, the overhang, should I say, of the issues you may have had in the past.

You've got to get your 13 liter engine out, which may not be out till mid-year; we're early in production. So, from my perspective from a dealer's perspective now, I would look at the back half of next year. Okay? They may be in line a little better but they're the manufacturers. I'm the dealer. So I'm the guy on the end.

And so from my perspective, you've got to go out and you've got to -- you know, because we're selling a new -- after we've been going down one path and changing your communication of your message. But again, as I said before, I've said before, you know, a ProStar with a Cummins, we've sold thousands of them in this country prior to the change in 2010. And I don't think that will be any issue. There are many customers that like that. I've heard that from numerous customers. They're very comfortable with that model.

So, it's just a matter of the transition, and I'm not a super expert to tell you it will take two months, three months, six months. I'm not quite sure, Andrew. But I'm looking at the back half of next year to where I am performing out of my dealerships. Have I been hindered this year in return basis? Yes. But at the same time, I still endorse the long-term strategy. Did I make the money I want to make this year out of my Navistar dealers? No. I'll honestly say I didn't. I mean, I -- there's no question.

Did I get what I budgeted for? No. But I do believe that I will get growth, and it will be a good thing and facilitate Rush Enterprises in the future? Yes, I do. Because the platform I'm comfortable with and I think the market -- it's not so much me; what's the market comfortable with? And I think the market will be comfortable with the direction they've chosen.

I will be there to provide a -- an expanded availability of service tools at our customers' beckon and call. So we'll be there to support the product, but back half of next year. I'm just giving a little more full color to it.

And just on your shale gas and shale oil business, your exposure, it seems that things are not dropping off as fast as you might have thought, going into the fourth quarter, both for new and service parts. Is that a fair statement? And there's still a cliff facing us? Or does it just seem that we maybe had a softer landing than we might have thought six months ago?

I'm going to pick the softer landing. Because I think -- I don't think there is this cliff okay, I just don't see a cliff. Do I see it softening? Yes. But did it fall off the cliff in the third quarter? No, I don't think our numbers show it fell off a cliff. Do I think it's going to fall off a cliff in the fourth quarter? No, I don't think our thoughts on the fourth quarter show a cliff.

And I don't even think the first quarter -- and I have no -- I'm not ready to peg the first quarter. I'm not ready to peg next year, when it comes to those numbers that I put out were ACTs numbers. I want to get through this election. I want to see what people think about business totally, and not spent half -- spend two nights a week watching debates and everything else, and focus on their business and not hunkered down.

But they have to have a good perspective of what the future holds, then you know how to play the cards. So, but back to your main thing, no, I don't see a cliff in the oil and gas business. Could we have a little more softening? Yes. But could it just fall off? No, I don't foresee that at all.

Thank you very much.

You bet.

Robert Kosowsky, Sidoti & Company.

Just a couple of questions. First, could you mention what the same-store sales on parts and service was?

Okay. Let me pull that one up here. Same-store parts and service Q3. Do you want the dollar figure or where it was sequentially or year-over-year?

Year-over-year, the percent change in 3Q.

8.1%.

All right, cool. And then secondly, could you maybe just give us some commentary on market share trends? Because it seems like market share kind of stepped back a little bit in the third quarter.

My comment has been that I think we're a solid 5%. We were 5.6%, we were 5.2%, guess what, we went to 4.7%. If you had as many conferences as I've done in one-on-ones, I tell everybody that. You know, it could be 5.4%, it could be 4.6%. But at the end of the day when you look at it overall, on an annualized basis, I believe we're a 5% market share player on Class 8.

Last quarter was a unique order for us in the medium-duty business. We were 5%. Our deliveries came down, we were 4.1%. I think we're a low 4's player right now with more room -- we've really got room for growth on both, with room for growth on that to achieve -- try to achieve 5% on a more consistent basis. And I think I'm working to -- buying these Navistar deals in Ohio, gives us, obviously, a strong medium-duty player; gives us growth in that arena.

