Rush Enterprises Inc (RUSHB) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Rush Enterprises, Inc. Third Quarter 2018 Earning Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Chairman, CEO and President, Rusty Rush. Sir, you may begin.

Good morning, everyone, and welcome to our Third Quarter 2018 Earnings Release Conference Call. On the call today are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Derrek Weaver, Executive Vice President; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Vice President, General Counsel and Corporate Secretary.

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

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Because these statements include risk 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, 2017, and in our other filings with the Securities and Exchange Commission.

As indicated in our news release, we achieved third quarter revenues of $1.38 billion and net income of $42 million or $1.03 per diluted share. I am pleased with our company's impressive financial performance in the third quarter, and we were to declare our second quarterly cash dividend of $0.12 per common share.

We remain confident in our strategic plan, which includes a 2022 revenue goal of $7 billion with a 5% pretax return on revenue as well as capital allocation strategies to return 35% to 40% of our free cash flow to shareholders.

During third quarter, we repurchased $12.1 million of our common stock and $58.2 million during the first 9 months of 2018. We also paid the first cash dividend in the company's history of $4.7 million in the quarter and still substantially increased our cash position during the quarter. The company's ability to continue to generate free cash, combined with our strong balance sheet, have us well positioned to invest in our strategy.

During the third quarter, we continued to successfully execute our strategic initiatives, which are positively impacting our growth. A healthy economy and widespread activity throughout the commercial vehicle market also contributed to our results in the quarter.

In the aftermarket, our parts, service and body shop revenues were $427 million in the third quarter, an increase of 14% compared to the same time period in 2017. Approximately half of the growth was a result of robust activity in the commercial vehicle market, and the other half was a direct result of our employees' execution of our aftermarket strategic initiatives, particularly all-makes parts, growth in our technician workforce and technology solutions.

Our absorption ratio for the third quarter was 122%. While we expect industry demand for aftermarket parts and services to remain strong and for us to continue to execute our strategic initiatives, we also expect normal seasonal declines through the winter months.

Turning now to truck sales. We sold 3,325 units new Class 8 trucks in the third quarter or 4.8% of the total U.S. Class 8 market. A strong truck market contributed to a solid quarter for new Class 8 truck sales, though our results were down year-over-year, primarily due to the timing of large fleet deliveries in the third quarter of 2017 and supply chain constraints experienced during the quarter.

ACT Research forecasts U.S. Class 8 retail sales to be 254,100 units in 2018, up 29% over 2017. We still expect manufacturer constraints to push some Class 8 deliveries into 2019, but we believe our Class 8 truck sales will accelerate through the end of the year, driven by large fleet deliveries.

The sales mix could put pressure on gross profit margins related to truck sales in the fourth quarter. Our used truck sales were up 26% in the third quarter, with longer lead times for new Class 8 truck deliveries helping to stabilize used truck values and to lessen the impact of volume on -- of the used trucks entering the market. We believe our used truck inventory is well positioned to support the market.

In medium-duty, our Class 4-7 new truck sales reached 3,349 units, up 18% compared to the third quarter of 2017 and accounting for 5.1% of the U.S. market. Our medium-duty sales significantly outpaced the market due to activity from construction, fleets and lease and rental customers and our nationwide inventory of work-ready medium-duty trucks.

ACT Research forecasts U.S. Class 4-7 retail sales to be 254,075 units this year, an increase of 5% from 2017. We believe our Class 4-7 truck sales will also remain strong through the fourth quarter.

I would like to take a moment to acknowledge the hard work of our employees and to thank them for continuing to provide superior service to our customers while focusing on our long-term goals and helping our company grow.

With that, I'll take your questions.

(Operator Instructions) And our first question comes from Neil Frohnapple from Buckingham.

Great to see you post over $1 a share even with new Class 8 truck sales down year-over-year.

Yes, that was nice.

