Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc. report, third quarter 2022 earnings results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to turn the call over to W.M. Rush, CEO, President, and Chairman of the Board. Please go ahead. Well, good morning, and welcome to our third quarter 2022 earnings release conference call. On the call today are Michael McRoberts, Chief Operating Officer, Steven Keller, Chief Financial Officer, Jay Hazelwood, Vice President and Controller, and Michael Goldstone, Vice President, General Counsel, and Corporate Secretary. Now Steve will say a few words regarding forward-looking statements. Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risk and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31st, 2021, and in our other filings with the Securities and Exchange Commission. As indicated in our news release, we achieved third quarter revenues of $1.86 billion. Net income of $90.4 million, or $1.59 per diluted share. We are proud to declare a cash dividend of $0.21 per common share. We're pleased with the results in the third quarter, which were largely driven by pent-up demand for new commercial vehicles and continued strong demand for aftermarket parts and service. New truck production remains limited due to component supply issues, but our Class 8 new truck sales significantly outperformed the industry. Our results were also positively impacted by 17 locations in the South and Midwest acquired in the fourth quarter of 2021, and 15 locations in Canada, whose operating results are now included in our financials due to our additional investment in Rush Truck Centres of Canada Limited. In the aftermarket, our parts service and body shop revenues were $622.1 million, up 34.4% year-over-year, and our absorption ratio was 136.2%. In the third quarter, we experienced strong widespread demand for most market segments, especially refuse, leasing, and energy. Our growth was also driven by the addition of aftermarket sales professionals and service technicians throughout our company, which allowed us to better support our customer base, especially large national fleets. While parts supply constraints are still impacting the industry, we're beginning to see parts supply catch up to the needs of the market. In addition, we expect demand for repairs and maintenance to remain strong through the end of the year, but to be tempered by fewer working days in the fourth quarter and seasonal softness the industry typically experiences through the winter months. Turning to truck sales, we sold 4,200 new Class 8 trucks, accounting for 6% of the total U.S. Class 8 market and 1.4% of the Canadian Class 8 truck market. While new truck production remains limited, we continue to experience healthy demand for most market segments, including both over-the-road and vocational customers. ACT Research forecasts Class 8 U.S. sales to be 258,600 units in 2022, up 13.7% from 2021, and Canadian Class 8 retail sales to be up 30,150, up 7.2% from 2021. We expect truck production to remain relatively constant, and for our fourth quarter Class 8 commercial vehicles to be similar to what we achieved in the third quarter. Our Class 4 through 7 new truck sales reached 3,223 units in the third quarter, accounting for 5.3% of the U.S. Class 4 through 7 market and 1.7% of the Canadian Class 5 through 7 market. While production remained limited, we saw a healthy demand from a variety of market segments, particularly vocational, food, and beverage customers. ACT Research forecasts US Class 4 through 7 retail sales to be 230,975 units in 2022, down 7.5% from 2021, and Canadian medium-duty retail sales to be 11,025 units, down 16.6%. As we look ahead, we expect the production of Class 4 through 7 trucks to improve slightly, and our results will align with the industry in 2022. Our used truck sales reached 1,763 units in the third quarter, up 8% over 2021. Overall demand softened for Class 8 on-highway used trucks due to an uptick in new truck production, weak spot rates, rising interest rates, and high fuel prices, which continue to burden owner-operators and small fleets. As we expect used truck values to continue to decline for the remainder of the year and into 2023, we made a decision to minimize our used truck inventory to a historically low level during the third quarter. We will continue to closely watch used truck values and manage our inventory levels to allow us to meet the needs of the market while minimizing the negative effect of declining used truck values. Our lease and rental operations continue to be a significant contributor to our company's overall profitability, with third quarter lease and rental revenues increasing 37.1% year-over-year. This growth is driven largely by our recent acquisitions as well as higher than normal rental utilization rates caused by limited new truck production. As we look to the future, we are carefully monitoring