And when we look for some more growth on the heavy side. And especially on the Navistar side, as they get their strategy in line with the engine change, with the technology changes, I think both sides, there's plenty of room for growth there with them.

And we continue to work on the Ford acquisitions we bought in the last year or so, and getting better at that. So that will continue to facilitate medium-duty growth. So, as I said, solid 5%, currently low 4's -- whatever that -- I don't know exact -- 4.3%, 4.4%, would be what I would guess as an average over the whole year for medium.

Okay, that's helpful. Then just on the question like on the operations like on the Navistar segment that you've developed. So you know it's like three different pockets, it seems like of where you have Navistar dealerships. And I'm wondering how kind of the efficiencies within your own internal like supply chain and operations -- do they differ at all with Navistar? Or is it just you're in the Rush network, so that's good enough, and you can still get the same kind of accretion and synergies from Navistar in Ohio versus like a Peterbilt in Ohio?

Well, I don't know that I can totally say that, but let me take it from this angle. You know, when it comes to taking all the backroom activities, yes, that all goes to corporate. That's the same whether you're a Navistar store or you're a Peterbilt store. All of the accounting functions, all the other functions -- you know, HR, et cetera, legal -- everything that's involved is taken on cash management. Everything is taken on at corporate. So, from that perspective, it's all the same.

Operationally, they operate inside of successful integrations, but yet, there's, operationally, really no overlap when it comes to managing that. But when it comes to taking care of customers, if you're a Rush customer, you're a Rush customer, and we're going to take care of you wherever you have a problem. But we align the stores with their manufacturer when it comes from -- obviously, from a purchasing and managing and all that type of perspective. But at the end of the day, the overriding thing is you're a Rush customer.

So you've got an account at Rush, and you can stop at any store you want and get your work done. And remember, a truck is still more than 50% non-proprietary. So if you've got an axle or a transmission, starter, alternator, wheel fields -- anything, drive lines, all that type of stuff on a truck, batteries -- things I don't have time to list, thousands of parts -- they're common.

So, taking care of that is not an issue. So, they run in separate divisions, they operate separately, yet the customer base can use, if they're in a certain territory and have an account, and have a problem with a transmission, they can pull into any Rush store and be taken care of from that perspective. Okay?

Okay, that's helpful.

Relied on it. We run them individually as separate divisions, yet the customers, where there is commonality, are welcome -- well, not welcome; we encourage them to come to our stores to get their work done on the common parts.

Okay. Then one last question, which you may or may not answer. Just how do these Ohio assets -- how do they compare versus the scale of these assets versus other kind of scale of dealerships that you can potentially take a stab at over the next 5 to 10 years? Just kind of curious about the fragmentation of the potential acquisition opportunities out there.

You're asking about the size of this acquisition versus other potential acquisitions, Robert?

Yes, versus other potential Navistar dealerships out there and kind of how this -- was this kind of one of the elephant acquisitions out there? Or is it multiple ones of these out there?

I'm going to tell you from a volume perspective, it's probably top 10. Okay. From a revenue perspective, it's going to be a top 10 revenue. I mean, I don't think it was the biggest boar in the herd, but -- of elephants, if you want to say. But at the same time, there are others out there. As I said, I called it a top 10 and that's what I'll call it. I'm not going to rank it other to announce it other than that. It was a very nice acquisition with good revenue. So, top 10 should explain where it's at.

All right, thank you very much. And good luck with the back half of the year.

Oh, I always love it when you start a question, "I don't know if you're going to answer this or not." That's always good. (laughter) Go ahead. Anybody else?

(Operator Instructions) Art Hatfield, Raymond James.

As you can hopefully imagine, most of my -- virtually all of my questions have been answered.

Kidding, Artie.

Rusty, just kind of thought on G&A, I know you've had some questions on this. And you talked a little bit about how acquisitions work and a lot of the back-office functionality can be taken up by corporate. But can you talk a little bit about maybe what some leverage opportunities on the expense side may be for you operationally, as you kind of build out and get greater density with some of these newer brands?