So Rusty, you delivered another impressive aftermarket revenue quarter driven again by higher broad-based activity, it sounded like, and further momentum in your all-makes parts initiative. Can you provide any update on your expectations for full year aftermarket sales growth for 2019? I think you may have mentioned earlier in the year that maybe you could approach double-digit growth if I'm not mistaken. So just hoping you can provide an update to that.

Sure. Well, obviously, we've had double-digit growth going on for the last 2 years, right. So what does that mean, it means your comps continue to get harder. But at the same time, I've got to tell you with the investments that we've put in, in the last 1.5 years, I think you can see that's what's been driving the double-digit growth you've seen so far. That being said, I don't believe it's reached its fullest potential either by any stretch, whether it's the technicians we've added or the other initiatives we've taken place from the all-makes perspective, okay. Those technicians we've added, say 300-plus on a rolling 12, they're only Level 1 and Level 2s, which we would call our entry-level technicians. Realize that they're not performing at their fullest, right, because it takes training and a continued investment in those people to bring their levels of production up. So we feel good about that because we feel we're going to continue that investment on the service side. When it comes to the parts side, we've -- I've got -- there's stuff rolling out right now, but I'm not going to get into the details of it. But we've continued to invest in technology and tools to put into the hands of our people the best information and the best data and the best guiding forces to guide action as we go forward. And as I said, we have new things that are rolling out here in Q3 and really rolling out in Q4 that hopefully will be able to continue the impressive results we've seen from the last 2 years. Now that being said, if it's only 9% instead of 11% or 12% or 13%, it'll be there. We've had a -- like I said, about half of our growth, we believe was market and about half is based upon our strategic initiatives that we've undertaken. So I'm still shooting for double digits given the investments that we're continuing to make and also that we're not topping out any of the investments we already made. We're just seeing -- we're just continuing to get more traction as we go forward with that.

Okay, great. And then, Rusty, you mentioned you commenced a project within the aftermarket side to increase the hours of operation throughout the dealership network. I mean, is that along the lines, I mean, are you able to talk more about this, of course, unless you can't for competitive reasons, but just curious if you can expand on this opportunity?

Well, I think it's obviously we're about servicing customers, right. And without me taking you into dealership terminology such as dwell time and things like this, we're focused on getting customers in and out quicker of our shops. That will be -- that's one of the big differentiators when you look at who someone does the business with, right. I mean, a commercial truck, no matter what application it's in is only as good as it is when it's on the road, right? Or it's in the, whether it be the refuse business or the construction business, the over-the-road business, continuing to work that way. At the same time, we're going to continue to keep that product on the road, up and running as we would like to say. Now also at the same time, understand that our shops, we've got plenty of unutilized time in our bays in our shops. And it's also a great training ground for these new technicians, right. One thing about our shops, they probably don't do as much maintenance. We're not in the maintenance business as strong as we should be. So one of our big focuses going forward is to utilize these other hours where needed -- where we are expanding hours to go after different market segments that we probably typically don't go after during our normal shifts. And that's not to say that our shops are 8:00 to 5:00 shops now, they're not by any stretch. But there are other hours that we're extending where we think that we can get bang for the -- make a return on them and also service our customers better.

Okay, that's very helpful. And one more if I could sneak it in. What's your gut telling you on just vocational-related sales for 2019? Clearly, there's a lot more optimism for fleet sales and more possibility there. But wondered if you think vocational can experience more growth next year following a couple strong years for these guys?

Right. Well, right now, I would tell you we still believe it's going to be strong. I don't know that it can get -- we've had good 2 years, right, good, strong 2 years. Now I will say this, we're watching the housing market, okay. Remember housing is mostly with interest rates going up and things like that. We'll have to see and with commodity prices rising, all of those things that could inhibit the housing market could have an effect on it next year. Right now it appears we're still pretty strong and solid, but we'll have our eyes out watching the housing market. Overall, there's a lot of road construction still going on, so that's a good thing. At the same time, the housing market is something that we always watch, especially from a construction perspective on the heavy and the medium-duty side of the business, so -- but it's still strong. I mean I can't sit here tell you it's going to accelerate anymore, but it's been good. It's been really good the last 2 years, and we feel good about where it's -- we feel good now going into the first of the year, how about that? I can't answer the back half of the year. That's a little far out, but in the first half of the year, I feel good about it.

