Rush Enterprises Inc (RUSHB) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Rush Enterprises first-quarter 2015 earnings results conference call. (Operator Instructions). And as a reminder, this conference call is being recorded.

I would now like to hand the conference over to Mr. Rusty Rush, Chairman and Chief Executive Officer. Sir, you may begin.

Good morning, everyone, and welcome to our first-quarter 2015 earnings release conference call. On the call today are Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Derrek Weaver, our Senior Vice President, General Counsel, and Secretary.

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

Certain statements we 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, 2014, and in our other filings with the Securities and Exchange Commission.

As indicated in our news release, our net income was $16.8 million or $0.41 per diluted share, on gross revenues of $1.19 billion. In the aftermarket, our parts, service, and body shop revenues were $337 million, a 9.1% increase over the first quarter of 2014. Demand for aftermarket services remains steady this quarter, although we have begun to see energy sector activity decreased slightly, as compared to the end of last year. With declining rig counts and contracts nearing completion, we expect parts and service revenues will be negatively impacted, but we remain committed to working with our customers operating in this sector throughout this difficult period.

Moving on to truck sales. Rush's Class 8 new truck deliveries accounted for 7.2% of the US Class 8 new truck sales market, up 52% over the first quarter of 2014 and significantly outpacing the industry, which increased 25% over the same time period. We were able to offset a decline in Class 8 new truck sales to the energy sector with deliveries to mid- and large-size over the road fleets. This business is primarily served consumer retail markets.

Our Class 4 through 7 new truck deliveries also outpaced the industry, accounting for 5.6% of the total US market, driven by sales to several large leasing companies and our ability to offer ready to roll equipment to smaller operators supporting infrastructure construction projects.

ACT Research forecasts US Class 8 retail sales in 2015 to reach 267,000 units, up 19% over 2014, and US Class 4 through 7 retail sales to reach 209,000 units, up 4% over last year. Our backlog remains stable through the second quarter, but order intake has begun to soften. We expect our Class 8 truck sales to remain flat next quarter as we continue to work to offset the decline in new truck sales to the energy sector, with incremental business in other market segments and regions of the country benefiting from an overall improved economy.

In the area of growth, we have expanded our RushCare Rapid Parts call centers in the Midwest, introduced our telematics product offering, and remain on target to unveil our Momentum Fuel Technologies compressed natural gas fuel system in May.

Major new facility construction and renovation projects also remain in process to expand our service capacity in Texas, Ohio, and Colorado this year. With the exception of two newly acquired locations, we have completed our business operating system rollout. As expected, general and administrative expenses were sequentially higher this quarter due to employee compensation and benefits, payroll taxes, and the rollout of our business system. We expect to incur continued expense in training and support of these dealerships that have recently transitioned to the new business system for the next several months.

Finally, as we celebrate our Company's 50th anniversary this year, I would like to thank all of our customers for their business and our employees for their hard work and contributions to the Company's success this quarter and throughout the years.

With that, I will take any questions.

(Operator Instructions). Brad Delco, Stephens.

Rusty, just wanted to get a little bit more color on your comment that the parts and service segment of your business would be negatively impacted by the energy weakness. I think last call you talked about seeing mid-single-digit same-store sales growth. Are you backing off that number, or how would you expect growth to trend in that segment throughout the rest of the year?

Well, I do believe there definitely will be a negative impact from the oil and gas sector on the service side. As I noted in the comments earlier, we have begun to see it, but just slightly. I look forward with a little apprehension in that side of the business. I don't have a total feel as well as I do, say, on the truck sales side of what the effect of oil and gas is going forward.

I do know it's not positive. Let's be real about that. But to what degree we see a downturn, where it falls out as we get into the summer months from a parts and service perspective, I'm not quite -- I really don't have a handle on it, to be honest with you, because we've seen slight decreases, but common sense tells you that you're going to see some more as we go forward.

As rig counts go down, projects that finish up, that you will continue to see. But for now, we are down slightly from a service perspective, especially, but not dramatically, but I would expect to see more.

Now, how does that affect the overall number, and where do I still think? I'm still going to believe that we can get mid-single digits. We have some upside in the organization from my perspective, given other market segments that we look forward to being stronger. The construction side of the house. When you look at the Navistar side of the house, I do believe there's still growth there. Since we finally -- remember, the Navistar side of the house went through the most accelerated, compressed rollout -- 50-something stores in nine months -- of what I did 50-something stores on the Peterbilt side over five years.

So, they've been in a little bit of shock. So as they adapt to the new business systems, we continue to train and get better. And the overall market continues, I think, to get better for Navistar in general. Then I look for us to have some upside on that side of the house.

Obviously, as I said, if I want to get geographic with it, you would -- definitely Texas and Oklahoma are going to feel the pinch, but I do believe we're going to have a stronger year in Florida, a stronger year in California, a stronger year in Arizona. So I'm not going to back off that mid-single-digit number yet. I would still think that we could hopefully achieve that with the diversification of our markets that we worked real hard in the past to build.

That makes sense. And then maybe my second question, either for you, Rusty, or Steve, looking at the average revenue per truck in Class 8 and it was down a decent amount in the first quarter, I guess what I'm trying to understand is, I know that's mix, but does your cadence of truck sales to the oil and gas industry, does it get more tough from a comp perspective in 2Q and 3Q? Or how do we think about looking at that metric relative to a year ago period?

Well, there's two things. I think you asked -- there's really two questions I believe in what you asked. When you asked about the overall sales price being done, there's no question about it, and that's a mix issue. A lot of times there's a lot of updating that goes on when you are selling more oil and gas trucks. Oil and gas truck sales compared -- let's go year over year, we were probably down about 50%. Sequentially it was more than that, and I don't have that number for you from what we delivered in the first quarter.

Also in that is we had a lot stronger Navistar sales. Our Navistar sales were up from -- they were up to -- last year it was like 455 in the first quarter, and this year it was 1,371. And their product line lends itself more to over the road trucks without as much updating and added equipment to them. So that drove the sales price down.