Well, there -- most of the -- a lot of the accretion or [decreasing] -- the consolidation is on the backroom side. From a management perspective, you know I would tell you that we still will manage them with general managers like we do everywhere else. You know, there is -- the sales side, we can bring a more consolidated sales effort to it.

You know we bring a strategy from a marketing -- we take marketing and consolidate inside of Rush Marketing, you know, so our marketing expenses might be less. We leverage -- we try to leverage a lot of those growth opportunities off what we're already doing. And maybe -- it may feed better to our customer base. We bring a broader customer base to them, more on a revenue growth side than anything else.

I think the opportunities, as I look at Ohio, are probably as much in consolidation of things such as legal expense, insurance expenses, account -- all the accounting expenses that we bring to the corporate offices here. So, from an operational -- it's what we bring -- I may charge a little bit more because I'm going to go out and train you better. Okay? I may do some things better to bring better revenue creation.

If that makes any sense to you, Artie, I'm more about training when it comes to the revenue-creating positions and things such as that investment -- investment in personnel, investment in training -- because I want to be the leader in the market, okay? And that's just the way it is. And so sometimes that takes a little initial investment to get you there. But it's historically shown that we usually do pretty good by the time we do. But we offset that with the cost that we cut out of the more considered a background functions. So that's really how we approach it, Artie.

Oh, that's helpful. So it's better to think about these opportunities as you getting in there, a little bit better training, and creating more revenue opportunities as opposed to (multiple speakers) --?

Right. Right. More investment on that side, while offsetting it with cost-cutting on the other side of that. (multiple speakers) They take that money, shift that money from an expense perspective to an investment perspective. And if you do that, it's going to win for you in the long-term.

Got it. That's helpful. One last question. As you've talked throughout this year about Class 8 trucks kind of falling off in the back half, and you had noted that you expected that more on the oil and gas side, my assumption would have been that revenue per unit would have fallen off. You would have had that mix shift towards those lower-priced vehicles going forward. But it seemed to have held up pretty well. Can you talk a little bit about (multiple speakers) --

Let me see.

-- about that going forward?

Sure. Average sale price was actually up.

Yes.

Yes, it was actually up about $1700 on Class 8. That can do with mix. And I hear your point. Remember, some of that work that we do is sometimes billed direct. Okay. Because it may be on extra bodies and things like that. So some of those guys take that billing direct; it may not be an internal type thing.

So -- and I'd really have to break it down more, Artie, to give you a good answer. I'd have to lay out all the Q2 and all the Q3 sales to give you exact, and I have not done that, okay? To give you a better flavor -- I'd be happy to, but it'd have to be off-line sometime.

Okay. We can talk about that later. Thanks, Rusty.

I mean, I just have to break it all out and see. I haven't gotten into that deep a detail here. (multiple speakers)

No, no problem. No problem.

Especially with the other things here. (laughter) I was happy with -- I was fairly pleased with the quarter, and been busy with this acquisition and some other things going on. In fact, I'll hit the road today and I'll be back next Wednesday, so.

No, that's helpful -- thanks for your time. That was helpful.

You're welcome.

Bill Armstrong, CL King & Associates.

Hi, Rusty and Steve, just a quick follow-up. Do you happen to have available the gross margins on the Class 8 medium-duty and used?

Of course, I do. Let's see, what do you want to know? Just want to know what they were for the quarter? Class (multiple speakers) --

Yes.

Class 8 was 6.8%; medium was 4.5%. Then what light we do is 3.8% and used was down a little bit at 7.5%. So it was a compression of that in our market.

Okay, great, thanks.

You bet.

Thank you, sir. And with that, I show no additional questions in the queue. I'd like to turn the program back over to management for any additional or closing remarks.

Okay. Everyone, we appreciate your time. And I guess we won't be speaking to you till probably February at the end of -- when we report Q4. So, thank you very much. Bye.

Thank you, gentlemen. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.