inflation, interest rates, fuel prices, and other economic factors which may impact consumer spending, our customers and our industry in general. However, there is still significant demand for new commercial vehicles and aftermarket parts and service, which we expect will continue through the year. With our ongoing focus on disciplined expense management and executing our strategic initiatives, we believe our financial results will remain strong for the foreseeable future. As always, I would like to thank our employees for their outstanding work this quarter and for their continued commitment to our company's goals. With that, I'll take your questions. Thank you. If you have a question, please press star one one on your telephone. Stand by while we compile the Q&A roster. One moment please. Our first question comes from Jamie Cook. Excuse me, Cook from Credit Suisse. Your line is open. Jamie, are you- Good morning, Jamie. Oh, sorry, she cut out. I didn't hear her say my name. Sorry about that. Hey, good morning, nice quarter. I guess, Rusty, a couple questions. First, I mean, you gave a little color on the used inventory and how you're trying to reduce the inventory levels. Can you just give color on how much we did in the quarter? What's left? Just the used impact on, you know, margins on a go-forward basis, like how to think about normalized margins in the, on the, you know, new and used trucks. Then my second question, I was impressed with, you know, the growth in the parts and the service business. Again, this, I mean, all year it's been fairly impressive. So can you talk about market versus, you know, market share? Assuming, you know, the macro were to continue to deteriorate, how do you think about the parts ability to grow, you know, in a normal truck downturn? Thank you. Sure. We'll start with used. Well, as you know, the last five quarters, Jamie, I'll step back a minute and look back in history, were the biggest, most craziest quarters I've ever seen for used truck values, right? I compliment our people for taking very good advantage of that, right? If you look back, oh, we had quarters that were averaging 18, 19% in margin, right? Well, as always with used, you know that's gonna turn right? We did what we did the right thing. If you look into this quarter and dive deep into it, you know, we determined actually midway through the last quarter, but we really didn't get started till this quarter, that hey, values obviously had started dropping. Our inventories had actually gotten up to as large as 2,400 units. By the end of this quarter, we had cut our inventory to 1,200 units and marked them to market. If you look at what we did, we went from running, you know, we were down, we weren't that high, but if you look back, we had gotten that high in used truck margins. We were 1.6%. If you look at the effect of what that was on the company, if you go back and compare it, say, just compare it to Q2, it was $13 million-$14 million. Really if you strip out the one-time gain in Q2 from the Canadian acquisition that we had, how you book it, you know, we're like $1.75 in Q2. Used truck was 90%+ of the difference between 2 and 3. Doing that, I can tell you going forward that we will start moving more towards more normalized margins. I don't expect to run 1% again in used truck margins. Understand that cleanup of the inventory we got rid of and making sure hopefully that our inventory is marked to market. Now, you know, if inventory values continue to decline, you know, that will be a little bit of a drag, but I do not expect used truck margins to hit 1% again. All that was done inside the quarter, so I'm kinda proud of it, to be honest with you, when you really look at it where we're at. We're in a position, I think, going forward. You know, I've told you for years, normalized margins on used are 8%-10%. I don't know that we'll get 8-10, but I would expect to at least crawl back to 6, you know, as we right size. You know, we've been to the bottom, right? I do believe that for sure. From an inventory perspective. I feel good about that. That was all inside of this last quarter. You know, maybe it gets closer to 8 somewhere between 5, 6, 7, 8, but it's not going to be 1%, okay? That's what we did this last quarter and got it all cleaned up inside that quarter. It was, you know, what we did the 5 quarters before was the right thing to do, which is just when used starts dropping, it drops really fast, right? I mean, where you typically look at used truck values going down to 1.5-2% a month, they've been running 6%-7%, right? Okay. I do believe we're still continuing, but we feel that we've got everything marked pretty good with what we've got left and cut it in half from where we had been. Parts and service. Yeah, go ahead. Sorry. I was just gonna say that's helpful. Thank you. Yeah, you bet. No, do you want me to answer parts and service? I think. Yes, please. Yes. You bet. From