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Edited Transcript of RUSHA earnings conference call or presentation 24-Apr-18 2:00pm GMT

Q1 2018 Rush Enterprises Inc Earnings Call

NEW BRAUNFELS Apr 25, 2018 (Thomson StreetEvents) -- Edited Transcript of Rush Enterprises Inc earnings conference call or presentation Tuesday, April 24, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Steven L. Keller

Rush Enterprises, Inc. - CFO and Treasurer

* W. Marvin Rush

Rush Enterprises, Inc. - Chairman, CEO & President

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Conference Call Participants

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* Albert Brad Delco

Stephens Inc., Research Division - MD

* Jamie Lyn Cook

Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst

* Michael Shlisky

Seaport Global Securities LLC, Research Division - Director & Senior Industrials Analyst

* Neil Andrew Frohnapple

The Buckingham Research Group Incorporated - Analyst

* Shawn Kim

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Rush Enterprises, Inc. First Quarter 2018 Earnings Results Conference Call. (Operator Instructions) And as a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Rusty Rush, Chairman, CEO and President. Sir, you may begin.

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [2]

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Good morning, everyone, and welcome to our first 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.

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Steven L. Keller, Rush Enterprises, Inc. - CFO and Treasurer [3]

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Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2017, and in our other filings with the Securities and Exchange Commission.

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [4]

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As indicated in our news release, we achieved first quarter revenues of $1.2 billion and net income of $21 million or $0.51 per diluted share. Excluding the $10.2 million charge related to our ERP platform, we achieved net income of $28.7 million or $0.70 per diluted share. I'm extremely proud of our team for the company's strong financial performance in the first quarter. We remain focused on our strategic initiatives which continue to build momentum and are now significantly contributing to our growth. Our results were also positively impacted by a strong commercial vehicle market and a healthy economy.

In the aftermarket, our annual parts, service and body shop revenues in the first quarter were $400 million, and our absorption ratio was a record 120% for the first quarter. Our aftermarket revenues increased by 14.3% in the first quarter compared to the same quarter in 2017. Approximately 40% to 45% of this growth is attributable to revenues from our aftermarket strategic initiatives, with the remainder driven by broad-based strength in the overall commercial vehicle market. We were able to achieve these parts and service results despite there being fewer international trucks in operation due to Navistar's depressed market share over the past several years. We expect our aftermarket results to remain strong through the rest of the year.

Turning to truck sales. We sold 3,312 new Class 8 trucks in the quarter, up 22% year-over-year and accounting for 6.4% of the total U.S. Class 8 market. This was driven primarily by strong economy and broad-based growth in nearly all market segments.

It is worth noting that our Peterbilt dealerships are performing well and we are experiencing an increase in international truck sales as customers renew confidence in Navistar's product line.

Used truck depreciation rates were abnormalized, and we will continue to closely monitor used truck values as the number of used trucks entering the market accelerates for the remainder of 2018. We believe our inventory is positioned appropriately to support market needs.

ACT Research currently forecasts U.S. Class 8 truck sales to be 254,000 units in 2018. Economic optimism has been driving extremely high order intake for the last several months. We believe our second quarter Class 8 truck sales will be consistent or slightly up with our first quarter. However, with the overall strength of the market growing, constraint on fleet capacity and higher demand for Class 8 trucks, we expect our Class 8 new truck sales will accelerate in the second half of the year.

In medium-duty, our Class 4-7 new truck sales reached 2,705 units, up 6% compared to the first quarter of 2017, accounting for 4.5% of the U.S. market. We had another strong quarter for medium-duty sales due to a strong economy, growth in the industries we support and our ability to provide customers with a nationwide inventory of work-ready medium-duty trucks. ACT Research forecasts Class 4-7 retail sales to be 245,250 units this year, just up 1% from 2017. With truck deliveries to the largest fleets expected over the next several months and continued economic optimism, we believe our Class 4-7 truck sales will increase in the second and third quarters.

