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Rush Enterprises Inc (RUSHA) Q4 2018 Earnings Conference Call Transcript

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Rush Enterprises Inc  (NASDAQ: RUSHA)
Q4 2018 Earnings Conference Call
Feb. 14, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Rush Enterprises Fourth Quarter and Year-End 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

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

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Good morning, everyone, and welcome to our fourth quarter and year-end 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.

Steven L. Keller -- Chief Financial Officer and Treasurer

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.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

As indicated in our news release, we achieved annual revenues of $5.5 billion and net income of $139 million or $3.45 per diluted share. In the fourth quarter, net income was $47 million or $1.20 per diluted share on gross revenues of $1.5 billion. I am very proud of our team for their excellent work this year and for remaining dedicated to our customers and our long-term strategy, which resulted in strong financial performance and record high Company revenues. Our results were positively impacted by our strategic initiatives along with strong freight demand and widespread industry activity, driven by the robust economy.

In the aftermarket, our annual parts, service and body shop revenues were $1.7 billion, and our annual absorption ratio was 122%, a Company record. Our annual aftermarket revenues increased by 13.5% compared to 2017. Approximately half of this increase was driven by our aftermarket growth initiatives, especially expanded all-makes parts, new parts and service locations, additional technicians in our network and increased hours of services. The other half resulted from solid demand for aftermarket services from the markets we support.

Though we expect parts and service activity to remain strong in 2019, we anticipate that the pace of growth in the industry's wide (ph) parts and service market will slow slightly in 2019 compared to 2018. However, we expect our aftermarket strategic initiatives to enable us to continue to outpace the industry in 2019 as we continue to invest in people and technology and implement certain customer-facing software solutions that we plan to roll out this next year.

Turning now to truck sales. In 2018, we sold 14,666 new Class 8 trucks, up 12% from the previous year and 5.7% of the total US market. Our truck sales were positively impacted by a healthy economy and activity throughout the country in all market segments. While our market share decreased somewhat from last year, due to the timing of purchases, we remain proud of our performance, especially our fourth quarter, which was the strongest truck sales quarter in our Company's history.

ACT Research currently forecasts US Class 8 retail sales to be 259,500 in 2019. We believe truck sales in the first half of 2019 will maintain the pace of the second half of 2018. We will closely monitor cancellations and other market conditions, and we expect our Class 8 new truck sales will be on pace with the industry in 2019.

Our used truck sales increased 13.6% year-over-year, resulting from solid freight rates and extended delivery times for new truck orders. We believe an increase in supply of used trucks and decreased freight rates or flat freight rates in the next year could put pressure on used truck values in 2019, but we will continue to monitor the market and believe our used truck inventory is positioned appropriately to support demand.

In medium-duty, our Class 4-7 new truck sales reached 12,949 units, up 18.2% year-over-year, and accounted for 5% of the US market. Our medium-duty sales performance significantly outpaced the market and was a Company record this year, due to our focus on meeting customer needs with our nationwide inventory of work-ready medium-duty trucks.

ACT Research forecasts US Class 4-7 retail sales to be 262,300 units this year, up 1.6% from 2018. We expect the medium-duty market will remain strong, and we believe our Class 4-7 results will be consistent with our 2018 sales due to continued growth in the market and our ability to support customers across the country.

In the area of network growth, the Company added nine new Rush trucks in our locations since the beginning of 2018. We expect our general and administrative expenses to be sequentially higher in the first quarter of 2019, due to our normal seasonal increases in employee benefits and payroll taxes.

It is important that I recognize all our employees for their impressive work this last year. It is due to their ongoing dedication to our customers and our long-term strategic initiatives that we were able to achieve such strong financial results in 2018.

With that, I'll take your questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question or comment comes from the line of Jamie Cook from Credit Suisse. Your line is open.

Jamie Cook -- Credit Suisse -- Analyst

Hi, good morning. Nice quarter. I guess, Rusty, just -- it would be helpful to understand like what your view is of the truck cycle, just given the concerns out there in the market, whether we should expect things to deteriorate in the back half of '19 or thinking about 2020? And then just thinking about Rush specifically, assuming the downturn happens in 2020, I'm just trying to think about your earnings resilience. So how do we think about your ability to grow the parts business, assuming a downturn? And then also is sort of SG&A structurally higher with some of the investments that you're making? Thank you.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Sure. You bet, Jamie. Well, you got about three or four questions hidden in there, don't you? So let's start -- I guess I'll start -- try to start at the beginning, but if I miss one, come back to me here. Over to the truck market, obviously, right now, as I said in the release, backlogs are pretty much full for the rest of the year, and that's not -- it doesn't mean trucks aren't moving in and out and we can't take orders in the back half of the year. But there -- you see some stuff moving in and out. I believe everything in the first half of the year is smooth (ph) and solid, right? If you looked to the back half of the year, I believe it's still solid from my view right now.

At the same time, given I've been doing this for about 35, 40 years, I'm always going to have an eye out watching a few key indicators, right? Let's see what everybody does when we get the new contract rates this year from a freight perspective. Let's watch used truck values. I was totally amazed and happy to be wrong last year. I thought we got to the third quarter, if you'd asked me a year ago from right now, I'd say, third quarter, you're going to look at the used truck values. They remained very resilient and very strong throughout the year. At the same time, I am not going to fall asleep on the fact that history typically doesn't always change itself while timing can be different.