And our next question comes from Jamie Cook from Crédit Suisse.

This is actually Themis on for Jamie. I mean, just going back to the supply chain issues you mentioned in the quarter, could you maybe give us any more details there? And is that an issue that's going to persist in Q4 and into 2019? Or is it sort of resolving itself?

Well, it's an issue -- it was an issue throughout the quarter, right, and it wasn't just one OEM, okay. What you have is the suppliers, if you go back a few decades, there were many suppliers. The consolidation of the supplier base for the OEMs, right, because I don't care which brand you're talking about, they may all get the same panels and things like that when I'm talking about interior pieces and stuff like that from the same folks that are made and supplied to them. You had a large -- there was a large bottleneck around that, and it was varied from different components. Now does it get picked up? Does it get caught up? Eventually it does but then someone else pops up, right. You'll have another supplier pop up with this, so that's what we've seen. I do expect it to get caught up, pretty cleaned up by year-end. We're still experiencing some slowdown in getting product because there will be short -- I won't say short shift, but it will be -- it'll come offline, maybe it'll be short a few pieces because those components weren't available, right. So that just delays the delivery to the end user, and that's what we've seen. That's why when I say I expect our fourth quarter deliveries to pick up, I mean that is more fleet deliveries inside of there and at the same time we're catching up some of the stuff we believe we were short on in the third quarter that should have gone out in the third quarter. So we believe it's going to get caught up, but it's still -- I know about something that popped up 2 weeks ago with another component, right. You get one thing cleared and then another component as the OEMs come up a little short on the others, but it'll get caught up. It's just something -- I've seen it before during these types of cycle -- in this part of the cycle, it happened back in '15 when we had -- when there were 250-something thousand units, that year it got tight. It's happened in other cycles when you went -- it accelerates. It's just real hard when you have such volatility sometimes in the sales, which the Class 8 truck market, can have some heavy volatility in. And it's hard for the suppliers to keep up when you hit this part of the peak cycle, but they always get it caught up.

Got it, that's very helpful. And just a question on pricing. Could you talk to the pricing environment on the new trucks? And what's the appetite to pass through higher costs broadly in the industry?

I think most hard costs are getting passed through at the moment. I don't know how much margins are increasing at the OEM level. My understanding pretty relative to what they have normally been. But you look at everybody saying -- look at PACCAR because everybody has reported in the last few days. But I'm sure that everybody -- normally when you get volume, your margins should go up a little bit if you're a manufacturer. From our perspective, they're pretty flat. Ours is more driven by mix, and we've basically been -- we've been able to pass through cost increases because raw materials, and we know what everything that's been going on. The labor costs have gone up. So those things I think have been passed through, there's been no big increase in margin. It's just basically been passed through from our perspective.

And our next question comes from Faheem Sabeiha of Longbow Research.

I'm wondering if we can dive into the All-Makes Parts business a little deeper here. So you guys opened...

As much as I'm going to tell you.

Fair enough. So you guys opened 4 new All Parts locations in the quarter. Can you remind us how many of those locations you guys had prior to that? And what size footprint are you targeting at this point?

Well, we're basically -- when it comes to the independent strategy, we're pretty much in a test mode right at the moment. We're piloting. We're piloting, without me giving the exact number, we're piloting single digits, okay, mid-single digits right now out across the country. And determining -- and they're in different forms and fashion. When I say that they may not be parts only, be parts and service and they have parts, service and something else added to them. So we're out piloting at the moment, and we'll see if this is a strategy worthy of further and continued investment, and we'll probably determine that by the end of -- sometime in 2019. So that would be -- and some of those stores were not just independent stores, I don't believe. I think there's 1 or 2 of them, I think had franchises with them if I'm not mistaken. So they weren't all. Remember we have a territory, we still open up stores inside of our territory. There was one in Georgia, I know we opened in Adairsville that was inside of our territory, and so it's a mix, okay. But we're -- from the independent perspective, we're testing and piloting, and we'll know more about that as we get the financial results of them over the next 6 months to 12 months.