As in previous years, employee benefits and payroll taxes contributed to increased expenses in the first quarter of 2018. Our balance sheet remains strong, and we were able to grow our cash position during the quarter even though we spent approximately $60 million on share repurchases and annual bonus payments.

As always, I would like to thank our employees and wish to recognize them for their continued commitment to our customers and our business. I'm incredibly grateful to them for their hard work, which helped us achieve a strong start to the year.

With that, I'll take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Brad Delco with Stephens Inc.

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Albert Brad Delco, Stephens Inc., Research Division - MD [2]

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Rusty, good results. To the extent you can, can you just talk a little bit about the parts initiative and give some examples of where you're seeing the success, how you kind of attribute 40% to 45% of this growth that we're seeing this quarter to that and what to maybe expect going forward? I know you provided some commentary about a strong market ahead, but what does that look like from a growth perspective for the rest of '18?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [3]

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Right. Well, obviously, we've been working on this for a couple of years. And as I was -- it's interesting, I look back into last year and I would say, well, we're getting traction, right? We're getting traction. And then we got to Q3 and we said, well, about 25%, we believe, is attributable to our strategic initiatives. And then we dial in that 35% in Q4. Now we know it's between 40% and 45% where there's -- it's not exact, so we're very comfortable with those numbers. There's a lot of enablers involved, as I mentioned, I think, in the press release, whether it's how you're sourcing your parts. It's putting more feet on the ground from a sales perspective. We've added 100 additional over the last 9 months. We added 100 additional outside parts and service salespeople. We've added, like I said in the press release, 100 technicians inside of the first quarter. That's not easy. Trust me right now, it's sort of like trying to -- we've had a lot of initiatives around here, growing technicians because you're having to train them. So we put a lot of focus around that because, obviously, when you grow your service business, your parts business grows accordingly with it, because you're saying -- or you're doing -- working your shop, and obviously, you're growing your parts business at the same time. There's a lot of different pricing initiatives. It's that all makes perspective. It's training our people not to just sell proprietary parts but to sell nonproprietary parts. And it's about taking wallet share, right? It's going out and competing in an open market that's a very competitive market. But again, at the same time, it's incremental business outside of your normal proprietary stuff, which you're going to get by going after that nonproprietary, but you just can't say it. There's a few other -- there's so many enablers that are involved, and I probably don't want to get into all of them. You don't always want to give away your secret sauce, so at the same time, we're very proud of where we're at, and we are looking forward into the year. Yes, our comps get tougher because we -- as I said, we started accelerating really about a year ago, coming up about now. But at the same time, I'm very comfortable that we're still going to be able to maintain -- pretty comfortable we're going to maintain double-digit growth even though the comps get harder, okay, because this is where we started seeing it accelerate, where we got into that time a year ago. So that being said, we feel pretty good about it. I mean, as I look there now, I'm not going to give you the numbers, but April has continued to accelerate after the first quarter also. So we feel -- for the per day average and where we're at, so we feel good about where we're at. And in our goals for 2022 is doubling our parts business and almost adding over -- I think it was 600 technicians to our workforce by that time, all at the same base. So...

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Albert Brad Delco, Stephens Inc., Research Division - MD [4]

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I appreciate the color there. And then in terms of what -- sort of what we've been hearing, some independent sort of parts locations are popping up. How much of that is a driver of this strategy? Or is that just one of these other enablers?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [5]

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That's another enabler. It's not even in the numbers now, really, but just a little bit, a little bit. But nothing that's -- nothing of substance in there currently. But no, that is another one of our -- that's another prong on our strategy, right? We're in the process of rolling that out this year. And it will be next year at this time before I can tell you the best stuff is really probably -- we're probably a year away from that really contributing of any substance to the numbers. But it's an investment, and it's, again, getting customer touch in areas and places that we currently don't have that touch, regardless of whether we're -- got a brand name OEM on the building or not. So we're excited about the opportunities with that, but it's got to prove itself out, too. So we feel confident given our -- the breadth of our customer base. I think sometimes, given our size, we ourselves even lose touch with the understanding and the breadth of our touch and because customers have become more national and consolidated, there are areas that they run product in that we can support them even without a brand, even without an OEM brand out front because we can provide other support. So we're going to test that out over the next year, and we're right in the middle of it right now.