When I look forward to oil and gas truck sales, I will be quite honest with you. As I look over the next three quarters, I could see somewhere between a 1,600 to 1,800 unit hit over the next three quarters. We expect that to be almost dried up. There will be very little oil and gas sales over the next three quarters.

But at the same time, we hope to pick up in the other areas of the business, but that may keep the average price down because you don't have all the rigging and everything else that's involved with it.

No, that makes sense. Okay. Thanks, Rusty. I'll leave it there and turn it over to somebody is. Appreciate it.

Andrew Obin, Bank of America.

But a question I have, you also said in your commentary just on broader cycles, that you continue to see business from smaller and medium fleets, also contractors. Can you give us some more color? Because I think there is a lot of controversy where we are in the broader cycle and how close we are to the peak. I know you use ACT forecasts, I get it, but just would love if you could draw on your experience and tell us what you think about where we are in the cycle, broadly speaking. Thank you.

Sure. Yes, no, we're in the middle. Remember, we are on the end of the tail, so our deliveries to fleets are going to be up. That's one good thing we built this model for this type of -- our diversification in our model for these types of moments, when one sector goes down, you hope we have others to offset it.

But we are in the middle of deliveries and will be over the next couple of quarters of these types of vehicles. The construction side you asked about. We've seen a lot of highway lettings and things going on and port construction and stuff like -- there's all types of projects out there that we actually probably haven't booked all that business.

That's some forward-looking stuff that we look forward to being able to book business around a lot of highway projects, there's port construction, there's other things that are going on and infrastructure building out there right now that we believe we can capitalize on in our model. Are we at a peak? Is that what you're asking me?

Well, I'm more interested in production, right, because for you obviously sales is what we care about.

Sure. Well, I think if you listened yesterday with [Pathar's] call, there are still plenty of slots available. I think there are slots available throughout -- in the year still. So, we believe we still have production to sell into.

So that being said, I guess it's up to us to sell into it, and we're fairly confident given the diversification of our sales force across the network and the relationships we have that there are enough markets -- they are not all like oil and gas -- there are enough markets that we see that will give us some upside, and we have ability to sell into it because we have production at our manufacturers -- both manufacturers, both PACCAR and Navistar.

But we're confident that we'll be able to sell into that, into those markets, as the year progresses. The year is not over with, by any stretch from our perspective. And that goes for all the OEMs we represent, both on the medium-duty and the heavy-duty side. We're not out of production to sell into, and we're working feverishly to sell into that.

And just the commentary you made on small and medium fleets, because for a while it seemed that this market segment has gone away permanently, can you just tell us what you are seeing in terms of the health of that subsequent and the ability/willingness of this subsegment to keep ordering trucks?

Well, I believe given the rate environment that we've experienced, that our customers have experienced, for the last year or so -- last year was the best a year ever for rate increases. So, any time in any business that you -- in any -- from my experience, anyway -- that any business as you get rate increases, it increases the opportunities for people to look at it as a good venture, as a venture to grow in, as a venture to replace in. And that's what we've seen along the way and continue to see. Because those are the folks that people sometimes lose sight of because they are not publicly traded. Everybody loses sight of the 300, the 400, the 500, even the few thousand truck private fleets that are out there, but they are there.

And given the robustness I think of their business over the last year and a half, it's created an opportunity to replace. Because they had held off replacing for a while. The large, public truckload carriers had continued to replace, and even some of your large private ones had continued to replace through the downcycle.

These folks, though, have now come forward over the last few quarters and replaced. And there really hasn't been -- to your point on expansion, there really hasn't been that much expansion. There is some expansion going on in my mind right now, mixed in with folks that hadn't replaced due to the environments we were in, now given the better environment they're in and also given the quality of the product, the fuel mileage of new products.

There are many driving factors to replace vehicles, because I always tell people, for me, I look at it -- and look back. If we say the average number -- ramble a little here for you, but you know me. Let's say the average is 200,000 units. Well, we only delivered 97,000 in 2009, 110,000 -- and these are US retail numbers -- in 2011. If I best recall, it was around 173,000 or 174,000 in 2012; and then it went to 198,000, and then it was 196,000 and 188,000. Last year was the first year we topped 200,000 in forever.

So, I still believe, while this might be the peak year, I don't look for the market to drop off dramatically 10% to 15% next year. You're still talking about the best year in eight or nine years -- so I mean in 10 years since 2006. So it's hard for me to get too negative or too down on the future as I look forward because all that pent-up demand from the recession through those years of under purchasing is still there. Some of it is still there. Yes, we're eating away at it, but there's still more to go from my perspective.

Thank you very much.

Neil Frohnapple, Longbow Research.

Congrats on a nice quarter. Rusty, thanks for the color on your guys' expectations for Class 8 trucks sales remain flat versus Q1. Just as a follow-up, you guys had a strong quarter for medium-duty. Any thoughts you can provide on the outlook for the second quarter for deliveries for that business?

Yes. I feel very good about it. I feel as solid as we were in Q1 and possibly a little uptake, depending on timing. One of the biggest issues right now is -- remember, a medium-duty truck typically has a body on it. You don't sell many medium-duty trucks without bodies.

So the demand and the pressure on the supply side is pretty strong right now, so getting all that out -- when you get in this type of environment, you run into some shortages and things like that. But no, our medium-duty business still looks very strong throughout the year. I would expect this to be a record delivery year, I'll be quite honest, from a medium-duty perspective. A lot better. No guarantees on anything, but no, our medium-duty backlog looks good, and so we feel pretty confident about that.

Especially when I spoke about a lot of these construction projects that are going on. That typically requires a lot of medium-duty infrastructure buildout things that are going on. That typically requires a lot of medium-duty focus, so we feel real good about where the medium-duty business is headed.

Great. Sounds good. And then regarding the new CNG fuel system, so you guys are on track to launch it next month. Just curious, have you guys had customer interest at this point or orders? Or can you just walk through a little bit how that (multiple speakers) this will work from here?