a parts and service perspective, obviously, we've had an outstanding year. You know, record absorption rates at the same time while even, you know, bringing in new stores that probably don't, you know, perform to the levels of some of the other stores we've got, right? You know, I'm very proud of that. That, you know, there's some runway in there we think as we really integrate these other stores. We just got, you know, in August, we just finished putting the Canadian operations on our SAP business systems, right? We just finished in May with the Summit acquisition. You know, there's a learning curve inside of there for them. I think there's a lot of runway for us in all those new stores. Yet, in spite of all that. By the way, it can be a little bit of a detriment in the front side. That first 60, 90 days of business system changes can be tough on them. I would tell you, there's probably that was inside of all what happened too. But as we look forward or I look backwards a little bit, you know, we took share, but we also benefit from inflation. Don't think for a minute that it was all just us taking share. It was a combination of both. Sometimes it's hard for me to discern how much was what, you know, as you look through it. But I would tell you, we probably high single digits with share, and the other was, you know, some inflationary activity that was out there. Looking forward mid to next year, you know, we think that the first half. I'm guessing now. I do believe we'll see continued inflationary pressures on the parts side. I know we're seeing it on the labor side too, because that's also in our quarter. You know, we had some issues with our labor bump, but I have to get to some Q&A questions. You know, costs because we have to, but I do believe that next year will not be quite as high because I think inflation will subside. We still expect to take share, and I still expect to have some inflation, high singles, low doubles, you know. Okay. Something around the 10%, 9%. That's what we're looking for. That's based upon subsiding inflation, right? If inflation continues to run rampant like it did this last year, you know, that number could go up. I expect to take share somewhere in the mid to high in single digits, and then inflation will be on top of that. That's our goals. You know, that's the investments we continue to make in all our systems and all the things we have going on. Right now I'm investing in a lot of stuff, you know, we're not even seeing in the numbers, but you're always doing that. I think, you know, our continued investment over the last 10, 12 years, you can see it in the numbers, Jamie. You've only been around long enough. We will continue that, and hopefully we'll continue to grow our absorption rates and our returns just like we have been. Okay, thank you. I appreciate the color. You bet. Thank you. One moment while we prepare for our next question. The next question that we have is coming from Andrew Obin of Bank of America. Please go ahead. Good morning, Andrew. Okay. Hello. One moment. Let me bring the next person up on the stage. Andrew, your line is open. Yeah, I’m not on mute. Can you hear me? Yes, we can hear you. Now I can, Andrew. Okay, sorry about that. Yeah, just a question. You know, look, as I said, our earnings estimate, I think when we started the year was, like, $4 something, and it looks like you're gonna print well over $6. How should we think about just sort of normalized earnings power of Rush and, you know, and if I look at just generally at the multiples for a lot of distributors, people sort of clearly seeing across the board we're at peak numbers. You know, what sort of a normalized number for Rush through the cycle these days, given everything you've done, and, you know, how much should we expect Rush to make in a recession? I'm not asking you to say when a recession is, but as I said, you know, the numbers seem to be, like, 50%+ higher this year than I expected to sort of try to recalibrate how to think about Rush's earnings power going forward in the long run. Thanks. You know I'm not one to go much out on a limb, Andrew, but here you go. Obviously, we are in an industry that does have a little cyclicality, just like this whole country does too, right? As I look back and I try to look at troughs and see when I sat here, it's getting out there a little bit here, but I look back at 2016, you know, split-adjusted, that was a trough to me. We made $0.75. In 2020, we made $2. We believe that we could probably, when I say trough, get somewhere down with new truck sales in around 200-210. We believe we can, you know, double what 2020 was. How's that? For a trough, okay? Now, if it goes lower than that, we'll figure it out from there, but I hope it doesn't go lower than that. Most projections are not for it to go lower than that. Obviously, if we continue to do the things we're doing, we peak back in 2025, 2026. I'd like to