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Albert Brad Delco, Stephens Inc., Research Division - MD [6]

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Okay. And then maybe one quick one for Steve. Steve, can you give us the breakout of heavy, medium, light? And then also how to think about SG&A sequentially through the year.

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Steven L. Keller, Rush Enterprises, Inc. - CFO and Treasurer [7]

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On the margins, heavy was 8.1%, medium was 6.8%, light was 6% even and used was 11.2%. As far as SG&A goes, we were accelerated in Q1 as we told you guys we would be, all related to employee benefits, insurance, taxes, payroll taxes and equity comp. That will subside some in Q2 as business picks up, though, and we increase back ends. Don't forget that we spend $0.50 of every incremental gross profit dollar to produce that. So while we might get a small pullback in kind of normal run rate G&A from those employee benefit items that I mentioned to you, that hopefully and likely, it will be replaced by other G&A related to increased parts and service sales. So I would expect maybe a slight pullback in Q2 versus Q1 but not an extreme pullback. And then the seasonality of Q4, that will play itself out as the year goes on, that you'll see. But beyond that, I think Q2, Q3 and Q4 will kind of normalize like in the prior years.

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Operator [8]

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And our next question comes from the line of Jamie Cook with Crédit Suisse.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [9]

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Rusty, I guess, a couple of questions. One, to what degree are you concerned that the Class 8 market is overheated when you think about the order trends that we've been seeing? And to what degree do you think that the growth is unsustainable in that 2018 is the peak of the cycle; in 2019, we start to see things deteriorate? And then my second question is, assuming '18 is the peak and '19 is a down year, how do we think about your ability to continue to grow the parts and service business in '19 assuming that the market sort of deteriorates just given the -- your ability to grow market share?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [10]

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Right. Well, let me speak -- 2 good questions, Jamie. I, over the last 60 days, have come to what I believe that '18 is not the peak. I look at it as a 24-month peak. And let me at least -- and I'm not going to venture out into 2020, let me just take some simple, simplistic, Rusty thought process on it. Let's look back. Remember, the Class 8 truck market is still 70% driven by the over-the-road business, right? So if you take a look back to years 2014 and 2015, we sold 227,000 Class 8 U.S. retail in '14 and 253,000 retail in '15. So if you look at where we're at this year in ACT's projections and for next year, and that adds up -- those 2 years, we're 480,000 units. We're adding up to 254,000 and 247,000 or 501,000 units, right, if those were exact. So you get that it's what we have to work with, if those were right. So we're only talking about a 4% increase basically over those 2 years. And most of the big over-the-road -- that's where a lot is going on right now, but it's broad-based, but that's where you're getting the big bump from last year. So a lot of replacement going on for those 4-year-old trucks because typically, those big public truckload carriers, if you're going to average it out, carry their product for about 4 years in that first life cycle until they trade it, right, once all the warranties and stuff are gone on them and it goes into that secondary market. So is that overheated? Or is that really just replacing? And then you add in where GDP is now or where the economy is compared to where it was in '14 and '15 and you say, well, you're up 4% in that 2-year look, into '18 and in '19, and then you look at it and you say, look, there's rumors out in the Street that I know one OEM is close to full for the year and out in the next year. Now they can move stuff around, actually. You can always move stuff around and build a few things. But the suppliers are also. I know, I've heard of a lot of supply questions from the OEMs I've talked to in the last few days. It's not -- it's the second-tier suppliers. It's not the first-tier suppliers. It's not the translation of the actual list. It's the second- and third-tier supplier side that's going to have a hard time to do much more, I think, to get out much more than the 250-some-thousand units. I think we were 51,000 in Q1. So if you're 254,000, what does that leave? 203,000. So you're talking about you're going to bump it up to, what, about 68,000 or so, roughly somewhere in there, over the next 3 quarters on average. I'm sure it won't be the same every quarter. But as you look at that, I can make sense out of that and say, well, that's not -- I don't -- order intake is not sales. And so sometimes, I think we get confused. I think there's been some -- probably in there some people trying to control slots and things like that, worried about even some customers who want to put some stuff on the board. I think it's going to maintain a pace. I pretty much agree with them when I look at what production -- I mean, there's more, but when -- some of those suppliers becomes our -- I think that there's legs on 2018 into '19. So I don't look at it as -- also, it's 5% less or something, whatever in 2019 over '18. Is that really that big a deal? I don't think so. You feel -- so.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [11]