Yes, well, have we had customer interest? You better believe it. We're excited to launch it. Now, just cause we're launching it in May, remember, production is really going to start in the summer, and we will start selling. You've got to prototype. We've already done that. You're going to get test vehicles with customers to build confidence. This is an ongoing -- it is an accelerating process, but you have to go through the steps. You have to get confidence from your customer base. But is there a demand out there? There is. Is there a keen interest in what we're going forward with? You better believe it. Because at the end of the day I believe, like everything else we do, what's going to drive the success besides the quality of our product -- and I'm not going to get into all the details; we'll unveil them next week around -- excuse me, the first week of May at ACT, the largest natural gas conference in Dallas.

But our service network. Like anything else we do, service is going to sell it first for us. The quality of the product is going to be there, I'm very confident in, but our service network and our ability to take care of a customer base that -- regardless of where you see natural gas going, has it slowed down, where the growth people think? Maybe. Yes, but I have my strong beliefs in where it fits and the markets it fits in. We're still highly focused, highly dedicated, and highly excited about unveiling the product, and really allowing it to be a big contributor to Rush Enterprises. Not over the -- I'm not worried about the next year or so, but over the next few years.

Great. Thanks for the color there, Rusty. And then just one last one if I can. Can you provide any updates on the traction you're having moving the used ProStar trucks with the MAXXFORCE engines? Are you seeing a pickup in used sales there?

Yes, I can. If there was anything that I woke up on January 1 determined to do, it was to figure out how to support our customer base and how we were going to move more used MAXXFORCE engines. So, in combination with Navistar -- as I've said all along, if you do all the -- if you will go and do all the proper campaigns on the engines and focus on it, you can -- the truck is fine. The truck will run in the second and third markets without question. We have put a focus from that perspective on it. We have focused on customers, trying to help trade customers out of that product. And the reason we've been able to do it is because we've really put an internal focus on moving that product through our -- not just through our Navistar stores.

We've engaged our whole network, which includes our independents, our joint venture used (inaudible). We have a lot of different things out there, tools that we put in our toolbox just to prepare for this type of moment, and we have increased sales dramatically. Without me getting in percentages become -- but trust me. Where we maybe weren't selling 10 a month, we're selling 80 to 100 a month. So we're really focused. We're seeing that it does well in that second and third market. And at the same time, now you are -- the truck itself is fortunately -- especially, say, your 2012 models that were bought in 2011 -- are coming into better focus to be able to trade for.

Where the gap between what was out there perceived value from an auction perspective and what real value should be is closing as they come down on balance sheets and as hopefully we build confidence in the customer base and bring back the valuation on the product, raise the valuation from where it had been over the last year when it was beat down pretty hard. So, the combination of all of the things that I talked about I think is allowing us to see a light at the end of the window to really help get this product moved on into that second and third markets and get the great products that they are building right now over there into the hands of customers.

All right. That's really helpful. Thanks a lot, Rusty.

Jamie Cook, Credit Suisse.

Good morning and a nice quarter. A couple questions or clarifications. One, Rusty, you talked about just the issues behind why the price per truck or average selling price is going down. You talked about Navistar and energy. Outside of that, are customers asking for any pricing concessions? Is the market becoming more challenging on the pricing side?

My second question is, last quarter you threw out a 20% headwind to EPS because of energy. I don't know if that's still the right way to think about it.

And then my last question is that market share opportunities specifically for Rush as we hear in the market some of your peers are out of capacity and Peterbilt has plenty of capacity, Navistar does. So, while you're always looking for market share, do you see a larger opportunity to gain share in the remaining nine months relative to a normal year? Thanks.

Okay. In regards to the average sale price, Jamie, no, I don't see. There hasn't been this huge ramp up. I think you can tell by looking at the manufacturers' releases. You haven't seen their margins expand dramatically. So, as I've said all along, nothing more than your normal --.

But the pricing market isn't getting more competitive, is I guess (multiple speakers). Is that contributing?

No, I don't think from either side. I think there's been good discipline on each side. It's been a 1% to 2% each year, and that just basically covers costs as much as anything. And so I don't think there's been this huge expansion in margin, and I don't think you see customers -- especially the -- they haven't been -- it's not like their prices have gone through the roof over the last two or three years. So there's not much -- I don't think there's really a lot there to give, to be honest with you, so it's been pretty steady. We don't see that out there in the marketplace right now.

Okay.

Because they haven't been taken advantage of, should I say, over the last couple of years or last year during this. So I don't see that there's a lot to give there. When it comes to the energy and the 20% number I threw out, well, let's break it into its pieces here. I said I'll talk to you in April, right?

It's April.

It's April.

It's the end.

Well, no, the end is my birthday, the last day of April.

Okay. I'll remember that.

But it's the end of -- it's the next earnings call. So, as I break it into its pieces, there is one piece that is clear and there's one piece that's still a little foggy. And I think I have touched on it earlier. I can clearly understand -- and I forget percentages. We're going to get to absolutes because that's what you pay me for anyway.

But the absolutes, as I said earlier, I can see anywhere from 1,600 to 1,800 units out of Q2, Q3, and Q4 related to energy. Now, let me back up on that a second and try to explain what that is.

It's not just the large deals. It's that second and third and fourth tier person that is related to energy that you may not see is related to energy. We've done our best to get our arms around that. There's a lot of other things that aren't directly related to the drilling of wells that produce -- whether they are building buildings or hotels or things that are going on in these sectors of the country. There's all kinds of roads and stuff that go on that that these people are affected, too. And the other population around because the per capita income drops when people are laid off. So that really comes from energy, but it's hard to -- so we've done our best.

And then when I come with that number, that's a mix of all of the above. But I think in those areas, especially in Texas and Oklahoma, we believe that that will be somewhere around the effect, as much as 600 units a quarter the next three quarters. And I'm not going to look out much further than that because you can't crank it all back. It would be a little further out until we see how the energy sector responds going into 2016, I'm not ready to go out there.

On the parts and sites, it's more than 20%. Now, 20% was an EPS.

No, I know. The only reason I'm asking the question is because the Street basically is modeling flat earnings year to year, so that's why I'm just trying to parse (multiple speakers).