You are getting more used trucks into the marketplace. You've got to believe that the used truck inventory will build and when that happens, obviously, the law of supply and demand takes over from a valuation perspective. But I've obviously missed it last year and it's remained stronger, but I do have to believe at some time, I'm not saying this month or I'm not saying the middle of summer, now I'm not going to give you time. We know eventually that you will get -- there will be an oversupply of used trucks. It just has to be when you're selling this many new. While there is growth inside of this, there's still a lot of replacements. So a lot of replacement going on at the same time.

So -- and just watching that out and then watching cancellation rates too to make sure that everything is solid, that people haven't double ordered and things like that, because when you get long, extended lead times, like what we had in the fall, you're clicking along at 50,000 units a month. You know those lead times were extended way out, sometimes nine to 12 months. So when you get into that time frame, you got to be cognizant and just watch to make sure that that was all solid. I have nothing to report at the moment that I can say this is the trigger, it's not solid that back half of the year.

At the same time, we're going to be cognizant. We're going to watch. We're going to use -- we've been around a while, and pay close attention to it. But right now, everything looks fine, but you know that eventually you will trip over. And that's why I think when you look at the 2020 estimates that are out there, most people see it running through the year and 2020 being the one-off 25%, if you listen to ACT and other folks, right? So that's my take on the market. I don't -- but I'll always be -- always watching, I can tell you that, always watching to make sure that you're on top of it, but nothing at this moment to report, but those are indicators that you do have to be watching all the time.

Secondly, how resilient are we? A heck of a lot more resilient we've ever been before, how's that? We continue to invest. We're extremely happy. I don't know if it's eight quarters in a row or whatever it is, where we've had double-digit growth rates on our parts and service. Now, while we've had to spend a little money to get there, we're still doing a heck of a job keeping a lot more, because we're growing top line and inching absorption up at the same time, because of the investments we're making. And I've got to tell you, from my perspective, we're just starting to scratch the surface when it comes to getting the results that I believe the investments we've made, the investments that we're putting in right now, and the ones that we're spending on to put in later, or bringing to the Company from a results perspective.

So I can -- we will continue to make investments and obviously, if you look at the numbers, it's working for us. Well, I could keep a little more, yes, but there's chicken and an egg, I'm keeping some. I eventually will be able to keep more as we get further downstream in all these investments. But we're very, very pleased with where we're at and what we see from a growth perspective that we have driven with our initiatives, not just market driven -- not just market-driven growth. Everybody drives market. The markets drive all (inaudible). I want to get -- I want to see our investments and our focus and the work of our people, and I know it is, we can tell are working. And so we're excited about where that goes, regardless of where the market grows -- goes. I feel good about what we're doing from a Rush perspective to go out and capture more market share.

Jamie Cook -- Credit Suisse -- Analyst

Okay. So it sounds like you still think the parts business could grow in 2020, if I'm summarizing it? And then my -- sorry, last question, just how are you thinking about energy in 2019, just the impact on you guys, whether you're seeing any deterioration? And then I'll get back in queue. Thanks.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Pretty flat right at the moment, to be honest with you. We didn't (inaudible) our sales in last year, there weren't -- it wasn't like the year before. We had a lot more energy sales in '17 from a truck perspective than we had in 2018, OK, put in quotes. So when you look at '18, don't believe there was a lot of energy truck sales in there because there weren't. There were some, of course, but I would say it was half of what '17 was or something or maybe -- and I don't know exactly. It was substantially less than what was in the '17 year guidance. From a parts and service perspective, being -- we're fortunate to be in the areas of the country we are, we continue to have activity, and we continue to support those customers where needed, and given our long reputation and history of being partnered with all the big guys for years and years, we're very blessed to be relied upon, to be that strategic partner from a support perspective. So we expect to continue that. We don't see big downturns in it, just pretty flat and -- as you go right now from that perspective. I mean, I guess it could change. But right now, we don't see huge downside to it or anything like that, so -- for me to be able to decide.

And we -- I want to circle back to when you said you think you can grow your parts business? Yes, ma'am, we do. It's just a matter of what's that growth rate, right? We've been lucky to keep double-digit growth for like eight quarters. I don't want (inaudible) I still believe we can get real close to it, if not right at double-digit growth rate going through '19, regardless of anything. Maybe not be as quite as high as it was, because of the borrowing. It may not be like a 17% -- 15%, 16% margin, but I still think we can keep low double or very, very high single growth rates through 2019.

Jamie Cook -- Credit Suisse -- Analyst

Okay. Thank you. I'll get back in queue.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

You bet. Thank you ma'am.

Operator

Thank you. Our next question or comment comes from the line of Neil Frohnapple from Buckingham Research. Your line is open.

Neil Frohnapple -- Buckingham Research -- Analyst

Hi. Good morning, gentlemen, and congrats on a great 2018. Rusty, you called out the 12.5% growth in service technicians in 2018. I think last quarter you mentioned that a lot of the technicians you have added are only level one and level two at this point. Will you start to experience higher productivity in your results from these hires in 2019 or is that more of a 2020 benefit you think?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

I think it is going -- here's the deal. We're still feeding the animal, OK, as I would say, all right. We're not going to stop growing technicians, OK. I think the ones that we have put on, no question, productivity goes up. At the same time, we're still -- we've got bigger plans for 2019 when it comes to technician growth, to be honest with you. So we're going to be replacing those -- those ones and twos rise to threes and fours and head on to be fives, we're going to be replacing those with more ones and twos, OK. So, yes, productivity level for the ones we've been adding, no question, it should grow up with all the training and support we're providing. And that's a lot -- we'll talk about G&A and stuff. I'm telling you, we're spending money on -- we're not getting the returns again, just like on some of the initiatives on the parts side that we believe we will get long-term. We're sold on that. But yes, those guys will get better, those folks will get better. But the ones we'll add will have to go through the same -- they'll go through the same learning curve as the others. Because -- just because we grew 12.5%, don't think that we're stopping at that. We've got many locations. We've got a lot of unbilled hours and unworked hours. There's 24 hours in a day, and we got a long way to go through that. And also with our continued growth of mobile technicians and our continued growth with embedded technicians inside customer shops, we need this continued growth.