think there's, you know, more to be had, you know, more to do, more to return, especially when you look at, you know, new acquisitions and things going on that are just being integrated and, you know, you know, those are some of the tailwinds, and I still believe that, you know, some of the big tailwinds in the organization are still on the Navistar side. I mean, you know, they just got bought by Traton a year ago. PACCAR was always gonna be a tailwind for us, but I think, you know, that the Traton stuff, you know, their investments will continue to flow out into the future for those dealerships. From the Peterbilt perspective, we will always continue to do an outstanding job. I think we're gonna Peterbilt good for so long with PACCAR's commitment there. With both our OEMs' commitment, our commitment. How we manage what we do, the things that you can see in the numbers now that are, you know, it does drive you a little bit crazy if you're me. I realize I'm getting a peak multiple. It's barely a multiple, but we're getting a peak at the same, I guess, treated like that now. That gives you a little color. When you say normalized, I don't know if there's anything normal in this industry, okay? There's not much normal anywhere. There are peaks and, you know, there are troughs, and that should give you where I think we can. You know, I don't make guarantees, but we're usually pretty good at delivering where we think a trough around when you get down to a U.S. market around that number would be, you know. Is that what you're looking for? Yeah, no, I mean, I think it's useful. So like, sort of $4 plus at the trough seems like the new number, at least that's what I've heard. Second question, if you could, you know, the usual question that I ask, you have very broad presence across the U.S. You know, clearly you have some of the best systems out there. If you could just walk us through what you're seeing in different regions of the U.S. and also what are you seeing by verticals, right? Because obviously you have exposure to energy. You also sell to FedEx, you sell to truckers, you sell to contractors. So you have as good as anybody view on the industry, and you have a lot of experience. Thank you. Thank you, Andrew. Well, as I said, you know, geographically, it's still pretty strong almost everywhere geographically. I don't see one geographic spot getting really hit. Some are stronger than others. I mean, California, for some reason, is still very strong. I would have thought it would have slowed down a little. You know, I mean, Florida is doing well. We're doing well in the Midwest too. I mean, it's pretty broad. Now when you get into segments and what do I expect to happen, our biggest segments would be refuse, we got larger pickup in oil and gas. But don't think for a minute now, it's like it was years ago when oil and gas was 15% of our business. It may have gone from 3%-4.5%, you know, when I look at parts and service, but it is up, you know, on the major accounts, you know, it is up more than everything else. Our national account growth, which is really look at what we do. We do take care of all our local and regional stuff, do a really nice job of that. The biggest growth we've had on a consistent basis, and what we believe will be the biggest growth for us going forward, is our national accounts. That's because of our map. You know, we can differentiate ourselves off a map because we got a map like no one else in our industry. Regardless of what brand we represent, you're still a Rush customer, and we can service you in ways across a larger map than anybody else. That is really the biggest strength in my mind. It's our people. It's our biggest strength. At the same time, that map there and us continuing to leverage and go to market as one. You know, we realigned all our revenue creation about a year and a half ago and, you know, really put it all under one umbrella. That's really how we're focused and how we go to market nowadays. You know, we have customers that we don't sell trucks to, that we do millions of dollars of business with in parts and service because of that map. That list of customers continues to grow and then just creates opportunities to sell product to them down the road. I know I got off base a little from your question, but I think it's important to understand that. Really, Andrew, you know, the leasing segment is still strong. I do anticipate obviously housing to slow down some, but, you know, with the rates, with what's going on with rates. That's coming at us, and that'll be on the res side. You know, it's still strong in Texas. I can tell you that, I live here. You know, there is going to be what the feds are doing will have an effect, I think eventually on what's, you know, on what's, you know, is going to, as I tell people, as the rat and the snake. It'll have an effect somewhere downstream next year. We do believe we're well diversified in how we go from a market segment and a geographic perspective. You know, we'll do well in the future. You know, we continue to believe in ourselves and how we're going to market and what we've got, you know, and the growth things that I talked about. Just a question, going back to the question on sort of trough. How should we think about it? Maybe you can give us an absolute number or however, how should we think about the trough in parts and services, right? Because it's such a driver of your earnings as a company. You know, how should we think about, you know, what kind of a decline can we see in parts and services in a recession? Once again, if you could calibrate or just it keeps growing because you keep putting in money and we're in an inflationary environment. Well, I don't think it'll ever go down as bad as I've seen it before, given the investments we've made in it. I'm not gonna be naive enough to sit here and tell you that it couldn't slow down. Okay. That's being a little bit too naive, especially, you know, in this high inflationary environment. How would that affect it, okay, as far as growth rates go. From a going backwards, Andrew, this is just a stab. I guess if we got into a medium recession, you know, little r, big R, middle-sized r, I don't know. You know, people are funny. It's so funny listening to economists talk. 5% maybe, you know. I don't really see us going backwards much more than that in any form, any case. You know, I don't think so. You know, we have normal seasonality, like during the winter things slow down a little bit typically. As far as overall, you know, single digits. I don't see. Remember, we have the lever of expenses to pull, right? That's what absorption means, right? That's gross profit from parts and service over expenses. You know, that's that lever you have that other side is going to pull to try to, you know, mitigate the effect of that. You know, that's how we typically manage through this. That's how we managed, you know, even though that was a short time, you go back to 2020 when COVID hit. I mean, we shut it down there in the summer, and then when it took back off in the fall, you know, we took advantage of being able to mitigate expenses and then, you know, grow back with the market even though it shot back up. You know, remember our starting point too is a lot higher than this. We've never been running 136% absorption, and that's with new acquisitions and stuff running less than that. You know, we're starting at a whole lot higher, a whole lot taller mountain than we ever have also. You know, I know I'm bouncing around or, you know, rambling here, but it's 5%, 6%, 7%, somewhere like that, I would think on the, on the top line. You know, I don't, we don't see that now. I'm not projecting that, but I'm not naive enough to know if the general economy ends up driving everything at the end of the day. You know, something like that could happen and then of course, it's up to us to manage through it by pulling some other levers we've got. Well, Rusty, thanks so much. Really appreciate your extensive answers. You bet. Thank you, sir. Thank you. As a reminder, if you have a question, please press star one one on your telephone. One moment while we get ready for the next question. Now the next question is coming from Justin Long. Your line is open. Good morning. This is Justin. Can you hear me? Yes, I can hear you now. Good morning. Okay, great. Well, I wanted to start with a quick question on parts and service. Do you have what the organic growth number was in the quarter? Rusty, I'd love to get your thoughts on the ACT Class 8 number for 2023. Okay. You get that, Steve? The same store parts and service growth rate, if that's what you mean by organic, Justin, was 19.9% in the quarter. Obviously that has inflation in it of probably 14-15% and growth of 5% or so. That's the organic number I think is what you're asking for. That is. Thanks. As far as ACT's number, I think they really got three numbers, if you ask Kenny. You got a little R, a big R, and a middle R. I think what he prints is the 232 that's out there right now. You know, some people I know, I've seen some reports are, you know, keeping, say, it's gonna be flat with this year, you know, closer to 260. I have a problem with that. You know, I think your big fleets are gonna continue to buy. I think your smaller to mid-sized customers that are levered up, that rely on, you know, good used truck values and borrowing money, and they're gonna have higher interest rates to pay, I think that's gonna definitely dampen that sector. You know, point being, I'm gonna go with that $2.25-$2.30 range would be my. I don't believe. I think, now I do think it'll be more front loaded. Okay. I do believe it will be more front loaded because I do think the you know what the Fed is doing will have to take hold and have some effect on that small to mid-sized buyer as we get back, you know, as we get deeper into the year. Okay. Got it. Wanted to ask about the fourth quarter and just the cadence of EPS. You gave a few of the moving pieces on expectations for truck sales, but anything on G&A or anything else sequentially we should be mindful of moving into the fourth quarter? No, I would look for G&A to flatten out a little bit sequentially. You know, when I take that view of it, you know, we'll be off a little bit in parts and service because there's fewer working days. You got holidays and everything to deal with, right? That's just normal. That's just the way it works. You know, a lot of companies have. We shut down between Christmas and New Year's, and that's no different than any other year. You know, similar quarter, a little bit less given the fewer working days that we'll be dealing with. That's just seasonality. You know, as far as the per day averages, right now they remain solid. Okay? They have continued even the last few months to continue to slightly grow, go up. I don't expect them to go up. They normally typically don't during the winter. Normally, you only see a little softening and a few less working days. That really would be the only negative that I see in Q4. You know, as I look at it, is just you know few less working days, holidays, but we deal with it every year and but that can you know soften a little bit of the of what you know the returns are. You know, it's still, you look at the numbers that we're printing and they're still pretty solid. Got it. Last question. I just wanted to ask about capital deployment and where you're seeing the best opportunities today, and then maybe tagging on to that. Steve, interest expense went up by a good amount in the quarter. Curious what we should be thinking about going forward. Right. You know, to capitalize, we've had a consistent shareholder return plan now for five years. As we've said, we're going to return 35%-40% of free cash flow or FCF, you know, to shareholders. We have consistently raised our dividends, averaging right now is $0.21, around $0.84 a year, $0.21 a quarter. I I guess around, I don't know, 1.75%, 1.8%, just right under 2% return from a dividend perspective. We approved, you know, last year, a $100 million repurchase. We've spent $88 million repurchasing stock. You know, I think it's so cheap. To me, that's the best thing we can do is buy more stock back, to be honest with you, from my perspective. You know, we will be approving, I'm sure soon, another repurchase. We're discussing it with the board, but I mean, probably we've been consistent in that over the last few years. What we spend may change, but we have consistently bought stock back. We do not see either one of those changing over the next 12 months. You know, the numbers can vary, but we will continue to return dividends, like we have, not going backwards, and continue to buy stock back, especially if we see opportunities and be opportunistic when we feel it's, when we feel we're very undervalued. I think Steve mentioned interest expense is $3-$4 million, right, Steve? Yeah. Sequentially, we're up $3 million from Q2, and it's a product of two things. Our floor plan levels are up because we've delivered a few more trucks in there. We have more inventory on our balance sheet for a longer amount of time, and our floor plan rates are variable. Interest expense that you see on the income statement is driven by floor plan and interest on the lease and rental fleet. Then to the extent we have excess cash, we have the ability to lower those lines inside the quarter and kinda hedge it, and keep a lid on it. You should expect it to continue similar to current levels for the foreseeable future. The only thing that would drag it down is if the truck market, you know, probably in 2024 when it does turn down our inventory levels will soften. I guess we have one more rate increase coming of 50-75 basis points. Two more, I think, Steve, by Christmas. That's what's driving it, Justin. Yeah. Got it. That's helpful. The other thing to remember is, you know, as we know, the labor market's been extremely tight, so, you know, we did have in the quarter starting on July first, you know, we raised pay quite dramatically across the whole company, like double plus what we usually do. You know, we had the full effect of that inside the third quarter too. It's important to understand that also. Makes sense. Thanks. Appreciate the time. You bet. You bet. Thank you. I would like to now turn the call back over to management for closing remarks. Well, I appreciate that. Well, thank you everyone for listening today and participating. I hope everyone has a happy holidays. It'll be sometime in February before we talk to everyone again, so wishing everyone a happy holidays, and thank you very much. We'll see you in February. Bye-bye. This concludes today's conference. Thank you all for participating. Enjoy the rest of your day. You may disconnect.