Look, it could be down as much -- I could -- that was to give guidance for a starting baseline. That 20% was -- so take last year and take 20% off the top. It's not going to be less than 20%. It could be 25%. I'm still getting my arms around the parts and service side, as I said. We have been steady. Now, that as I said on the call in February, now it's up to us to build some of that back.

Okay.

I don't know that I can build all of that back, but I can build some of that back. But just somewhere in there is the direct -- my best estimate of the impact of what it is to our EPS is that, and then we'll try to build some of it back through all these other initiatives. But the energy sector for us is a very critical and important. But fortunately, through the diversification of everything else we've done throughout the years, we are able to offset it with other industries. It's just that there are a lot of other things that go on inside the energy business other than just a truck sale. It's the support, it's the aftermarket support that is key for our customers and for ourselves, obviously.

So, that number is not going to be less than that 20% for sure, and it could be as much as 25% for a baseline. But then it's up to us to try to build some of that back for you.

Okay. And then, sorry, the last on the market share and sorry, one more. Just on used inventory and pricing. Sorry.

All right. Used pricing. We had a great quarter. Almost a record quarter when it comes to used in margin. So we were sequentially off, but I believe year over year we were up. Yes, the pricing on it, it was up about $3,000 year over year.

Wow, okay.

From a year-over-year perspective. Volume wise we were a little less sequentially I think than the fourth quarter. I would have to look back at Q1 of 2014. I don't have it. I'd have to find it here in front of me.

But we feel good. If you want to talk about the used truck business, I feel decent and good about it. Prices are stable. Prices aren't rising. Prices just seem to be normalized when I say that. And trucks will age and values go down, but they go down like they should as time rolls on because you just continue -- used truck continues to get older. But we don't see any huge drop that you see right now. Is there more supply coming on in the used side? Well, of course, because we're coming off years where -- we're not coming off a 2009-2010 year supply. We're coming off 2011 and 2012 supply.

But at the same time, that market seems to be absorbing it. The demand is there, and we're comfortable right now with our inventory valuations and where we're at.

Sorry, last just market share. Larger opportunity to gain just because the Freightliner added capacity, et cetera.

Well, you bet. I think I tried to touch on it a little bit. That's one thing we're confident in. We still have production to sell into, and we are very focused on that from a sales perspective in all the different markets. Obviously we feel hopefully that will give us some advantage, and we believe that Navistar will continue, even though they may have not shown it in their market order intake. I would look for their order intake to pick up later as the year goes on, even as -- low as it may have been in the last couple few months, I do expect it to pick up, and we have production to sell into. So yes is the answer. We look for that to be an opportunity to do a decent job for you folks and our shareholders.

All right. Great. Thanks. I'll get back in queue.

Rhem Wood, BB&T Capital Markets.

So, Rusty, you've talked a lot about oil and gas, but just to be clear, you are not backing away from the unit guidance that you'd given in the last slide deck, which is up for all of the segments. Is that correct?

Not all of the segments. We just talked about oil and gas. You're talking about other segments.

Right. But as a total, Class 8 is expected to be slightly up this year, is that correct?

I think I said we look forward to being flat to possibly 5% up, something like that. Yes, year over year. But in a more quarter to quarter, not as dramatic, not to start off the year like a different type of year is a more steady year than last year was.

Right, okay.

(Multiple speakers) Already starting way ahead of last year. We don't expect our deliveries to accelerate as dramatically as they did last year. But at the same time, when you add the whole year up, yes, we expect to be flat to slightly up. Like I said, we still have production to sell into, so we will see where we end up the year right now. But as I tried to give Q2 guidance in the release, I'm not ready to give guidance out other than broadly say we expect to be slightly up for the whole year. That's what our plans are. And maybe we get lucky, and we do better down the road as we do have production to sell into, but we'll just have to see how the year unfolds.

Okay, thanks. And then can you give us an update on the service bay projects? I think you spoke more recently about $100 million in expansion projects that were expected to be completed by the first quarter of 2015, but I assume you have other stuff you're working on. And where does all that stand right now?

No, it wasn't first quarter of 2015. I've never said that. Its first quarter of 2016, maybe, but not 2015. What are those projects? Well, we opened up Cleveland in the first quarter and well more than doubled the size in the nicest facility in the area. We are working real hard at Cincinnati. If you take the projects going on in San Antonio, in Denver, in Columbus and Cincinnati -- and I will back up and include Cleveland and going to break ground in Odessa -- we will more than -- way more than double the size -- the amount of service bays we have to service those markets. That I think bodes well. I think we've shown in the past that every time we make investments we increase the returns.

Now, it doesn't happen, but over the next -- let's leave it -- it will probably get all those open -- it will be 12, 16 months from now. But they will be coming online as we go forward later in the summer. We'll have later in the summer with San Antonio will increase about threefold. All these places are going to dramatically increase. We still have that -- I think we spent $27 million, $29 million -- right, Steve -- in the first quarter in construction. $27 million in construction in the first quarter. So that number will remain like that every quarter going forward, at least with all we've got going on. So I don't look for that number to come down as we bring these stores online.

But the benefit always has shown up for the Company and the shareholders long-term is it allows us to increase revenue, increase absorption, do all the things that we've shown we're capable of doing in the past, and these are areas that we needed it. The stores in Ohio I bought, they needed this investment badly. Customers needed this.

So we're just -- that's just the steady investments that we've always done that have boded well for the organization.

Thanks. That's helpful. And then two more and I'll turn it over. Just the one, can you talk a little bit about the new telematics product that you mentioned in the release? And second one just on the balance sheet, I noticed that inventories and the floorplans payable are up. Is that just a timing issue? Thanks so much.

Well, I'll let Steve address here and say -- but now, our inventories have risen. Our in-process and delivery trucks, which are the ones that we have that were getting ready for customers, are up right now. Now, that's part of our backlog. I think if you take the whole backlog, between what's at the factory and what's in process and delivery, it was down 1%. So, pretty flat.

So it just happened some of it shifted from what was at the factories to in our hands, but they're getting ready. Whether they are getting bodies put on or this put on or that done, that was just -- that level was up. That's what led to that. We feel very comfortable with our true stock inventories and what we have in stock inventory right now, which we're comfortable with where we're at.