Okay, okay. And I appreciate that it's in pilot mode right now, and you'll have a better idea by the end of 2019. But is there any sort of performance metrics you can share with us for the stores you did have open?

At this time, I would say -- oh, my goodness, I would say I really don't want to share anything at the moment. I'll just leave it at that. We really are piloting at the moment. As I said, some of these things -- when you start something out sometimes you've got a blueprint, right. Well, sometimes they evolve as you go forward, right. So we're still very excited about the potential of our independent strategy. I'll just leave it at that, how's that?

Okay. So within your strategic growth initiatives for the aftermarket business, does that also include M&A of other All-Makes operators in the market?

Currently, no. This is -- our total -- when we started this, we said we're going to double our parts business by 2022. That's off our footprint, okay. Now that doesn't mean that I got a territory and I might not open up something else in that territory that counts, okay. They are. But we have said all along that our goal was to try to double that by 2022 off of our footprint. Now anything -- some of these, like I said, we're testing and adding as we go with some of these others, but the majority of it is coming through our footprint. The independent was maybe 10% of that, okay, or so, 10% to 15%. And when I say independents, it also means we're opening up other stores included inside of that in our territories, maybe. I mean, we opened up -- I'm not going to get into it. We're opening up, I can think of 2 of them, 1 we're opening up in Texas coming up. We opened up 1 in Georgia. We're just -- we're continuing to look, but it's a piece of the growth, but not a large piece of the growth, okay. The leverage piece is the most important piece. You've got to understand. When you step back and you look at it, I realize our market share was off this quarter in Class 8 because of all the fleets. But over time, we're a 6% Class 8 player, and we're going to be a 5% medium-duty player. Now we have goals to grow that to 7.5% and 6.2% by 2022. But if you look at that, and you're only doing 4% in the parts business, you ask yourself why, and that's what started this 3 years ago. So we know that we have the ability to do a better job inside of our stores with the tools that we're putting in the hands of our folks, with the technology we have, I am very confident in leveraging -- most of it being leveraged off of our asset base. That's the biggest thing we've got is our asset base. And how we leverage and push more product through that asset base is how you see those margins grow up, you can see that 5% margin we talked about, one I mentioned earlier.

And our next question comes from Andrew Obin from Bank of America Merrill Lynch.

I had a question for you. So you outlined capital allocation in your press release, and you're sort of saying 25% to 35% investments; 35%, 40% return to shareholders. And so how should I think about sort of the remainder -- what happens to the rest of the money?

That goes to the bank. No, well, remember, Andrew, I always want to have some fire -- I want to have a little fire -- powder in the gun, right, keep a few bullets in the holster. So I think that's pretty ambitious. I don't think folks realized in the press release that we bought back $160 million worth of shares, right. Sometimes people don't understand what we've been doing. But I would think about, we're still out there looking at M&A, okay, and doesn't mean there's anything at this moment in this part of the cycle. But I do believe there's some M&A out there that we might be able to do over time. And so we'll continue to focus on that, this business cycles, we know that, especially on the sales side. That's really the most important thing, and continue to invest. I mean, as I said, I'm going to continue to invest in our strategies. That's not going to stop no matter where we are in the cycle. We determined that by the results we've had so far and the results we believe we can have. That's all I can really...

Well, I guess -- yes, the follow-up question on that, you did highlight sort of how much cash you have. You do -- the strategy seems to be working. So as you talk about M&A, how do you think about incremental buybacks of your own stock? I know that you did buy back a lot of stock over the past several years, but the share count, one of the pushbacks we get in meetings is that the share count has been relatively flat. Any consideration given where the stock is? I was just looking at my coverage, hard to find a better value than Rush. I would imagine given your systems, given your market share, hard to find a dealer in the market, public or private that's better valued than Rush right now. How do you think about sort of your own shares on the margin here?

I think it's probably the best deal out there, Andrew. So the answer's everything is under consideration at the moment, okay. I really don't feel privy to go out right at the moment. I've got some conversations going on about that, so -- currently. So when you talk about the best value out there, yes, I believe our stock is the best value. I agree with you, your statements you just made. So we'll continue to look at incremental opportunistic buyback opportunities.

And just another question. The market seemingly has decided that we're going to recession. Just thinking about your parts and service business, which is very profitable and which is growing, right, and which is probably going to grow even...

Last time I checked.

Even with the truck cycle peaks. What do you think this business can do volume-wise in a normal recession, not '08, '09, but just a proper, normal recession, of which we haven't had too many in the past 20 years? But can it grow, you think, in a recession scenario?

You say -- Andrew, when you say -- look, I think the more we keep shifting earnings to the parts and service side, everybody's told me that, "okay, Rusty you're going to have to prove it in sales downturn," right. Well guess what, when it comes, bring it, I can't wait. When I say that because I do believe that what will happen, so truck sales slow down. Well, we're going to have a lot of units in operation and they're going to start aging again. And I believe our opportunities to show the work that we've put in, the people we've hired, the outside sales reps, the technicians we've had to pick up a lot of that work that will be out there, it'll still be there. The truck sales may go down. Trucks will still be operating out there. I believe we're going to be very well poised and positioned to prove what we've been doing is the right thing to do. I think our customer base will be broader. I think our share of customer -- our customer share perspective will be broader. I hate to say I can't wait for a recession, but at the same time, when you're doing this, what we're doing, and you're being treated that way in the marketplace, you want something to give a pivot point, and I guess that's what it is. It can be frustrating, to your point a minute ago. You think there's good value of all you cover. We do too, but I'm not sitting here crying over spilled milk. I'm just going to -- we're just going to get out there and prove it.

And our next question comes from Brad Delco from Stephens.

Well, all the good questions have been asked, but I'll give it a shot here.

Not all the good questions have been asked, Brad. No one's asked about used yet and I know that's got to be coming, so.

Well, I'll start there. You were a guy that thinks that used truck values would be under a lot of pressure right now, and there's not. Is it a matter of when, not if? Or kind of what's your updated view on that, particularly as you look out...

Sure. It's a matter of when. I'll step back and tell you, I was wrong 12 months ago. I told you by now they'd have been under pressure. I would've never told you that used truck sales would have been as strong. I thought -- but obviously, I'm sure your carriers have told you, there's no more trucks in operation, right. Well, yes, of course there are. As many -- I think we delivered almost 70,000 new Class 8 trucks in the U.S. in Q3, yet used keep getting swallowed up, these late model used. Well, where are they going? They're not being parked on the fence, right? Okay. So they're going to into the supply, obviously. We've had good demand. Do you have concern out there that eventually you're going to hit that tipping point, whether it's where freight demand does not keep up, where supply exceeds freight demand? Yes, you do. Obviously, I wasn't a very good forecaster because I thought it would come late summer, but it's still -- we still see it fairly strong as we speak. Now we're cautious because when you've been in this business long enough, you know that, that day is coming, right. But so far, demand has kept up with our inventories, and we're turning our inventories and we're making good margins. Obviously you can tell by our margin was as strong as we've ever had in Q3 but we've got...

Steve hasn't given us those number yet, but that's my next question.

I think it was like 12.9%, Steve, wasn't it, for margin? Used margin was high, like 12.9%, right. I mean so it was a great quarter for used. At the same time, and you've been in this business, as I said, long enough, you've always got a keen eye out in front of you waiting for that inflection point. And usually you wake up one morning and there it is, okay. But we feel good about our inventory. I mean, we don't have a -- I've had -- look, there's been years I've had 25%, 30% more inventory than I do right now at the time. So we've been turning it good, and we'll keep -- we feel it's valued properly, and we'll just keep working that and working it because there's always some risk. Look, I'm making deals where I'm giving used values out 4, 5 months ahead, right. I have -- so you can get caught a little bit in that, but -- and we don't have that much out there that I wouldn't -- you'd never know the difference, maybe than 1 point or so in the margin commitments that are out there that far away, we don't anyway. So used continues to be strong. There's typical used slowdown in the wintertime just like there is with everything. But not -- but right now, I can't sit here and tell you I see anything outside of normal seasonality.

Okay. And then maybe the next 2 questions for Steve or Rusty, you can probably chime in on it as well. Pretax margin this quarter was 3.9%. Your 2022 goal is to get to 5%. How do we think about margins throughout cycles? Because I'm assuming if truck sales are down, margins could be up because most of it would -- most of your profit would be driven by parts and service. So I was just trying to think of how we close the gap from 3.9% to 5% over the next 4 years.

Well, Steve, you want to stab -- go ahead, I'll make a stab it, you -- I'll let you.

Well, it's the ramp-up, right. The strategy calls for our parts to accelerate to $2 billion over that amount of time. As that becomes larger part of your sales mix, you're right in the way you think about it. When it's a larger piece of your overall sales mix, it's going to drive up that pretax margin, right. And those aren't the only goals we have. We have goals actually to increase our truck market share and to drive efficiencies on the expense line. So it's all of those things that are going to contribute to an increased pretax margin over the next 3 years. But it's going to be heavily driven by your sales mix and your parts and service becoming a larger piece of what you do. And that's why we focus on that piece. It's less cyclical, and it's a higher quality of earnings for the organization.

Right. And Steve's right on that. That's the plan. At the same time, the headwind of that margin is we plan on getting more market share in trucks regardless of where the market is. We're going ahead, whether it's a 180,000 market or 250,000 market, we want share, and we're driving into our sales organization something in a way they've never really approached it, and that is a share. We're going after a certain share. So what you can say, well, that'll be headwind to your 5%. No, but it will accelerate the back ends even further than that is our plan and some -- as Steve said, some diligence expense management later. Right now, we're still investing, okay. Understand, we are still investing and we're still being able to put out these kind of numbers, right. And so we believe that we can do -- I'm sorry?

Sorry, Rusty, can you quantify what that investment has done on the margin now? I mean, do you think that's weighing on the margins right now?

I think it's weighing on the G&A, okay, but I don't think -- and when I say weighing, the G&A is there. We're just doing a -- we haven't gotten all the growth we think we can get out of it, more than anything else. I mean, you go hire 120, 130 outside parts and salespeople, well, you're not successful in every one of them, let me tell you right now, okay. So you have to work your way through it. It takes them a year to 18 months to get up to be returning where they need to be, where they're going out with accounts and calling on accounts. And we -- with the tools we put in, we can manage better than we've been ever been able to manage and understand -- I don't want to get everything because then I'm talking about my -- what I think to think of as some of our secret sauce. We've got tools that allow us to work these folks. Well, sometimes people don't make it, so then you've got to replace that person, right. Not every technician ends up working out. So but it's a continual flow. So but as you go forward, those levels rise. Those levels of production rise. Now your G&A may not go away, but your production rises, right. That's all I'm really trying to say. And then when it comes to the new tools, I'm not going to talk about what they are, but they're exciting new tools that we've got coming out for our people to allow us to just take -- use the data. If there's anything, as I've told folks if there's anything -- was SAP a painful 10-year operation for us? Yes, it was. But I'll challenge anyone to have the data we have in our industry. The data we have is above and beyond, and we're just learning how to harness and utilize that data, okay.

And Brad, to quantify that for you a little bit, the expense always comes before the gross comes when doing things like we're doing now. But year-to-date, we -- and we've told you guys before, of our incremental gross profit on the back end, we hope to keep around half of it ultimately, that's our goal, and let the stores spend about half of it to create it. And year-to-date, we've only kept about 32%, so that gives you an idea of we're not keeping half. And that is because what Rusty just explained to you, the investments we're making are heavy, and we're not getting all the production out of it yet. But that is still our ultimate goal, to move that direction. So yes, it's weighing on margins, to answer your question directly. And I gave you a little number, so you can see it.

Yes, that's very helpful. Last quick question if I could get it in. Please, Rusty? The -- historically, I think you guys would talk about 20%, maybe 25% of your parts and service business being driven by new truck sales because of up-fitting. But I imagine with your All-Makes Parts initiative, that number is declining. Is there any update on that number?

Well, let's start to begin with, you're wrong to begin with, how about that. Okay, you're wrong, but you're -- it's typically closer to 10%. Possibly a big, big spike area might get closer to 15%, but really it's more like 10%, okay. So we'll get the 20% and 25% off the table. So yes, of course that should go down. I'll be honest with you, this year, it's probably down this year anyway. We didn't have -- last year, I had some huge oilfield deals. I didn't have this them this year, okay. So we didn't have in our first 3 quarters. We had -- I had 4 figure, 4-digit upfittings and things last year that we did not have, that's why we typically, a lot of times would get our biggest. Now we do a lot of other things, trust me, with our CVS solutions and things like that, but we didn't have that in there, so it was probably even less this year. I haven't looked at it, but I would tell you that up-fitting was less than the first 9 months of '18 than it was in the first 9 months of '17, okay. So yes, of course, that's going to become less and less a percentage if we grow that outside customer piece, which is what we are doing.

And our next question comes from Mike Baudendistel from Stifel.

I've heard that there's a perception of some that a lot of the heavy sort of Class 8 ordering the past several months has come from dealers and is that consistent with what you've been seeing and hearing?

Well, when you say come from dealers, you talking about like stock orders or something or...

Yes, I mean basically dealers placing orders.

So I had a note -- didn't quite understand your note last night. I saw your note you were going to ask me, and I was trying to really understand what you were trying to ask me. So go ahead again. I didn't listen to the call yesterday from back at our -- so I'm not sure. Go ahead.

Okay. Well, I guess the perception is that there were some dealers that placed a lot of orders for a lot of -- a lot of the Class 8 truck orders the last several months have come from dealers anticipating a strong 2019, and just wondering if that's consistent with what you're seeing.

Yes, I would tell you there has to be some of that going on. I don't have it. I'll be honest with you, not on my side. If it is, it's slight, okay. When I look at -- in fact, I -- there are people that might be placing not some orders, I know there's a lot inside that backlog in my mind. In my mind, when I look at where the total -- not Rusty's backlog, the whole backlog of the industry, okay. When I look at that, I believe it's pretty high right now. What they're doing is trying to hold slots, okay, is basically what you see. Or they have a customer who they believe -- and he says, yes, if this goes, yes, I'll take it. There's some of that in there. Can I quantify that for you? No, but there's no way in my little brain that you could have the biggest core ever in Q3 of 2018 that's ever been for an order intake, when July is usually a terrible month, August isn't much better, and you've got those 3 months, there's got to be pull forward, okay. All right. There's pull forward, but I'm going to guarantee you not all of them are set in stone and real. It's just impossible, okay. Because that's not when order season is. We all know typically you get into October, we've got ATA coming up next week here in Austin and then you've got November, December, those are -- January, those are your bigger months typically as everybody flows in for next coming year's orders. So yes, they were probably correct about that. Do I feel I have a lot of that in my backlog? No, I don't. My backlog's -- our backlog's larger than it was at the end of Q2. Could there be some of it? Sure, there could be some. But I went through with the sales guys just yesterday, and they said if there is some, it's way less than 10%, probably maybe in the 5% range is what we saw when we are going through the backlog yesterday. So but I can guarantee there's more water in that board out there in the total country in the industry than 5%, I'll promise you that. Some people may not like me saying that, but that's the truth, okay.