So I know I'm telling you, yes, the ones we've added will get better, higher productivity levels. At the same time, we're still going to be feeding the bottom too. So I don't know. There's a double-edged sword to it, right? But at the end of the day, the absolute dollars and the absolute returns will continue to grow up -- go up, excuse me.

Neil Frohnapple -- Buckingham Research -- Analyst

Got it. All right. That's helpful. And then, Rusty, are you still experiencing increased aftermarket activity from the Navistar dealerships like you had over the last few quarters? And if so, is this due to some -- you starting to come out of the impact from the years when their market share was really low or is this that the all-makes parts initiatives is taking hold on outside of the house as well?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

I don't -- no, I think we've still got a drag from those years. You got to go back. It's just been -- what we are at -- what is this -- we're just -- we quit that six years ago now, right? So that's a prime spot, That there's -- we're still missing, and then we went into low market share, right, real low market share. We started putting Cummins in 2013, if I remember correctly, in the first quarter of 2013. So we're six years past that. Then we had a little market share, but you took out all the 10s, 11s and 12s. So you really don't have your six, seven-year-old trucks to work on and you got a little market share. So no, there's still headwinds from that, but there's no question that the tailwinds are coming, OK. It's just a timing factor. So we're proud of the growth we've had on the Navistar side, in spite of the headwinds, and we're extremely excited about the growth that Navistar's had with their product line. Both of my OEMs are doing an outstanding job. But they're coming from the bottoms, and they're going to slowly keep gaining some market share, we believe, which, I've told you all for a long time, bodes extremely well for us from a return perspective long-term. So, yes, we're doing -- most of the growth we're getting, I'm going to say, on the Navistar side, while it's still way less than what we get on the Peterbilt side, it's coming through our own initiatives, OK. But we know their initiatives are going to push through because their market share is coming up. So that's a tailwind coming. But that takes a little time in the marketplace to unfold, because things are still under warranty, et cetera, et cetera, for those first couple of years. You're not getting the same returns, you're getting it through years four, five, six, seven that we typically get on a vehicle. So that part's still to come, and so we're excited about that as that unfolds. And as I said, when we can get those growth rates, we believe we'll continue to rise on that side and try to inch up toward the growth rates that we have on the other side of the house.

Neil Frohnapple -- Buckingham Research -- Analyst

Okay. That's helpful. And then just last one, the new and used truck gross margin was above average in 2018. Just so everyone's on the same page, can you talk a little bit about expectations for '19? Not asking to give guidance, but I mean, is it safe to assume we'll see some moderation as used trucks likely won't be as strong? I mean, is there anything else to keep in mind from a mix standpoint, Rusty? Thanks.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Sure. Well, that's not guidance asking, I don't know what it is. But anyway, Neil, I don't mind.

Neil Frohnapple -- Buckingham Research -- Analyst

I thought I'd try.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Okay. I don't mind talking about it, you know me. I would tell you -- I don't know how you maintain the used -- let's start with used and work backwards. I don't know how you maintain used margins like we had. That's probably the best we've ever had in the history of the Company. So that being said, I would expect used margins. For the time being, we're still OK and good -- or good. But somewhere down the line, they've got to get it compressed a little bit, OK. That's just the facts of life, OK. I'm not going to -- I think I said earlier in my -- statements earlier, I'm not going to sit here and (inaudible) tell you what exact month or anything else, it is out there, but I would tell you that's just part of the normal used truck cycle, that they will be compressed down the road. But, hey, right now, we're still good at the time being. But we know that they got to come down somewhat sometime. Just when, I'm not exactly sure, and the market will dictate that, but I promise you this, we will be prepared for. From a new truck perspective, I've got to believe that we'll probably have -- margins should come down a little bit. I think we've got -- I don't expect -- not pragmatically, but we had a strong year because of the strong demand. And I think it would be the back half of the year that we would be looking toward, not saying and not guaranteeing it goes down some, just not knowing, right, not totally comp -- sure about the back half of the year margins. First half of the year, probably be pretty decent, the back half will continue to unfold. Well, there are lots of stuff are booked, I said earlier, we'll continue to watch and we feel confident at the moment, but we'll continue to watch all the factors that I mentioned earlier to hold this thing together through all 2019. And I don't think anybody is really going out and talking about 2020 a lot right now as we -- let's just work our way through this and see where we come out. But I -- for the whole year, I would say margins slightly down, if you're asking me. Okay. But volumes, I don't look for volumes to be down as I said.

If you read my release, I didn't say it, Q4 was a record quarter for us. I'm going to go ahead and jump to that from a vehicle perspective. I mean, we delivered 4,800 Class 8s, OK. But as I said, I don't have the breakout for the same, but I believe the first half of the year will be a lot like the last half of the year. The fourth quarter only multiply it by two, with the last half of the year, probably broken out differently from a delivery perspective. When it comes to units, I expect right now looking out in the next four to five months, four months or so, four and a half months (inaudible) just the Valentine's Day. Looking forward, we've got about the same amount of deliveries over the first half as we had in the back half. There you go.

Neil Frohnapple -- Buckingham Research -- Analyst

Got it. Okay. That's very helpful. Happy Valentines Day, Rusty.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Yes. It won't be -- I don't expect it to be as dramatic difference like between Q3 and Q4, a little more flat probably.

Neil Frohnapple -- Buckingham Research -- Analyst

Okay. All right. Great. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Brad Delco from Stephens.

Brad Delco -- Stephens Inc. -- Analyst

Hey, Rusty. Good morning.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Hello, Brad.

Brad Delco -- Stephens Inc. -- Analyst

Could you talk about the recent acquisition, I think Tom and group, and what you think -- I think it's probably obvious what you could probably bring to another truck organization with some of the investments you've been making and the success on the aftermarket side. But is there anything you think you can leverage from that group in your US Navistar franchise?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

From them to us or me to them? Well, let's first off, let me start, it's not an acquisition, it's an investment, OK, at this time. At this time, it's an investment, right, with them. They are a strong Navistar group, OK, they're the top five, fifth largest Navistar group that's out there. And we were very impressed with them. At the same time, they have got a strong management team, and it was very keys to me to maintain that management team while bringing some of the benefits that possibly we can bring to the part when it comes to equation. But that will be happening over time. It's not -- because it is not an acquisition per se, it is an investment. We -- over time, we will probably try and be bringing some of our best practices obviously to them. But that's not our light switch where we turn it on day one. At the same time, I'm sure that a lot of our customers and a lot of their customers, there'll be some crossovers. They have customers that come into this country and we have -- obviously, given our customer base, which is extremely large, I'm sure many of them go up there. And we will work through all of that as we go forward. We're excited about it. But it's not on the typical trail of an acquisition, where I immediately flip a light switch, put the management in and do this. The whole management team knows that they are all staying forward because we believe in them. And over time, we will roll our -- some of our strategic stuff into there, there's no question about that. But that will be over the next year or two, it's not immediately or something like that. So, hey, we're excited about it. It's the largest Canadian Navistar dealer there is, the group in the Toronto area, they've proven to be an outstanding organization. And as they roll in with Rush, I can only see good things for both sides of this as we go forward, OK?

Brad Delco -- Stephens Inc. -- Analyst

Okay. That's helpful. And then I want to touch on the parts and service side again. You talk a lot about the investments and sort of building momentum in that business, and so I think what would be helpful is the investments you've made, how much of your outperformance in '19 -- how do you sort of describe that momentum, meaning what's been invested and what's sort of left to come and where are you seeing some of that greatest momentum on the investments? I know it's a vague question. I'm really just trying to understand --

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

That's a very -- well, I expect our service -- I mean, where do I expect to see it come in? It's an ongoing wave, right? It's building and continues to build. I mean, I don't -- Brad I'm excited. Am I still spending money? Yes. I mean, I mentioned in the release that -- and I talked about, we're continuing -- the stuff that we invested in the back half of the year and just rolling out, it's coming now, and there are more things where we've got some more stuff that we'll be introducing here. So main commerce stuff and things like that. And going forward, I don't want to get ahead of myself. I'm not supposed to until I roll some of this stuff out, but it's going to come out later here in the spring, OK. It's some certain -- there's some timing things coming on in just the next 60 days that we'll be announcing outside of some other things we've done. So I think (multiple speakers). Look, I'm seeing good numbers. If we've opened the first 45 days of this year, I've been pleased with the numbers we're seeing so far (multiple speakers).

Brad Delco -- Stephens Inc. -- Analyst

Let me ask it this way. So I think it's the first time we've seen a reference to you increasing your hours of service. So is there a way that you could say, well, that added a point or two in '18, and we're not going to lap that until later in the year. So we at least have sort of that momentum to carry through, or we added X number of independent stores and that's driven the X-amount of growth, and we should see that continue to give us some momentum going. Is there any way to break it down that way, is kind of what I'm asking?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Well, when it comes to hours of service, while we extended some of them during '18, a lot of them didn't happen till 1st of January, OK. A lot of stores didn't click in until the 1st of January and they had a winner. I can tell you we're just -- we talked about all-makes and all-makes and all-makes. Our people are just becoming truly all-makes guys, OK. This is a -- it's a metamorphosis of being just a typical dealer and selling proprietary parts and taking orders and stuff. We've been after it for two years and three years. We're just really getting better at it, OK. We're starting to see folks understand, because you don't go out and just change all your people, because they've done it the same way for 20 years. You come in and train your people. Just because you go out and tell them this is what they're going to do, they've been doing it one way for 20 years, it takes a little work. It takes them understanding and saying, hey, these guys are right, and they're giving me the tools, and they're giving me the data. As I tell everyone, I go back -- let's go, can we put SAP in folks. That was -- now it was supposed to be three years and 15 million, it was eight and 50 million (ph). I probably should've been fired, OK. It doesn't (ph) mean I missed the mark a little on the number.

At the same time, we got data that we believe is above anybody else's when it comes to customers and truly understanding, it's our propriety system and we're very happy and proud of. Now, we've just been harnessing that over the last two or three years, OK. The data is not worth anything unless you use it. And then you got to get the people to buy it and all this other. I mean, it's a process. So where -- I can't answer exactly one thing this or one way -- one doing this. I can tell you that, like the technicians we talked -- I talked about a minute ago with Neil, oh, the ones and twos. Well, guess what, they're going to turn to threes and fours. Of course, there will be some attrition along the way, but they're going to turn to threes and fours. The ASRs we've added, which are outside sales representatives on the both parts and services and consolidating, and they're not just parts sales guys, there are parts and service sales guys. These are all things -- all these things have just been implemented pretty rapidly over the last two years. So are there legs on each and every one of these strategic initiatives I'm talking about? You better believe we believe there are. Maybe we're wrong, I kind of doubt it. At the same time, it's just like growing -- it's just like raising a child.

I know that we're going to get there, because they're going to become adults and all these different initiatives will come to fruition. I have all the confidence in the world as we go forward. And as I said, we've got other stuff in the pipeline when it comes to customer-facing technologies. And I know I'm not giving you exact numbers and things like that, but we believe that what we're doing is working, it's showing in the numbers. Forget the market, the market is a market. We believe regardless of what the market does, we're going to outpace the market, OK. We're going to continue to outpace the parts and service market.

I don't care if it goes backward, stays flat, goes up, what it does, we're going to do better than it, which means over time, you're going to get more share, OK. And that is our goal, is to get more share. So I know I'm not going you an exact here or there, but we're -- I think you can hear my passion and what I believe and have been proud of. And as I roll into the first 45 days of this year, this is great (ph) January for 45 (ph) days of February as I've seen. Now that being said, before you guys jump way out, remember, it's always a high-expense quarter for me, especially given the performance of the organization, the benefit packages and stuff.

They go out in the first quarter where last year, if you go back and look sequentially, I know I'm making my own questions up and answering myself, but here we go. I'm pretty good at that, if you don't know me. Okay. I think if you sequentially look back the last couple of years, we're typically up about $10 million in G&A. I expect that to probably be $12 million to $14 million here. But that's OK, from Q4 to Q1. That's part of growth, man. That's how it works. But we're going to continue. As I said, if the revenues and the gross profits are moving forward and the customer -- we're getting more customers and getting more customers, then it's working, man.

Brad Delco -- Stephens Inc. -- Analyst

Appreciate that. And just to bring Steve in real quick, if I could. Can you give us the truck margins? And then just your thoughts on sort of the cadence of free cash flow in 2019, or was there anything unique to '18 and anything unique to '19 we'd be thinking about?

Steven L. Keller -- Chief Financial Officer and Treasurer

Okay. I'll answer your margin question first, Brad. In the quarter, heavy-duty margins were 7.5%, medium-duty were 5.9%, light-duty was 5% and used was 11.8%. In terms of cash flow, no, there was nothing unusual in Q -- I mean in 2018. A lot of people give us questions about tax reform, but our cash paid for taxes because of our deferred tax liabilities related to some of our bonus depreciation and the leased fleet and things we do, didn't really change all that much with tax reform. It did help EPS, and it helped the bottom line. But from a cash flow perspective, there was no windfall in '18. So '19 should be a pretty good replica of '18.

Now, Q1 is a tough cash flow quarter for us for a few reasons. We -- if you saw in the release, we really amped up the repurchase in Q4 and that continued in Q1. And we have the acquisition we just released, and it's the quarter we paid bonuses. So that is -- that's going to put some stress on the cash number. You saw it fall pretty precipitously in Q1 versus Q4. But we're fine. We have plenty of cash to run the day-to-day business. We have a line we've never tapped. And when the dust settles on 2019, you should see a pretty strong free cash flow year for Rush.

Brad Delco -- Stephens Inc. -- Analyst

All right, guys. Thanks for the time. Appreciate it. I'll get back in queue.

Operator

Thank you. Our next question or comment comes from the line of Faheem Sabeiha from Longbow Research. Your line is open.

Faheem Sabeiha -- Longbow Research -- Analyst

Hi. Good morning, guys, and congrats on a great quarter. Rusty, I wondered if I can start with the Class 8 sales for '19. I mean, you said that first half sales are going to be, I guess, on par with the second half sales. But looking at the outlook for 2019, I mean, does that imply that second half sales are going to be falling off significantly year-over-year?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Well, as of right now, I'm not going to say that. We feel -- remember, while backlogs are strong, they're not -- as I always tell folks, and I'll just say, you're a solid 90 to 120 days out. I would always know that people can just walk over and say I don't want the truck, cancel it, 90 or 120 days out. I don't see that at this moment, but we are cognizant of historical things that it happened, OK. As I mentioned, we're going to be watching many indicators. I'm not here to say that's going to happen by any stretch. What I am here to say that there's always -- eventually, these truck cycles do in. That's why we focus so hard on parts and service.

So eventually, they do it. I don't see it currently. Everything is strong. Manufacturers are building at record levels, and we will continue to ride theirs, right. But we'll be cognizant of what's happening on the marketplace, as I went through earlier, cancellations, used truck buyers, contractual new rates, spot markets are down. So those are -- that's an indicator we got to watch. I know -- I'm not here to predict that the second half will be any different than the first half and currently, if I was to say it, close to the same. But I am cognizant of Q4 more than anything, let's get closer to it, OK.

And then I'll give you -- maybe on the next call, I'll be able to give -- more solid about the whole year. Not that I don't believe it's going to be, that I don't see it, but there are always circumstances out there that can mitigate or can change what people's perception of their business is now and what it will be -- what their business will be in Q4. But we just keep working through it. So right now, I'm solid with everything. But I will be very calm. I will be watching, given 35-40 years of doing this. That's all. That's all I'm saying. So I mean, I feel good about it and we'll be watching. That's all.

Faheem Sabeiha -- Longbow Research -- Analyst

Okay. And just given your history in the industry regarding your comments on used trucks where you are seeing pressure this year, I guess if that were to happen, what are the magnitude of decline that you're anticipating given your backlog and I guess what is your view of how much of a decline in prices can the industry absorb before used truck values become a headwind to sales?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Well, used truck values, when they turn, they turn quickly, OK. I will tell you that. When they turn, it's one of those -- they don't turn over typically a long time, when you hit that inflection point, when you've been on a high like we've been. It'll be -- it'll continue gradually down, but that quick -- that first step out of the box is a big step. You can have a 10% step in one month. It can happen. I've seen it in the past. Doesn't mean it'll happen this time that way, but it can happen that way. I've seen it historically happen that way. So -- and then it will slightly trend down. That is the law of supply and demand, and that will dictate what that hit is, right?

It depends on the supply and demand. It will drive what the decrease in used truck values are, again. It's been pretty good so far the first 45 days of the year, but again, that wary eye out there watching given -- I've done this a while. I don't have anything bad to say at the moment, but you do have to believe supply is going up. That I'm confident to tell you. There's going to be more used truck supply, OK, in the marketplace. We review our inventories on -- not a quarterly, not a monthly, on a weekly, if not daily basis around here, OK, watching our inventory levels. They're up somewhat from what they were, say, 12 months ago, not dramatically, but somewhat up, because of the certain type of deals you do. You got some deals that have trades and some don't. Well, we got a couple more deals ahead, more bigger packages with trades on them. Now we're moving them right now. We're moving them where I'm comfortable with, and that's really the key indicators to watch out how you're turning your inventory, because you need to be turning your used truck inventory three months release about where you need to turn it, or if not, you're going to have valuation degradation inside it. But we review that monthly, weekly, daily, and we adjust our inventory on a quarterly basis, OK. You all never go out, but inside of our inventories, we look at our inventories very closely on a quarterly basis and make sure that they're marked-to-market, to be honest with you.

Faheem Sabeiha -- Longbow Research -- Analyst

Okay. And in regards to your parts and service outlook, high single-digits to low double-digits this year, I mean, is it

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Can you speak up just a little bit? I'm having a hard time hearing you.

Faheem Sabeiha -- Longbow Research -- Analyst

I'm sorry. Can you hear me better?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

There you go. Yes, sir.

Faheem Sabeiha -- Longbow Research -- Analyst

Okay. Yes. So in regards to your parts and service outlook of high single digits, low double digits this year, I mean, is it fair to say that your outgrowth is increasing versus 2018, just given that the market growth outlook is coming down?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Will our spread be more -- I think is what I heard you ask me over the market. We looked at markets last year, I don't know, it was 6% to 7% the overall market, we were up 13.5%, pretty much doubling it. I think it'd be somewhere around the same. So if the market's up 4% to 5% and we're up to 10% -- 10% to 11%, we're going to start off strong. My comps kicked up in the year, I'd expect a pretty big first quarter, to be honest with you. And growth rates, we'll just have to -- and again, sort of like the truck market. I'll watch and see if we continue -- all our initiatives continue to roll in. I have -- there's no question in my mind that we're going to be double digits in the first quarter. It's hard for me to see out into the third and fourth quarter with it.

But I would hope we could continue whatever the market is. When you double, you're growing less, if it goes down. But I would hope that we're going to continue to be something like that. If the market is up 5%, then I'm hoping we're up 10% to 12% this year, OK. Somewhere in that range, because our comps get -- continue to get tough, they have the last two years. And my people continue to surprise and amaze, and I respect them for what they're producing out there right now. They're taking all the investments we've made and they're taking advantage of them, and they're taking advantage of their growth as people and the training that we provided for them. And they're going out and getting more share and I look forward to continuing where we've been, down that same path. I really -- to answer your question, I don't see a slowing down, for us at least. When it comes to the market, I can't change the market. But we're going to continue to get share. That is our goal.

Faheem Sabeiha -- Longbow Research -- Analyst

All right. Appreciate the color. Thanks, guys.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

You bet.

Operator

Thank you. Our next question or comment comes from the line of Mike Baudendistel from Stifel. Your line is open.

Mike Baudendistel -- Stifel -- Analyst

Thank you. Hey, guys. Just wanted to ask you, you talked about the market share declining in Class 8 truck sales in 2018. I think we all get why with the higher fleet sales. I mean, are you expecting a rebound in 2019?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Well, if I have -- I expect the first half -- I'm going to watch the second half. How is that? Because I had a larger share in the first half -- second half of last year. If you remember, we delivered around 8,000 units. Of what we sold last year, we sold about 8,000 in the first -- the second half of the year, 8,100, if I'm not mistaken. And if I anticipate that being what we do in the first half of the year, then I would tell you we would get a little bit better share in the first half of the year, OK. The second half of the year, we will continue to unfold. I mean, I'm hoping -- yes, I'm hoping to get a better share, how's that? It may not be dramatic, but I'm planning on and I'm hoping to get a better share than the -- what was it, 5%, 7% or whatever we had last year. I would hope to get back closer to that 6% number overall.

Mike Baudendistel -- Stifel -- Analyst

Got it. Sounds good. Just wanted to ask you on the investments in Canada. You always talked about the Navistar locations being a lower profitability level than the Peterbilt locations. I mean, can you sort of compare the profitability of those locations in Canada with your existing Navistar locations? And is that investment part of a larger strategy in Canada?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Well, I'm not going to get -- I'm not going to really take the back half of your question and talk about growth up there. That will just -- that will evolve as we go forward, how's that? I haven't even closed the deal yet. So let's -- we don't -- we got two weeks, a week and a half where I wire money. So let's do that (inaudible) have done it. Secondly, I would tell you to answer -- first answer your question -- similar to ours and growing, OK. Just like ours has grown in 2018, I think theirs-their returns have grown in '18, and we expect both of them to continue to grow going forward, given the tough times of '14, '15, '16, '17 that we went through with the product and the brand and the investments they've made and where it's headed. So very similar to ours, growing, and we expect to continue to grow. Again, out-advance the market, if that makes -- because the market's going to have a lot to do with everybody, right. At the same time, coming from their share levels, they should continue to grow share, which means they're gaining more customers, which means we should be doing the same thing. So we will outpace the market in all aspects in my mind, right. Even though you've been way under, that's the runway I've always told people about, that's -- that sometimes been the hidden thing inside the organization. And it's nice to see it starting to gain some strength, and we saw the numbers in '18 outside of just market numbers and above-market growth. And we expect to see theirs and ours be above-market growth rate on all sides of the business.

Now, the parts and service is still lagging, growing, but that in the next couple of years, you should start seeing the benefits of better market share, right? Toronto, so they've got the new CV product coming out, right? Excited about that a little late, but we're getting it out. And (inaudible) have some of that going this year, but it really should kick into gear, especially given where I believe the medium-duty business, last mile and all that's going, I think their product is going to fit nicely into that segment.

And we continue to invest in all brands, whether it be the Peterbilt side, the Hino, the Isuzu, the Ford, the Navistar side, we continue to really look forward to what I see as much more stable growth in that 4-7 business. And I think people need to pay attention to that too. When you look, we're pretty big share in that 4-7 business, and we're continuing to try to grow that share of that business as we go forward, and I think our brands show well in that going forward.

Mike Baudendistel -- Stifel -- Analyst

Got it. That makes a lot of sense. And also just wanted to ask you another one on the parts and services part of the business. I mean, it strikes me that the revenue grew at a very similar rate to the number of people you added in 2018, and you did a great job there. And just wanted to sort of -- can you contextualize sort of how much more work can be done? I mean, how much stronger is the demand versus the people that you have? I mean, is that really sort of the main constraint, is adding people, or how much runway is there if you were to continue to add people at a double-digit pace?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Hey, we believe there is plenty of runway. When we started this project, we said we were less than 4% versus on the parts market -- of the 4% of the parts market. Our goal is to get over 6%. So we're nowhere near that. So we've got plenty of runway, we believe to go out and gain share in the all-makes business and in the service business across the board. Again, we feel there's still plenty of runway to do that. Are we going to have to add technicians? Yes. Probably, will we continue to work toward adding sales representatives where required? Yes. Because our goal is to also continue to get better throughput through those sales representatives, right, become -- get better returns, not just sell the normal average, but continue to drive that up. How? With customer-facing technology, with understanding our numbers, and those are the investments I talk about we made in, and we'll continue to invest.

Hey, look, if I spend a little bit more than I would normally and if I was running this normal status quo, I always want to keep 50% for my growth, but why am I have to spend more. But you know what, we're growing top line at the same band, maybe going up sorts is a little slower than I like, but that's because we keep investing. But we're still growing, so the absolute dollars and the returns, you can see them in the numbers. And so -- for right now, I don't anticipate that flattening out and superwidening at the moment, but it's still growing. If we can grow that top line and continue to slightly grow our absorption rate, I think you can all do math, what that does for the absolute dollars that we put out.

But because we're constantly chasing and -- to do that, we've got to get to that 6% and to add 70% technicians or so over five years. That's a big -- you can't stop, there's no stopping right now, no matter what the market does. So I hope I'm somewhat answering your question. I feel like sometimes I'm a little repetitive with stuff here. But we're going to continue down the path we've been on, we'll continue make the investments. And regardless of what markets do on the parts and service side, yes, I think it's weighed out when it slowed down a little bit, but we're not going to stop. We're not going to stop investing until we see that we've reached the maximum. And we're nowhere near believing that we're getting maximum returns out of our network.

Remember, we've got the biggest network out there and growing it still. So that network and that customer touch is key, and that's a leverage piece. You're leveraging. You're pushing more revenue, parts and services. Yes, you're going your network slightly, but really and truly, you're leveraging guys. Most of our growth is going through existing stores. And so we continue to leverage. Yes, we had to spend a little money, but we're keeping some along the way. And we're going to continue to try and drive those proficiencies and efficiencies as we go forward. But that's a balancing act between growth. And so we're not going to stop the growth pace at the moment, I can tell you that. And by the way, I'm sorry, you always have your conference right when I do my fourth quarter earnings call, so I never get to go to it. So I apologize for that.

Mike Baudendistel -- Stifel -- Analyst

I understand. Yes. Hopefully, you can make it some time, but that's fine. We understand.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

(inaudible) your conference right now. But it always seems to lap over my Q4 earnings call. I just want to say.

Mike Baudendistel -- Stifel -- Analyst

Well, thanks for saying that, and thanks for answering these questions, and great year last year.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Thank you, my friend. We look forward to a better one next year or this year I should say.

Operator

Thank you. (Operator Instructions) Our next question or comment comes from the line of Joel Tiss from BMO Capital Markets. Your line is open.

Joel Tiss -- BMO Capital Markets -- Analyst

Hey, guys. How is it going?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Hanging in there, Joe. How about yourself?

Joel Tiss -- BMO Capital Markets -- Analyst

All right. Being that it's Valentine's Day, is it a good time to get divorced for the fourth time?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Joe, did you just say that?

Joel Tiss -- BMO Capital Markets -- Analyst

No. We're hearing things.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Oh my goodness gracious. Joe, paybacks are you know what. Okay. Oh boy.

Joel Tiss -- BMO Capital Markets -- Analyst

I missed a little bit.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

(multiple speakers) listen to these earnings calls, I can tell you that.

Joel Tiss -- BMO Capital Markets -- Analyst

I'm sure she is not listening.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

And by the way, it would only be three times. Okay.

Joel Tiss -- BMO Capital Markets -- Analyst

Okay. I'm getting ahead of myself.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

It would be fourth when we remarried, how's that? Fourth marriage, how's that? Okay, go ahead.

Joel Tiss -- BMO Capital Markets -- Analyst

Okay. There you go. I wonder if you talked at all about acquisitions and how the landscape is looking there?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Well, we did an investment in Canada. That's a pretty big deal. It's about $370 million revenue up there. We continue to layer in every now and then some other little things. I mentioned it, I think, in the press release, we had four acquisitions, we closed just a little one, but it's nice four (ph) commercial building, we're proud of, up in Northern California. I'm always looking, how's that, but we're somewhat limited. We hadn't done it in a while. This was nice to do this investment there, we're really excited about that, pairing up with the Thalmann Group and where that goes with -- I mean, given my commitments to the OEMs on the Class 8 side, I'll try to keep them separated on both sides of the house. The math starts to get a little thin at certain places that makes sense, right. It makes sense. You're always -- I guess I could come up to the northeast and visit you guys, but it just has to make sense. But no, we're always looking -- constantly looking, and I'm always talking, I can't help myself.

Joel Tiss -- BMO Capital Markets -- Analyst

I wonder...

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

You'got to remember, we're at peak market. So a lot of times -- people probably should sell at peak market, but most people just want to keep taking down (inaudible) until the market turns. So we'll just continue to watch closely.

Joel Tiss -- BMO Capital Markets -- Analyst

And I wonder if you could explain a little better like what software you're putting in for the parts business, like how it all fits together for 2019? Like what -- I thought you had everything in place is kind of what I'm...

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

How about no? (multiple speakers)

Joel Tiss -- BMO Capital Markets -- Analyst

I have a backup question too. You don't have to answer that. I heard some rumblings that there was -- a lot of the orders in the last sort of like October, November, December were more from dealers than it was from customers. And I wondered if there's a lot of truth in that and you think that's going to lead to more cancellations as we get into the second half of the year or that's just some negative guy talks?

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

You know, Joe, I heard the same rumblings. Speaking for myself, the answer is no, again. At the same time, do I put it past other people to maybe do some of that? No, I don't put it past the (inaudible) some of that either OK, understanding we do a lot of volume. So we -- our stuff was pretty solid. I will try not to allow that in our organization, no, because there might be an outlier here of there. But on the most -- what happened -- what I was really concerned about customers double ordering because they're not sure of the lead times get out and miss that. We don't believe we have any. My OEMs say they don't believe they have any. But I've heard the same rumblings, but I can't sit here and pinpoint and say, yes, this person did that and this person did that. All I can speak to is my own order board and that's really all I can talk to. The rest of it is just heresy. So, from my perspective, no; from anybody else's, it's just heresy, buddy.

Joel Tiss -- BMO Capital Markets -- Analyst

All right. Well, that's awesome. Thank you so much.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Hey, Joe. Just remember like I said about paybacks, OK. Like I said, forcing my wife to listen to my earnings call. We are happily married for the rest of our lives. How's that?

Joel Tiss -- BMO Capital Markets -- Analyst

That's good. I figure she's probably out buying some new shoes or something anyway.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Yeah. You're funny.

Joel Tiss -- BMO Capital Markets -- Analyst

All right. Thank you.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

(inaudible) I like humor, Joe. So you could've done that with someone else, they might have not appreciated it as much.

Joel Tiss -- BMO Capital Markets -- Analyst

Yes, exactly.

Operator

Thank you. I'm showing no additional questions in the queue at this time. Sir, I'd like to turn it back over to you for any closing remarks.

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

You bet. Well, folks, we appreciate your time and attention this morning. And obviously, it'll be a short time frame before we talk to you again in April. Really just about two months from now when we can talk to you again, when we report Q1 results. So, thank you very much for your support and look forward to -- hope you have a great new year, a great 2019. See you soon. Bye-bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

Duration: 56 minutes

Call participants:

W.M. Rusty Rush -- Chairman, President and Chief Executive Officer

Steven L. Keller -- Chief Financial Officer and Treasurer

Jamie Cook -- Credit Suisse -- Analyst

Neil Frohnapple -- Buckingham Research -- Analyst

Brad Delco -- Stephens Inc. -- Analyst

Faheem Sabeiha -- Longbow Research -- Analyst

Mike Baudendistel -- Stifel -- Analyst

Joel Tiss -- BMO Capital Markets -- Analyst

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