As far as our telematics project, like customer touch, I think you'll hear it from everybody in this industry, from manufacturers -- you probably won't hear it as much from dealers, but we have put a big focus on since the summer of last year of understanding or listening to our customers and delivering a product that we believe will be tied in with our call centers and everything else that we're doing. And, as I talked about, the other systems that we're putting in for transparency between the trucks in our shop, tied in with our telematics product, to allow our customers -- in an open architecture kind of way -- to truly manage their trucks better.

Remember, it's all about uptime, and that's what we're going to continue to try and deliver is uptime through all these projects.

So we're very excited. We put a separate division in, separate dedicated sales force, dedicated personnel do this, and we're just work going out and will just actually started selling and installing the first ones. And we look forward to where that may go in the future. And at the end of the day, we believe that given our network -- remember, this is a leverage off of our network as much as anything else because we have a network unlike anyone else that we can leverage and help keep a customer up and running, and through transparency, working with our customers, and always, we believe that this project will lead to increased growth in the number of customers that Rush has over time.

Thanks for the time.

John Barnes, RBC Capital Markets.

Rusty, you talked a couple of weeks ago about -- with the outlook, especially on the oil and gas side, beginning to maybe address the cost structure a little bit. A little bit more focused on that area. Can you talk a little bit about what success you've had there now and maybe what other buckets you would target going forward?

Well, are you talking about from a cost perspective?

Yes.

Well, really and truly the service side, as I said, hadn't been hit. That's the majority of where your cost is. It's just taken a slight downturn. We will continue to monitor and manage that when it comes to -- especially from the mobile perspective, where mobile trucks are out.

But right now it's been so slight, it's been less than -- I said slightly decreased. Right now, as if I get a weekly report, trust me, on where we're at. We're just slightly down, so you're holding steady. So you're working with your customers. Are we listening to our customers as they're under the crunch? You better believe it. We're having meetings with customers all the time, seeing where we can help them, and that may help them focus differently on it.

We have pretty much in those areas of Texas and Oklahoma, we haven't really had any big -- we haven't added people. But I really haven't affected -- it's kept it fairly flat as I watch it unfold.

Remember on the sales side, it's mainly a salesman with commission. There's not been much cost structure behind it. But most of all the cost in the dealership go towards the parts, back end the parts to service, the body shop operations. But they are still maintaining, but trust me, we will use the diligence we've always used in the past to manage the organization to manage the marketplace as we go forward.

Okay. Expanding on the question around the used equipment, could you talk a little bit about when is the inflection point when we start to see more used equipment in the market? You kind of gave that run down of the years of production. Are we close? Are we getting close to that inflection point?

It's right now. It's growing. There's no question. Let me just back up one second. I guess I didn't give enough credit where credit is due. Our folks in my mind are managing it fairly well in the field. You asked about -- look at the absorption. Remember, seasonally Q1 is always our first quarter sourcing wise, but our sourcing is up 4 points over last year.

So I feel that I should give a little more credit. We're not doing any dramatic reductions; they're just managing tightly, and that's reflective from my perspective in the absorption rate of the first quarter.

Now, where are we at here? I'm sorry.

Used trucks.

Used equipment, yes. It has already started. The used -- we are already seeing more used traits out there in the marketplace, and we -- that's the reason that we went out here over the last couple of years, and we've got different independents and JV deals going; probably an extra six independent locations out there that we didn't have in the past. So we feel that we are poised and ready to handle that as we go forward, handle that increase in trades as we go forward.

It's not like over-the-top, but it is increasing, and we will continue to increase given the sales of those years.

If you look at it right now, typically folks trading trucks that are four years old, which is I'm going to say is about average over the road trade term time. That was trucks that were built in 2011, so that was 174,000 units that year. So that was the first year of ramp up, so we're already seeing that start right now.

Now, that will continue to increase. And obviously what happens over the next year, two years, a lot will have to do with the overall economy and how we facilitate taking care of this product that there's demand in the overall growth in the economy to absorb these trucks into the second and third tier markets.

And what do you anticipate or should we expect, as more of that equipment becomes available, the average selling price of that begins to slide a little bit more?

Yes, that would be the natural thing a bit downstream. I don't see it happening over the next quarter or two, but as we get into 2016 -- but actually, 2012 was only -- that was 198-something thousand, 196,000 units, if I remember right. So yes, there will be -- you could have some pricing pressures as you get into later this year and into 2016. I don't see it in the next couple of quarters, though.

Okay. Last question on the absorption rate. You've got a lot of moving pieces here. You've talked about the pressure of mix with some of the mobile stuff coming out of oil and gas. You've got the opportunity on Navistar. And when we think about the absorption rate from here, with all the gives and takes, if I look at this over the next 12 months, 18 months, and I put all that together, am I talking about an absorption rate that is about where we are today or about where we were for all of 2014 with all the gives and takes? Or is there more opportunity on the Navistar side that kind of overwhelms the oil and gas pressure? How do you think that plays out?

I look for it to be -- with the oil and gas pressure. Now, if it stayed like it is right now, then I look for us to try to grow it later this year. But if I do get what I anticipate to be some pressures on the parts and service side, some deterioration in that, more than the 5% or so I've seen, then I would look to try to maintain roughly flat with last year. But I'm thinking [greens] in the other side.

If you look at the Navistar side of the house in Q1, for example, the absorption rate in the Navistar side of the house was only 104. That's opportunity. I look at other areas of opportunity as we get these new stores open.

One thing about opening a new store, you usually drive your absorption down originally, but then you'll make it back in volume, and you pay me for absolute dollars at the end of the day.

But just speaking without taking that into account, if oil and gas was to take a bigger hit in parts and service, then my goal would be to maintain with last year. If it stayed steady, which common sense says it's not going to, it's just where is that point at? And it's not going to go to zero, let's get real, but what is that drop from a parts and service perspective? I'm not sure where that is and I'm still trying to get my arms around, as I said.