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Okay. But before you answer the question on your ability to grow the parts business assuming a downturn, just -- and let's say you're right, '19 is not that bad, we're having supplier constraints that helps lengthen the cycle. What do you -- given the cycle is so robust, what are you seeing on the pricing front on the new truck side? I mean, is the pricing environment still very challenged? Are we still being competitive, in particular with the material cost headwinds that people are expecting?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [12]

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I have seen -- I haven't seen much change. I mean, I haven't seen much change from this year from last year. Normal. There are some increases, yes, but they're slight, okay? They're not -- we haven't seen inflation hit it yet. That's not to say that it won't get there. With all the stuff going on overseas and tariffs and everything else, it's not to say that it won't get there. But we are -- I have -- we have not really seen it yet on the...

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [13]

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But I guess my question is, do you think we will have more rational behavior this cycle? Or do we just take it on the chin, and -- in terms of like the material cost?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [14]

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I -- we're talking about -- do you think we'll get prices raised? I -- look, I don't know if we will. I think the market rate is competitive, okay? It's still competitive out there. I don't -- and I'm not saying crazy competitive, but it's competitive. The deals that we get, we don't get them all. If somebody -- if an OEM -- I'll tell you this, if an OEM wants a deal, if it's one that's important to that OEM, they're going to get the deal. So -- and so if someone makes it more competitive, they'll sort it out and get their deal. Everyone always ends up getting their shares moved but -- I'm not going to get into names of all the OEMs, but I see -- I don't see this big raise in prices. I just don't see it. But what I do believe is I believe OEMs have gotten better at lowering production costs and efficiencies and things like that. I think in their factories and stuff outside now, which may -- maybe they have to eat in to some of that to offset material prices because the competitiveness of the landscape that's out there, but I don't -- Jamie, I don't see you're going to -- I don't believe you're going to get big bumps in margins at the OEM level. But I'm not -- that's not my job. So -- but that's just my opinion because it just continues to remain competitive out there. No one's running from the deal. Everyone's out there trying to get -- fighting for deals still. Even though the backlog is as full as it is, people are not shying away, not from what I've seen. So that could change over the next 60, 90 days because I'm sure April is going to be another pretty big month. I'm just not totally sure that all those huge numbers are real each month. Some may be holding slots then they have to go back in. And as they get deals, negotiate them into there and swap them out. I know some of that goes on in some OEMs. I don't believe it's going on in my OEMs, but I believe it's going on in some of the others. So now let's talk about the parts and service business. Your question was can we maintain it? Is that what you said, Jamie, again?

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [15]

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Well, I'm just asking your ability to grow the parts business assuming that you're wrong and we start to see a downturn in '19 because, obviously, that you'll probably end up appreciate your earnings power so...

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [16]

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Right. I'm very confident of that, okay? Maybe it's not to the same levels because comps will be a lot harder in '19. But I still can see running close to double-digit growth in our strategic stuff. I believe in what we're doing, and I believe it's showing. And yes, we have some headwinds maybe, things got -- if the freight went down a little bit, the oil and gas went down a little bit and construction slowed down, but I don't really see construction slowing down right now, not through '19, regardless of truck purchases. And we're tied a lot to that piece of the business. We're tied to all different facets of the economy. But outside of all that, our strategic stuff will continue to grow, okay? I am very confident in what we're doing and the tools that we put in place because I've got other stuff we're rolling out, whether inside the numbers, I'm very comfortable with. I've never been more confident in our abilities to continue to grow that. Now maybe if I take a hit because the market turns in some other areas, I still believe we're going to go get wallet share. I believe we're going to -- that's what we're after. We're after growing it just organically with the market growth, but also we're going out and we're going to take share. And I'm confident in the tools that we're giving our folks to work with and there's more stuff coming, that we can maintain that, maintain -- I'm looking to maintain if not double-digit growth every year, at least high single, I can tell you that. And as I mentioned in my comments a minute ago, we're doing this in spite of headwinds on the international side. And no downgrade to where we're at now with it, but we had some tough years in our market share, both on medium and heavy. I mean, we went from 40% into the 20s in medium and 6 and 7 and from the teens, upper teens to get to mid-20s. That was unrealistic back -- 7 years ago. But whether historically, we're an 18% player if we go back in time, we got a 10%, okay? So we've got less trucks on the road. So even though the numbers you see growth wise were our parts and service operations, what makes them even more stellar in my mind, and I look at it as a positive, is that we're -- the Navistar side of the business is just up a couple points. All that growth was really -- so to stay up a couple points, they're actually gaining share in my mind because they've got less vehicles in operation. So everyone had to run out and hustle. So that just tells you, we're up close to 20 points or a little under that on the Peterbilt side of the house. So that, again, is something coming, right? As we -- as they continue to grow back their market share over the next few years, that is another diamond or another bullet in our holster, should I say, that we've got -- that should only -- it can only get better, okay? I mean, it can't get any worse than it was the last 4 or 5 years, and market share can only get better, and it is going to get better. And there's going to be more trucks because we're quoting more deals now and doing more. Our backlog is strong. It's not like a favorable backlog, but it is. If I told you my heavy, medium-duty backlog was like -- you can say double -- 2 times 1 is -- but double where it was in November, I'm not going to give you the exact numbers, but that's where it's at. So -- and that's on the sales side. But on the parts and service side, even though we're only up a couple of points or so, we're doing that with strong headwinds. So -- anyway, that's a lot of color there, I think, but you can see I am pretty confident in our abilities to grow it in a market regardless of where the truck side is.

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Operator [17]

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And our next question comes from the line of Mike Shlisky with Seaport Global.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Director & Senior Industrials Analyst [18]

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Wanted to ask you kind of a follow-up on your last answer there. If we do have a very strong '18 and very strong 2019 in Class 8 trucks and you've got a pretty good outlook for double-digit growth in parts through 2019, I hate to ask this, but having a strong '18 and strong '19, does that mean you'll have a positive '20, '21 and '22 in parts given the higher population out there besides your existing initiatives to grow that business?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [19]

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You could say that, because our typical sweet spot, I'm going to tell you when it comes to where we sell the most parts to a vehicle, I think, really, the latter part of your 3, but really, your 3, 4, 4, 5, 6. Those are our sweet spots. So I feel pretty good because if you look at the big numbers in '14 and '15, they're still going to be in the market. They're just not going to be in the hands of the same people, right? A lot of them won't be, some will. So I think vehicles in operation were up because of laws. I think vehicles in operation will stay up. I don't think miles will be as much. Obviously, with ELDs and mandates like that, that will come -- I think that is helping truck sales also. But I mean, for me to look at it, I'm comfortable that we're going to continue to grow our parts and service business in '20, '21 and '22. Don't get me into guessing the truck markets that far out. I feel confident through '19. I'll have to wait -- I got to get a little better color to tell you what the truck market side for Class -- for 2020. But I do feel confident because the growth -- we should have -- there are plenty of vehicles in operation, at the same time, we are planning on taking share, as I told Jamie earlier, and continuing down the path that we think.