Got it. Yes, that's why we like these calls, you always tell it like it is. I guess another question for me is I've heard some of the anecdotes of fleet, some of the larger fleets performing some of their own, more of their own maintenance. And I don't know if that really sort of competes with what you're doing with the smaller fleets and those things. But maybe have you seen any of that? And can you talk just a little bit about your competitive advantage in the parts and service that helps you to capture some of that business that's pretty competitive?

We don't really see it. We don't see more. In fact, we see more opportunities for us. I mean, I'll be honest with you, especially the small and medium-duty piece. And when you tie in our technology, when you tie in what we've been doing just with our Rush care and all the stuff that we're doing, and Service Connect and Service link and things that we've been rolling out the last few years, last -- really last couple years, no, we believe our opportunities are only increasing. And we don't believe they'll decrease for us because we've got that network. I mean, I look at our -- like our mobile units, I go back 2 years ago, we had like 330. We've got 530 mobile units right now. I mean, there's been exponential growth for us. The opportunities we believe for us are going to -- only going to continue to increase because we've got -- we spend millions and millions on training and keeping up with technology. We go the opposite direction, okay, we know how to hire technicians. We know how to train technicians. We'll invest, and I don't think that's always the forte of the large fleets. Now will they do -- they're going to continue to do, the big guys continue their maintenance. But there's no way are they going to get involved in some of the more technical aspects, the more sophisticated work that's being done. That's our job. That's what we do, and we can do it cheaper and do it better for them. We have many deals with large national accounts from a service perspective, and we'll make deals with large guys. They don't -- we understand how to do that, and I think those opportunities are only going to increase for us. We've got to focus to get better in the maintenance business, okay, use that as our training ground as I mentioned earlier, so -- for our technicians. So we're excited about the opportunities for us in that area.

(Operator Instructions) And our next question comes from Joel Tiss from BMO Capital Markets.

This is Elliott on for Joel Tiss. I know you've highlighted in the past the headwind from Navistar's decline in market share for your parts business. But assuming that the company can continue to recapture market share and get back to historical levels, when do you see that force transitioning from a headwind to a tailwind?

Well, actually we've been picking up a little steam in the parts and service market in spite of Navistar, the tailwind. Look, they're gaining market share, but that doesn't -- the parts and service business typically lags the market share gains, okay. So there's a lag on there, right, because under -- we'll get the warranty work and all, but they're not breaking down and having issues. But with our initiatives that we've got going on, our Navistar stores are joining in and getting out there, and they understand the tools that we're putting -- we can go after other customers. They don't have to just be Navistar customers. We can go get more wallet share in other ways and our growth in our parts and service business has been mid-single digits, okay. We haven't gone backwards. I know that we've trended way better than most other dealers on that side of the house. Now is it robust and going to take us to these great -- no, but we're doing good. When you look at the headwinds, we feel good that our people have gotten out of the doldrums of being a Navistar dealer, what it was like 3, 4, 5 years ago and understand we've got new product, we got stuff, now let's go out and capture parts and service business. It wasn't historically our business, okay. Sometimes headwinds like that can be the best thing for an organization, the best thing for a team. Sometimes when you're in football or any sport, headwinds and tough -- when you face adversity like that, it makes you look, go out in different ways. You know you've got a great running game, but now they've stopped the running game, you got to figure out about passing game, right. Well, then when your market comes back, you add the 2 together, you get 1 plus 1 equal 3 operationally, as I always say, and you go and you win. So I feel real good about where we're at because I know we're going to get some tailwind from gaining market share that's being gained now in the future. That's just still out there, and we can't worry about that. We have to approach every day, look at -- call it a new play to go out and gain share in the parts and service business. And while it's obviously not the same as the other side of the house, it is growing. So we feel good about that, and I feel good about the folks being out -- who get out there and get it done.

And I'm showing no further questions over the phone line. I would now like to turn the call back over to Rusty Rush for any closing remarks.

Great. Well, folks, we appreciate it. It's going to be a while till we talk to you in February. So in between now and then, everyone have a happy holidays, and I wish the best to you and your families. Thank you all very, very much. We'll see you now.

Ladies and gentlemen, thank you.