I've got the sales side pretty much figured out for the year, but the parts and service side of the oil and gas part, I'm still in an evolving moment. But if it goes down, as I would anticipate, then I would -- hopefully we will maintain flat with last year.

Very good. Thanks for your time, Rusty. I appreciate it.

Brian Sponheimer, Gabelli & Company.

Most of my questions have been answered. Just a quick one. You've got some exposure in the West Coast with Peterbilt. Any hint in the quarter from the port slowdown?

No, don't believe we saw any of that from our perspective. If it was, it was minor. We did not -- the performance of the stores was in line with expectations.

And just then with the energy patch, when you're talking to your customers that are directly exposed, have they thought of a particular price of crude where they think of the inflection point as far as their own business? And it may be something for us to think about if we get any bounce in crude as the year progresses.

Well, as they've contracted here dramatically -- we read about them in the paper every day, the large companies, the one thing about it I can say is we are much more nimble in today's market. I think with fracking and things like that, they can ramp up a whole lot quicker than we historically could. There's a question about that. For a price -- you're asking me for a dollar price, and it varies to --.

Range being -- I know you can't pinpoint it, obviously.

Yes, I would look for a steady $80 a barrel. Some people have said $70, some say $90, but when you look at the areas that we represent in, they are the lowest cost areas to produce oil and gas. And when you talk about the Odessa Permian, when you talk about the Eagle Ford, it doesn't get any cheaper than there to produce, to go drill wells. The cost of getting a barrel of oil out of the ground is cheaper there than it is any place in the world or at least the country. I don't want to say world, excuse me, but in the country. So I would expect when there is an uptick that we would be the first ones to see it in our areas. When you think about it from that perspective, that bodes well.

Everybody's got -- the one thing about oil and gas, you read all the articles, everybody's got a thought. Where does oil and gas go? And there's so many things, not just economic but political drivers around it that it becomes a very difficult target.

But from my perspective, I think everyone knows that we've peaked, and production is coming down in the Eagle Ford, and production will continue to come down in the Permian Basin. Simply because when you frack a well, it runs off at 50% average the second year. So if you stop drilling and you look at rig counts, down 50% since November, now the decline is not quite as dramatic as it was during December and January and February and March. It has sort of slowed down, but if you're not punching the holes in the ground -- I realize that supply is going to be as an all-time record highs, but I don't see any way it doesn't start coming down later this summer. So, you take that into account and you look forward, I realize there's other political things to deal with, but from a US perspective, supply should be down dramatically some time by the first quarter of next year, the end of the year, which hopefully will have a decent effect on our -- I don't want to say. It depends on what kind of customer you are, but from an oil and gas person, hopefully the prices maybe can get to $70 a barrel by the first quarter of next year.

Right, right. Body language wise, it sounds like you're more confident with your Navistar stores than you've been in the past. You obviously wouldn't have bought them if you weren't overall very confident in the long-term outlook. But it sounds like things are going a little bit better there just from a customer touch point perspective.

Well, I think -- I don't want to say our backlog. Our backlog has been a little flattish, but our activity level is pretty strong right now. But obviously our deliveries are better. Like I said, they were way up from last -- from 12 months ago, you better believe it's a lot better. But it's nowhere near where I want it to get to. And obviously you can see that the products that we build right now -- that they build, excuse me -- are quality products. And so we believe that our opportunities will continue -- it's only going to get -- it should get better. I don't see it getting any tougher than it was 12, 18 months ago with us figuring out -- stabilizing used prices and figuring out markets to sell the used product into.

Hopefully that will allow us to work with our customer base to trade them out of some of those older engines. Because they're finally starting to depreciate enough on most customers' balance sheets to where they're making some sense to trade. That gap narrows between -- because the product took such a huge hit in valuations and auctions and things like that. But we're finding a reason -- we find we continue to balance that with finding a retail market for those used products. We see a nice light at the end of the tunnel. It just bodes well for the whole deal.

All right. Terrific. Thank you very much, guys.

Joel Tiss, BMO.

So, I think we've covered a lot of ground. I just want to dig into one related area. It seems like you've got a number of tailwinds. The industry is growing, your used business is getting better, you're going to get some benefits from integrating acquisitions, and you're adding capacity. And it sounds to me like the only headwinds really are energy, whatever knock-on impacts are from that, and maybe people worrying that the cycle is going to be over.

So I wondered, the one thing that seems to me that could really make the difference -- and I'm not asking for specific numbers -- but as we look out to 2016 and 2017, just what -- maybe this is good for Steve.

What kind of levers do you guys have to pull besides adding the used capacity and also adding more servers bays and all that kind of stuff? What other levers do you have to pull to really drive mix? Or what are some of the factors that could really drive margin improvement and profit improvement in this sort of still positive environment?

Well, if you look out into 2016 and 2017, we believe our touch with the customer, either through telematics, through our focus on the all makes parts business, we're really focused in that arena. Obviously we get out later into 2016 and 2017, I do hope to start getting accretive in 2016 with our Momentum -- our investment in Momentum natural gas fuel systems. I don't look for it to be that much this year; we're just going to be ramping up. But at the same time, when we get out into 2016 and especially into 2017, I think the possibilities there are pretty dramatic.

I'm not ready to quantify them here on the call right now, but I do -- I look at it as a great growth opportunity for us given our go to market strategy.

So, between all of those and there's always this thing called acquisition. So we're always looking, as you know. And then, of course, acquisitions and then the other biggest thing is, after buying 50-some-odd Navistar stores, hopefully Navistar gets back in the market stronger and better, and we're able to benefit from that growth or from that area. Because we bought those stores with the understanding that we weren't exactly buying them when they were in their peak. We bought it from a long-term perspective for return long-term for the organization.

I know I maybe rambled and just hit a few topics, but I always like to have one more bullet in my -- more than one bullet in my holster when I'm looking forward. So I like to think I rattled off five or six different areas that I'll talk about. And trust me, we are working very hard strategically to identify others around here at the same time because that's what you pay us to do. So those are ones that just come to the top of my head right now, but we've definitely got our -- we've got our oar in the water and we're looking hard.