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Michael Shlisky, Seaport Global Securities LLC, Research Division - Director & Senior Industrials Analyst [20]

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Okay. Super. And then secondly, just give a little bit more color. Exactly what is it about Q2 that says you'll have a kind of flattish, maybe slightly up growth in the Class 8 shipments? Why wouldn't that be higher? Just what's kind of going on in that segment there?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [21]

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I think timing as much as anything because if you noticed, I did say it will accelerate in the back half of the year, okay? So our backlog has -- from when I talked to you folks in February till now, our backlog has evolved immensely. I mean, a lot of that is early order stuff that you see in December, in November, in January. A lot of that stuff is for the big over-the-road guys. And I don't -- that's not -- we know we have some nice, big over-the-road customers. That's not just what we do, okay? We're very diverse in the markets we touch. And some of those other markets kicked in, in the last 60 to 75 days, okay? So that being said, the essential lead times are out more, a lot of the vehicles of ours -- because -- just because they built in the factory, they're turning on -- it's getting bodies or things done to it, it can take time to get to the retail end user, right? So you're just seeing lead times extended out at the OEMs and then there's always -- even if it's an over-the-road truck, we're not going to get it delivered for 30 days or so. It takes that long in time to get an over-the-road truck, and there's the work we do. If you can assemble and do body work and things like that, it can take 60 to 90 days. So that being said, it's just timing. As I said, we will accelerate. I anticipate having -- I mean, they got the market up -- Class 8 up 25%. I'm not here to tell you we're going to be up that much this year. We'll be up. We'll sort it out. We're still selling. My OEM still has slots, and we look forward to continuing to sell into those slots as we go forward. We're going to be up and the back half of the year is going to -- I look to the back half of the year, accelerate nicely. It's just a timing issue in the second quarter. And hey, our stock truck sales are as strong as they've been in years. So on top of that, we have a good stock for the quarter. As I said earlier in my -- I know the press release said -- I actually ad libbed in there, we'll be probably consistent or up slightly when I was talking a minute ago with my opening comments because every day that goes, I feel a little bit more positive that, that will be the case. So it's just a timing issue.

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Operator [22]

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And our next question comes from the line of Neil Frohnapple with Buckingham Research.

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Neil Andrew Frohnapple, The Buckingham Research Group Incorporated - Analyst [23]

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So my friend Brad asked my parts and service question. So maybe a related follow-up, I think...

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [24]

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I love talking -- I don't mind talking about twice, just adds some meat, more detail. You can see I am excited about it.

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Neil Andrew Frohnapple, The Buckingham Research Group Incorporated - Analyst [25]

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No -- yes. So a related follow-up on parts and service. So I think you guys have seen broad-based strength, particularly it's been strong in the energy markets now for I think a few quarters. Just curious if you think that can continue in the energy markets.

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [26]

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Right now, I do, on the parts and service side. I mean, I looked yesterday, what was it? Because I don't like rig counts to go over 1,000, okay, but they did. And rig count went over 1,015. I just glanced at it yesterday. And of that, it was 800 and something roughly were oil, and the other 200 were in the gas side. Of the 800 in the oil side, 500 -- like 515 were in Texas; 127, Oklahoma; 90 in New Mexico, and that just happened to be states that we're in. So we work over 700 of the oil rigs. So the 800 are working down here in this area. And obviously, the Permian Basin, I think, had 55% of all the oil, and the next biggest place is the Eagle Ford so -- which is just south of down here. As long as oil prices are like they are in the -- don't get me into the global look, and we become an exporting -- we can't get the oil -- we can probably moving the oil out of the Permian right now. You're talking about using trucks. That would be a bad thing, wouldn't it? So -- because they can't get enough oil for the pipeline as we become exporting. I don't see in this moment, but hey, I was born and raised in Texas, so I've seen the oil pivot, and it can turn on a dime. But at this moment, there's nothing that -- at this moment in time, we see nothing right now that's going to deliver that base. That doesn't say it won't one day turn. It always does, doesn't it? But at this moment, I don't see anything on the horizon, in the shorter horizon that says it's going to slow down right now.

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Neil Andrew Frohnapple, The Buckingham Research Group Incorporated - Analyst [27]

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Okay, great. And then just a question on the used truck market. You guys put a pretty strong performance from a used truck gross margin again. Can you just talk currently what's going on in the used truck market with regard to pricing outlook for the remainder of the year? And I guess, how Rush is positioned from an inventory standpoint?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [28]

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Sure. We're (inaudible). I think one of the other thing was 1,900 or so, 2,000. Yes, maybe up to 2,000, which is fine because the volume was up a little bit compared to Q1 of last year. And we were -- in the used truck side, there's 2 different -- it's an animal -- it's an interesting animal. We had to support the new truck side with the used truck parts, right? Yet at the same time, we're also out acquiring used trucks, right, because I'm buying packages that we think we can sell to our network and make margin on. And I think that's one of the things that you do when you run a used truck department is a lot of times, the stuff you trade for, you'll make as high a margin because you're supporting the new truck side. Yet you're always -- you're balancing between a purchasing packages and then bringing more margin on in -- bringing them in. So I think one thing we haven't really talked about a lot is -- on the calls is, we're talking about our parts and service goal stuff, but we don't talk about our truck sales goals. We have the same pillars and the same thought processes running out through 2022. And while I can't -- we can't control markets, okay, we cannot control the market. But what we can do is control our performance or do our best to control our performance inside whatever market we're given, new and used. I mean, we've got goals to beat, a solid 7-plus-percent of the Class 8 truck market. We've got goals to be larger on the medium side. We've got goals to get to 10,000 used trucks. We're -- we've got some independent used truck operations we've put -- we got 1 rolling out now. We've got -- over last year or 2, we put in a couple, 3 of them to help support also and we're going to do some more of that. So sometimes, we don't comment as much, but I will get back to where I think the used truck markets is going to go. I think that's -- when you look inside the organization, we don't talk that much about it on this call. Now I go to investors and we sit in the conferences, sure, we'll talk about it if we have more time. I would tell you that as we go through this year, obviously, there's going to be a lot more freights coming. This is a lot of replacement, as I said, for '14 and '15 in my mind that we're seeing. And with the economy as strong as it's been, used truck values had held up nicely. In fact, that was as good a first quarter in used truck business as I've seen, okay, in a long time for a first quarter. Because usually that's tough quarter, January and February were not the best in used truck months. But we had a solid -- I think it was up 100-and-some odd units from last year. But we had solid margins and solid numbers. So they were just solid. So I feel good about that. We will watch closely, as I said, because all those freights where there's only 51,000 retail sales. So if you're going to get to the 250,000-something, as I mentioned earlier, that means you're going to be delivering 30% more trucks coming up, which a lot of them are going to have freights. So we'll see how the used truck market sustains that from a value perspective and also from a consumption perspective. But I feel comfortable and confident in our abilities to -- of the valuations of what we have now on the ground to break over with and which you've got to watch it. You have to be on top because nothing have to be on top of more of the used truck business, and we'll do our best to make sure that our inventory is right and make sure we adjust our inventory every quarter. So we look at our inventory and value it properly and try and make sure that we're all right on line each quarter, which is part of standard practice of how we run it. But we feel good about where we're at right now. But we'll be watching closely because most of the used trucks are not really going to get you until summertime because you're delivering trucks in April and May. Because the freight market is so hot, a lot of times, it would take delivery of the new truck. We'll get it all stickered up and they won't -- then they'll pull used truck off road, then it's got to be cleaned up. And while the new truck goes -- because they don't want to lose the revenue. If we were in a soft-grade environment, it might be different. But we're not in a soft-grade environment, so everybody wants as much running on the road as they can. So it lags time until the used come, right? Just because I've sold, delivered a new truck, they might even get it ready for the road for a week or so, and then they got to run and put it on the road, then pull the used off, they've got to detail it up because it has to meet certain freight criteria with us. So we'll watch it closely here throughout the summer and see where -- see how the used truck market goes. But right now, it's okay. But we do know supply is going to go up. There's no question, supply side is coming up. Probably too much detail, I know, but you know me.

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Operator [29]

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(Operator Instructions) Our next question comes from the line of Shawn Kim with Gabelli Asset Management.

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Shawn Kim, [30]

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Just a quick question on the tax side. So outside of the solid economic environment and the positive freight environment, do you guys get a sense of how much increased depreciation expensing from tax reform resulted in any accelerated truck purchases in either Q4 or Q1?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [31]

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I would tell you, I know a of couple of customers without naming names that placed other orders in the first quarter related to tax, okay? So without naming names, I do know of people that are investing, upgrading, accelerating some of the purchases (inaudible). We always are -- everybody's doing repurchase of stock and then put it in the bank and that. I don't see that with all customers. I'm sure some are, but I know some that aren't. So yes, I've seen a -- I can directly correlate tax purchases and tax reform to accelerated replacement in some companies, okay? And then maybe some growth side on some others, right? But -- yes, but not everybody. But yes, there has been some.

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Shawn Kim, [32]

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Okay, great. And then just a quick question. Given some of the recent headlines with Volkswagen restructuring its business and the potential acquisition of Navistar, any updated comments on how potential VW Nav combination can change your dynamic, whether that's with a larger group or even how you deal with a PACCAR?

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [33]

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Well, I don't know it will have any effect because there's 2 separate operations. I mean, I run -- we don't have them in the same yards, and I've always made a commitment to both OEMs that whatever territory I represent them in, they get to a 100% all Rush game on. So if I have Chicago Navistar all the away. If this is Dallas, Texas, I'm Peterbilt all the way. So I don't think there will be much effect because I think our results with -- I've never heard them complain about it. So we do a pretty good job whoever we represent in whatever market. But as far as the combination of Navistar and Volkswagen, hey, it can only be good, right, in my mind. I mean, when you look at it from a technology, purchasing, from all the different things it brings to the table, accelerates their intent, their product lineup, their pricing competitiveness, everything, okay? It's just across the board, and it has to be a good thing. You've got to remember, before Navistar, all we did for 7 years was worry about spending money on the engines. It's in the last couple of years that we started to roll out product with the new -- we have a vocational truck. We got a brand-new highway truck and everything else that's, by the way, being very well received in the marketplace. So those are all good things. Those are all positive. It's harder for me -- there's not much negative I can tell you. When you go back 4 years ago and all you guys did was ask me if everyone was broke or not, so we alleviated all that issue. And so it's hard to find much -- bad things to say about it as we go forward. As I would say, inside of this company, to me, that is the unpolished diamond, right, because it's a little rough, that's unpolished stuff yet. It will only continue to get better. It can't be any worse than it was 3 or 4 years ago. So the returns on that side of the house, which have been very -- under the PACCAR side, well, I'm not saying that's a criticism. To me, that's a positive for us moving forward, right? That's a positive from an earnings perspective in the organization. It's not going to be a once a day or 1 week or once a year deal, but it should be consistent over the next 3 to 5 years is they regain their place, they regain their spot in the marketplace today. To me, that's going to be -- in my mind to get back to be a high teens, mid- to high-teens in the Class 8 business and get back to close to 10, 6 or 7. I think it bodes well for us, man. They've got -- remember, they've a new product coming out with GM later this year on the Class 5 side. We've got a couple of OEMs with some new products. And all our OEMs are investing in products. And I feel very comfortable with the brands that we represent, whichever brand it is from the medium all the way to the Class 8 side right now. There's a lot of investment going on. I feel really good about the lines we support.

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Operator [34]

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Thank you. And I'm showing no further questions at this time, so I'd like to return the call to Mr. Rusty Rush for any closing remarks.

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W. Marvin Rush, Rush Enterprises, Inc. - Chairman, CEO & President [35]

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No, we don't have any, other than spring has sprung. And I wish that everybody have a good next 3 months until we talk to you again in July. Thank you very much.

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Operator [36]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.