And then one specific question. Are you sharing a little bit of the hit on each one of the Navistar used trucks that gets sold? If they are -- just say Navistar has a residual value in their books at $55,000 and that trucks are trading for $38,000 or $40,000, or whatever it is, are you participating a little bit in that hit? Shall just trying to think again further out as this backlog of used equipment goes away, there could be a huge improvement in profitability.

I think there's an opportunity for improvement in profitability. What you don't see possibly -- I may not be participating in theirs, but I've got plenty of my own. So over the last few quarters, we always make sure that our used inventory is properly valued every quarter. So we have made adjustments in our used inventory over the last year. That's just factual.

So, as we are able to get further, yes, you could look at that as an opportunity for us. But I wouldn't --.

(multiple speakers) It's not a big deal, okay.

I think that we're -- I'm not -- I'm working with customers, not necessarily with Navistar. I'm working with customers in conjunction with Navistar to trade them out. And sometimes we do split deals, where they take some of the traits and I take some of the trades. Every deal is different. And sometimes we'll take them, sometimes they'll take them. So it's up to you to value that product properly.

The good thing is, as I keep saying, is it continues to decrease in the amount on the balance sheets of customers, and I think we are -- have been able to find a way to create a retail market so we can close some of that gap. That's been my biggest focus with them since the first of the year, is we've gotten to have a retail market supported with warranty, with products that are probably campaign, with finance options to help customers get into them.

Because the value had gapped so much to the competitors' products that it's -- when you can get it to run -- it started make it a whole -- you can make sense to a used buyer where the values had changed so much you might buy four and get four trucks instead of three. If the trucks are on the road, that means you can haul another third amount of freight. You can make a lot of sense to people with that. And I think we've been able to close some of that gap from what you were seeing and create a retail market with those type of approaches.

All right. Super helpful. Thank you.

Bill Armstrong, CL King and Associates.

I see that your parts and service gross margin was actually up year over year for the first time in quite a while. I was wondering what was driving that. And also, in light of your comments that the service side probably will get impacted as we go forward from the oil and gas, I would think that would put downward pressure on the overall margin.

To answer the last one first, it could possibly do that. Hopefully some of the growth in some of our areas with adding more bays and doing service in other areas of the country will help pick some of that up, and our focus on making sure that we still deploy and maintain our mobile fleet of over 300 that are out there, whatever markets they are into, it could put some pressure because some of the markets may not be quite as utilized as the oil and gas side has utilized them.

As to what made our margin -- I'm agreeing with you. I've been looking through it myself, and it's around the country in certain areas. I mean really it was hard to pinpoint one business reason. I have some regions that were slightly down and some that were up pretty good in those regions. So it was not really driven -- I was looking at it this morning before the call, understanding why it was up slightly. But I don't have a good, solid answer for you other than it's nice to see. Actually I could tell you a couple of the Navistar areas were up.

I'm just not real sure as to -- it was just mixed. It was a mixed bag in the different regions and not one definitive thing. So it was nice to see. I could say that everybody is getting used to operating the business systems a lot better and starting to take advantage of it because it looked like some of the areas that had it rolled out into earlier might have been up. It was a mixed bag.

Okay. Got it. And then on the Class 8 impact, the 1,600 to 1,800 units, 600 per quarter possibly, how much of an impact or hit to unit volumes did you see in the first quarter?

Well, in the first quarter, I think we were about -- I think last year -- remember, let's go back in history a little here. First quarter was our lowest quarter of energy deliveries last year, so it ramped up throughout the year. If I'm not mistaken, it was around [3.75] and it was about [2.25], somewhere in there, and we were down about 150 units over Q1 of last year. But that will dramatically ramp up in these next three quarters, but so will our other deliveries that we're going to have, we think. So that's why I called it sequentially flat probably with Q1 to Q2.

I'm not ready to peg Q3 and Q4, but my gut tells me that it will be similar and maybe better because we have production to sell into. But that will all evolve over the next couple of months.

So that 600 per quarter is versus -- is it year over year, then?

Well, when I say -- yes. When I say what I say yes. It may be -- when you look at it now, it may not be 600 per quarter. It may be 450 in Q2 and 650, 700 in Q3. And then a little larger in -- and around that number in Q4, really. But we believe and we're hopeful that our -- we will offset it with other deliveries into other markets (multiple speakers). So it will be a little difficult. I will tell you at the end of Q2 what it was, exactly. But we do know that sales are going to be -- maybe, who knows, right now, 100 units the rest of the year. No one is really purchasing on that side of the house. We're focused as much on the other market segments right now, selling into them so we can help offset that.

Okay. So it sounds like you're assuming then, just that these units go almost to zero then for the rest of the year. They pretty much evaporate (multiple speakers)?

The problem with that, again -- I probably maybe overstated by saying that -- is looking into that second and third person that's affected, it doesn't say I haul sand or I take water to the well site or I pump this or I'm working downhole service or wire-line. It's a person that's affected inside that geographic region. So that's the one that's hard to get your hands around.

So I shouldn't say it will be to -- no, zero is not right. But at the same time, it's a very difficult peg. And that 20%, 25% of that downturn that I'm saying is in there. So hopefully it won't be quite that bad, but I still believe it's going to be 1,600 units or so over the next three quarters. And hopefully maybe we'll sell a couple hundred into those second and third markets really (multiple speakers).

Got it. Okay. Thanks for that clarification, Rusty.

James Goodfellow, Avondale Partners.

This is Jamie jumping on for Kristine. I was hoping you guys could break out your margins by weight class for the quarter and also for used trucks.

You mean by medium and heavy? Sure.

Yes.

Obviously our -- because of -- our heavy margin was -- oh, what was it? 6.8% in heavy, 5.2% in medium, and used was 13.1%. Light-duty, which we sell so few of, was 4.9% -- or 4.5%, excuse me.

Any explanation on why that used margin jumped up so strong sequentially?

Well, we did a good job. No, it had to do -- fortunately, I think a lot had to do with -- some of it had to do with our ability to learn to start retailing some of the Navistar product where we may have been losing money before. I believe we're having to get rid of it in wholesale. We found a retail market for a few hundred units there, and so that helps.

Okay. That's helpful. And then I'd like to jump back to the absorption rate; difference between year-over-year Europe, what, 4%, and it looks like you're targeting about [117-ish] for the year. Can you speak to what impacted last quarter? Was it seasonality, or what were the drivers there?

Always. You can always look at the first quarter. Taxes, payroll taxes, everything starts up again. The first quarter is always typically our -- I don't want to say always, but the majority of the time, the first quarter is our lowest absorption quarter of the year.

So, that is in line with historical performances. When I say we're up 4 points and I target to be flat, that's assuming we have some more reduction in our oil and gas, obviously parts and service business, but we make some of it up in other areas. And who knows? Maybe we can -- I'm counting on my folks to do like they always do and surprise on the upside, but we'll have to see. That's not realistic to expect when you expect your oil and gas parts and service business to go down more than what it has shown so far.

But that's one good thing about absorption. Absorption has a numerator and a denominator, so it's also the management of expenses, besides just the gross side, which are always focused on the revenue side. And those stores I'm sure will be focused and will be affected by that as that downturn takes place. Which I know it is, it's just to what degree. I think you have got to be realistic to expect we're going to get hit more than we have been from a parts and service perspective from the oil and gas side, and hopefully we'll make it up to get us to where we were overall for the year last year. That is still a great job, in my mind, given the -- I don't think anybody has seen oil and gas decline this dramatically this fast in forever.

So I look forward to the rest of the organization picking up the slack in those stores that are hit. They will manage their way through it like they always have.

Perfect. That's really helpful. Thanks, guys.

Art Hatfield, Raymond James.

This is Derek Rabe on for Art. It's been a long call. I'll keep this brief. I just have one question. As we look at your long-term targets, I think it was about $5 billion in revenues. You should come close to hitting that this year. Obviously beyond that you've got a lot of puts and takes across your various markets, but have you started to look at longer term maybe what potentially a new target revenue run rate might look like?

You want me to tell all my secrets? (Laughter). No, I would tell you that we are focused on areas of growth. We still believe we have some. A lot of that has to do with not just internal. As you know, a lot of growth cannot be just all organic. It has to come through acquisition, too. It's a mix and always has been for us.

We still believe we have acquisition runway out there. We don't have anything really huge to report at this time, but we will always monitor the marketplace. Especially in a business this cyclical, you're always monitoring the marketplace, so we believe there are areas of the country we believe we need presence in. So we will continue to look in those areas as we look forward.

Strategically I talked about some of those things earlier, from the Momentum Fuel system to all our focus in the parts business and our focus on independent used locations. And we will continue to look at other opportunities around the transportation to continue to leverage off of our core expertise, which is transportation. Here in the US.

So other than that, I don't really have dollar targets. It's really hard sometimes in this business, given the cyclicality of it, to target absolute dollar marks. You can pick midpoints of cycles and things like that, but it's quality growth with quality earnings that we'll always be focused on.

And you just brought up another question for me. On the Momentum side, do you know roughly when that should start contributing to the bottom line? I know you talked about it earlier, some of the --

In reality, probably the first of 2016. Are we going to roll out and sell systems this year in the back half of the year? Yes. But will it really start contributing sometime in 2016, and really that's going to be a demand and a market adoption of us out there selling -- I'll have to give you better clarity on this as we get further into the year.

But no, I would expect it to be accretive in 2016. Not what I expect in 2017 and 2018, now mind you, by the time we're really into the marketplace. But I'm very excited about it. I've always been excited about it. I think I have not -- I have been unabashed in my excitement about that venture that we're getting into.

Because remember, folks, we -- our touch -- I've got natural gas based all across this country. I've got 120 technicians -- more than anybody in the country. So our ability to service for customers that need that product in areas that it's demanded for will be above and beyond anyone else's. It's unmatched and will be untouched in my perspective.

So that's what gets me excited about the product and selling it as we -- how we service going to market product in the future. So I do expect it should be accretive in 2016. Don't look for it to be this year. We're just going to be rolling out and getting test vehicles, but we have -- there is demand out there for it, or there is keen interest, should I say.

So we're excited and I'll be able to give better clarity on that has the year rolls forward.

All right. Thanks for the help, guys.

(inaudible), RBC Capital Markets.

Sorry if I've missed it, did you give any cadence on SG&A this year?

No, I haven't given cadence. But obviously, as we always know, Q1 --

I was just going to say, we've walked through it in the past before. 1Q is a pretty big number.

Right.

Not necessarily as a percentage of sales, but sometimes sequentially (multiple speakers) you will talk through it.

As always, I expect it to trend with seasonal as it has in the past.

Okay.

As long as we don't have some big market turn one direction or the other. If we have what we expect in the marketplace, Q4 will probably be our lowest quarter as it always is. It will trend in that direction. Q2 and Q3 can move around a little, but then typically we do a great job in the fourth quarter of managing expenses. It's just the way it works. As your taxes and everything are paid on down, et cetera., this is typical of the industry as you get into that time of year.

So, Q1 should be the largest unless there's -- unless we put some acquisitions, and I'd have to strip those out for you, et cetera, in there. So I would expect it to perform with historical averages from a seasonal perspective.

All right. Good. Thank you.

Rhem Wood, BB&T Capital Markets.

Just two quick ones. Did you give the same-store absorption ratio? And then what was the light-duty margin? Was it 4.5% or 4.9%? Thanks.

Rhem, it was 4.5%, but it's really not a lot. I think it was only 350, 400 units. Something like that. And Steve is looking up --.

Same-store is 115.9% absorption ratio.

Yes. Same-store, 115.9%. There you go. Almost 116%; good job by my folks.

Thank you. Appreciate it. Good work.

Thank you. And I'm showing no further questions at this time. I'd like to hand the conference back over for closing remarks.

Well, we appreciate everyone's participation today, and we will look forward to talking to you at the second-quarter results in June. I'm sorry, excuse me, in July. Thank you all very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect.