RUSHB

Good day, and thank you for standing by. Welcome to Rush Enterprises report first quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question-and answer-session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Rusty Rush, Chairman, CEO, and President. Please go ahead.

Well, good morning, and welcome to our first quarter 2026 earnings release call. With me on the call this morning are Steve Keller, Chief Financial Officer, Jody Pollard, our Chief Operating Officer, Jay Hazelwood, Vice President and Controller, and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary. Before I get started, 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, 2025 and in our other filings with the Securities and Exchange Commission.

Thank you, Steve, and thanks everyone for joining us today. As we reported yesterday, we generated revenues $1.68 billion in the first quarter, with net income of $61.5 million or $0.77 per diluted share. We also declared a quarterly cash dividend of $0.19 per share, which reflects our continued focus on returning value to shareholders. Now, stepping back for a minute, the first quarter was still a tough environment for the commercial vehicle market. Industry-wide retail sales for new trucks remained at historically low levels, and we're still working through the effects of the freight recession, excess capacity, and general economic uncertainty. That said, we do believe this quarter represents the trough of the cycle.

More importantly, we're starting to see some early signs that things are moving in the right direction. Freight rates improved a bit, miles driven began to pick up, and customer sentiment started to feel a little more optimistic. As a result, we saw increased quoting activity and order intake as the quarter progressed, especially from our large fleet customers. That hasn't translated into sustained strength in truck sales yet, but it's a good leading indicator and gives us confidence that demand is starting to come back.

One thing that stood out again this quarter is the strength of our business model. Even with soft truck sales, our aftermarket leasing and rental businesses, along with disciplined expense management, helped us stay very profitable and perform well overall. We also stayed focused on growing the business. During the quarter, we signed an agreement to acquire Peterbilt dealerships in Southern Louisiana and Mississippi. We expect to close that deal and begin operating those locations as Rush Truck Centers in June.

Even in a down cycle, we continue to invest in the business, expanding into new markets and positioning ourselves for long-term growth. Our aftermarket business continues to be a key strength for us. It made up roughly 66% of our gross profit in the quarter and generated $627 million in revenue, up slightly year-over-year. Demand was still soft in certain segments, excuse me, especially with some of our over-the-road customers. Overall, we were able to deliver growth, which speaks to the strength of our relationships and our execution. We also start to see some positive indicators here, more freight activities and more miles being driven, which should translate into stronger parts and service demand as customers begin catching up on deferred maintenance.

Our aftermarket strategic initiatives are also making a difference. Our inspection processes and parts delivery optimization have gained traction across our network and are delivering incremental revenue, increasing uptime for our customers and delivering a better experience overall. Looking ahead, we expect the aftermarket to gradually improve as we move through the year and continue to be a key driver for our performance.

Turning to truck sales, the market was still very tough in the first quarter, with Class 8 industry sales at their lowest level since COVID. Even in that environment, we performed well. We sold 2,964 Class 8 trucks in the U.S. and captured a 7.2% market share. That really comes down to execution, having the right inventory and the diversity of our customer base. As I mentioned earlier, we saw solid order activity and increased engagement from customers during the quarter. We think that's being driven by improving freight conditions and customers beginning to plan for 2027 engines emissions regulations. Class 4 through 7 truck sales saw the worst demand since 2015, but our results were more about timing than demand. Some large fleet customers pushed deliveries into later in the year, so we expect that to benefit us in the coming quarter.

Used truck demand improved as we moved through the quarter, and we're seeing better conditions tied to improving spot rates and tighter capacity. Overall, while the Q1 was slow, we expect sales to improve gradually in the Q2 and then pick up more in the second half of the year.

Rental and leasing continue to be strong and a growing part of our business. Revenue was $92 million in the quarter, up a little over 2% year-over-year. Leasing demand remains strong as customers look to replace aging equipment and get ahead of cost increases tied to the upcoming emissions regulations. Rental is below where we'd like it to be, driven by current market conditions, but it did improve as the quarter progressed, and we expect utilization to continue trending up through the year. Overall, Rush Truck Leasing continues to generate consistent, reoccurring revenue and remains an important contributor to our performance.

To wrap it up, the first quarter reflected the ongoing pressure from the freight recession and weak truck demand, but we delivered solid earnings and profitability. That speaks to the strength and balance of our business. We believe we're at the bottom of the cycle, and we're encouraged by early signs we are seeing, whether that's freight, customer activity or order trends. As conditions continue to improve, we believe we're well positioned to capture that demand and grow the business. Before I close, I want to thank our employees across the company. Their focus, discipline and commitment to our customers continue to drive our performance, especially in a very challenging environment like this. With that, I'll take your questions.

Thank you. As a reminder, if you'd like to ask a question, please press star one one on your telephone. You'll hear the automated message advising your hand is raised. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question for the day will be coming from the line of Avi Jaroslawicz of UBS. Your line is open.

Hey, good morning, guys.

Good morning.

Glad to see that the year is still on track for improvement sequentially. You know, just thinking about the second half here, it sounds like there's still a decent amount of uncertainty around the pre-buy for this year on just a number of fronts. You know, whether the OEMs are gonna have new engines ready and how the rules are gonna be enforced and the dynamic.

Yeah.

Demand dynamics around that. Can you just give us a rundown on how those different moving parts are shaping your expectations?

That's a good statement there, Avi. It's kinda crazy, isn't it? We're, what are we? We're April 30th tomorrow, we got eight months left in the year, we still don't have definitive regulations printed. Okay. When I'm talking about emissions regulations, they have sent out signals and told people, the EPA has, of what they're going to do, right? They're gonna keep, supposedly, a 0.35, they have not clarified about credits, et cetera, if there's gonna be NCPs, things like that. We're probably still 60 days away from it. Regardless of that, we do know that there are gonna be new emissions regulations, you know? I think that's spurred customers to go ahead.

You know, order activity, as you can see, starting in December, has been up dramatically from where it was the prior seven or eight months, from an order intake. You know, even with that uncertainty, you know, there is certainty of something going down. Exactly what it is, we're not exactly sure because it hasn't been posted by the EPA yet. You know, we'll still have to follow that and see. We hope to know within the next 45-60 days. If I told you that 45 days ago and held my breath, I wouldn't be in very good shape 'cause I told you I'd known by now. The can gets keep getting kicked down the road a little bit. I think the most important thing is that, you know, customers' business is people are more optimistic.

Finally, because of the contraction on the supply side, right, of taking, you know, trucks out, whether it was through non-domiciled, whether it was building less trucks in the back half of last year, building less trucks in the first quarter of this year. We slowed the intake down, we, you know, the supply side squeezed down. Customers are more optimistic about rates, you know. Coming in, if you'd asked me three or four months ago, everybody said, I know this isn't one of your questions, but you know me, I'm gonna ramble on, that, you know, we're gonna be flat to low singles, then it was mid-singles, now people are looking at maybe high single-digit increases. People are optimistic.

At the same time, to your point about emissions, not knowing clearly what it's gonna be, what the state is, but we do know it's going to be worse. Whether there would be NOx credits and the cost would go up dramatically or the total enforcement of what's out there for EPA 2027. That's about the best thing I can tell you, is there's still uncertainty, but you know something's coming down the tracks, right? You just don't know exactly what.

Got it. Appreciate that, Rusty. Just to follow on a point there, thinking about the improving conditions within the freight market, as you just noted, really more driven by supply reductions, capacity reductions, that doesn't necessarily help the parts and service side as much as improving freight activity. What are you seeing there, and when do you think we might see parts and service volumes inflect positively?

Yeah. You know, it's funny. You know, people theoretically, you know, people believe that when truck sales go down, okay, that you're going to get more parts and service. Well, that's not really actually the case because people are cutting back their budgets and things, and that's what we've seen, right? That's why we've been fairly flat over the last couple, three quarters, right? Even in spite of inflation, we've remained flat. That's because people have tightened their belts. The best thing I can see is for their business to get better, right? Historically, when, you know, customers feel better about looking forward and are more optimistic, there will be no postponing of any maintenance or any repairs. It's just like anything, you know. When, when your income level goes down, you learn how to take your outcome, what you spend down too.

It's no different than you as a person, you know, managing your household. That's what customers have done. The most encouraging thing for me is going to be when hopefully seeing second and third quarter releases and hearing about contract rates going up so that optimism that we see out there, you know, comes to fruition, is the best way I can describe it. We expect to. I would tell you this, we've been going slightly, and I'm not happy with it, but we have gradually gone January. February was better than January. March was better than February. April looks like it's gonna be a little bit better than March. I think as conditions improve, not just truck sales, but obviously parts and service too, will improve with that.

It's just a matter because, you know, tonnage has gone up. Tonnage was up for the first time, I think, in two or three years in February, if I'm not mistaken. I'm not sure where it was in March. You know, it is getting a little bit better, not just from the supply side, but I think on the other side of the house. We've got a lot of outliers out there. I don't have to tell you what's going on overseas and fuel and all this other stuff. The general macro, I think, environment for continued improvement at the customer level is it's there without any interruptions from outside geopolitics or something like that. I mean, I just do believe that things are going to be better.

I believe we're gonna be up in some areas. It's gonna build through the year. Because we're on it, and I believe it's not gonna go away in 2027. My personal belief is I see a nice, a pretty good four-month run anyway. I'm not gonna try to forecast outside of a year, but I feel pretty good about where it is. It's just going to be a gradual. I just believe it's gonna continue to get better based upon conversations I have with many customers and, you know, people around the industry.

All right. Appreciate that perspective. Thank you, Rusty.

You betcha.

I'm gonna pass it on.

Thank you. One moment for the next question. Our next question is going to be coming from the line of Brady Lierz of Stephens. Your line is open.

Great. Thanks. Morning, Rusty. Thanks for taking our questions.

Sure. Always.

You mentioned that you expect overall commercial vehicle sales to improve gradually. Could you just help us break that out between, you know, your heavy-duty and your medium/light-duty? Just because, you know, because of the weakness in the medium-duty in the first quarter, like should we see a more immediate recovery in that versus Class 8? Just any clarity around kind of breaking out those two trends would be helpful.

Yeah. Sequentially, yes, because it was so off in Q1, right?

Right.

Sometimes you can get numerator or denominator, right? From a percentage basis, yeah, you're gonna see medium improve quicker because heavy-duty obviously wasn't off as bad as the market. We were off, what, 6%, market was 20%-21%. We were off way off in medium, and a lot of it was timing. Sequentially, medium will pick up quicker because we're starting at a lower base, right? If you wanna talk about sequential. If I was to look out for the year, I expect a better year on the Class 8 side up over the last year than maybe medium will be closer. It'll catch back up to flat maybe for the year. That, you know, that bodes pretty well for the next few quarters because we started such a hole on the medium-duty side.

I expect heavy-duty to, you know, continue to ramp up. If you want me to throw a number out, say heavy-duty is up 15% in Q2. If things hold together and we get, you know, get through all this emissions clarification and business continues to look better for our customer base, both across the board vocationally and, you know, over-the-road. Over-the-road is what we've talked about mainly, you know, even though we do a lot of vocational business, over-the-road is still the biggest market that's out there, right? You're talking two-thirds of the market. If that continues to get better for that customer base, you know, we will continue to increase quarter by quarter as the year goes.

I believe for sure roll into Q1, because remember, from an emissions perspective, you know, it's all about when the engine was built and usually, I don't wanna get in the weeds. You know, usually those engines will be built maybe halfway through January of next year. Because we are the retailer and it takes anywhere from 32 days to five months, depending on the type of product it is, if there, you know, that bodes well for us all the way through next year in Q1. If the economy is in good shape and the business is still aligned.

Look, the number that's gonna come out this year probably is not gonna be anything more than a normal replacement. The deal is it's gonna be backloaded, right. I mean, 41,000 units was all Class 8. It was COVID, second quarter of 2020, I think it was. Second or third quarter of 2020, that's the lowest in six years. Medium was the lowest since 2015. It wasn't just us, even though we were a little worse on medium side.

When you think about it, with that emissions regulations and improving business conditions, economic conditions for our customer base, as long as the geopolitical things stay out of the way, I mean, it's set there to just ramp up slowly. It's not gonna be an add water and stir thing just in Q2, but you better believe Q2 better be better than Q1. It's not gonna improve dramatically, but it's gonna build. I believe that's the case across our whole business model, right? I really do. I feel good.

There's not one segment that I can sit here right now and tell you I feel bad about. You know, I feel good. I'm not gonna sit here and feel great like that, but I feel good about the whole thing. I wanna watch it continue to evolve. We're still working business, okay? We really are. We've had really, as I've said, we've had nice order intake, with the majority of it gonna start coming in in Q2. I said maybe up 15% on Class 8 and, you know, maybe a little more, maybe a little less, but somewhere in that range.

As timing rolls into all these things too. It should build from there through the rest of the year and through Q1 anyway, for sure. Typically, hopefully, our parts and service will build. As I told you, it has been slowly building. I'm looking forward to seeing it ramp up a little faster, but, you know, I don't always have my finger on that trigger.

Makes sense. Thank you for all that color. Maybe I just, for my second question, just wanted to follow up on an earlier one and maybe ask about it from a different angle. You know, just the reduction in capacity in the freight market driving the improvement, how do you think, if at all, that affects new truck sales this cycle? You know, is that a headwind or does the emission regulation offset that? Just any thoughts around this kind of competing dynamics would be helpful.

Okay. Well, you know, the, you know, the first thing was supply, right? You really want the environment to be better from a demand perspective, right? You got supply—

Mm-hmm.

You got demand. To your point about supply. Supply has it's been pulled out for really the last three quarters, okay? If you took the last Q3, Q4, and Q1 and strung them together, it's gonna scare you how low, you know, retail was from a demand perspective, to be honest with you. It would be under 200,000 units in the U.S., okay? Annualized. That has taken the supply up. You need a combination of both, right? It was nice to see that tonnage had bumped up in a couple other months. I think it was February, I'm not mistaken. Even though it's not robust, you know, you got both of those. I believe it will continue.

Like I said a minute ago, even if we—there's something like you have $41,000 in the U.S. ACT says it'll be 225, right? That means it's gonna have to average 60. That's a 50% bump of 60 a quarter, it's not gonna be loaded like that. It'll probably be 50 in Q2. That just bumps up Q3 and Q4, right? To even get to that 225, which is really under replacement or right at replacement. It's really under replacement. You know, that is a driver. Three years freight recession, man. I've never seen one like that, right? I felt so sorry for a lot of our customers. I really did. You know, we were fortunate enough with our diversified business model and how we go to market, that we don't rely upon one revenue stream. We just haul freight.

No disrespect to my customer base, but we don't. I've had to watch the suffering for the last three years. It's, you know, it's just. I feel better. I feel good for them. I'm tired of watching all the suffering of that over-the-road segment of the customer base, whether it be the small buyer or the large buyer, across the board. I believe that if demand will hold right, or I can't, I'm not an expert on the demand side. You know, there's too many macroeconomic influences on the demand side. I do know that the average age of fleets is probably a little over a half a year or so more than where it should be, where most people like it.

I mean, I can tell you all these little bitty anecdotes that I've got that make me feel good about it. Like I said, even if we have a big ramp-up and do 60,000 average, 180,000+ in the last three quarters, we're still only gonna be at, you know, replacement cycle. That's not a huge, big pre-buy that should scare you going forward, from my perspective. Which means we should roll through 2026, and there won't be this big drop in 2027. At least that's my viewpoint on the whole thing as I look at it. I know I don't know if I answered your question because sometimes—

Yeah.

I know I might just answer my own question.

No, I think, I think you did. I appreciate it. Thanks so much.

We're in good shape. The supply thing's really good because—

Yep.

The non-domiciled drivers, when we cracked down, it was a bunch of different, you know, antidotes that have helped try to line that up and get it in line. Just because we're gonna have a little pre-buy, it won't be huge, so it won't get out of balance again. We may have some, maybe a couple, three years of nice, you know, growth across that segment. Okay?

Thanks so much for the time this morning, Rusty. I'll pass it along.

You bet. Thank you.

Thank you. One moment for the next question. The next question is gonna be coming from the line of Andrew Obin of Bank of America. Please go ahead.

Hey, good morning, Rusty. How are you? Good morning, Steve.

Mr. Obin, how are you today?

I'm doing well. Maybe we can talk a little bit about, you sort of talked about, parts and services, you know, clearly a focus for the OEM yesterday as well. You know, you have this big initiative with large corporate customers. Can you just talk as to how that initiative is progressing? Do you think you are outgrowing the industry on parts and services? What levers do you have to keep outgrowing the industry? Thank you.

Yeah. I would tell you the first quarter, you know, we were probably close to in line. It's crazy to me what I saw across the first quarter. I'm not talking. I've got pretty good statistics on other dealer groups, okay? We can get through our manufacturers. Probably the hardest hit piece was service. Service was back for us in Q1, that's why maybe our margin mix was down a little bit because it comes into a mix. As you know, your margin's much higher on service than parts. You know, I was nervous. What are we doing wrong, right? Not that. I don't want to ride in the same boat with everybody else, so don't ever expect that.

At least I do know that across what I, what I've been able to track across pretty much a large group of dealers with, you know, that I was able to get their retail environment, service was off across the board 3%-4%. It was off 4% across a group of 200 and some odd dealers. How about that? I have that information. Doesn't make me feel any better. We were off a little less than that. It still was interesting that customer spend was off in Q1. It's just the ending, as I said, tightening your belt, right? People have just tightened their belt the last couple three quarters. When you asked about the initiative, yeah, our initiatives are still there for sure.

We grew our national account business, okay? At the same time, that was on the parts side. I think people really tightened up on the service piece a lot. When I say that, you know, you can extend maintenance, you know, intervals. There's many things you can do. You don't have to fix every oil leak, okay? You don't have to, you know, you can extend your oil change maintenance, your interval 5,000 mi or something. As I said earlier, when things are tight, that's what people do. That's why when their business gets better, people get back into a more normalized, you know, cycle, part of the cycle, what they do normally, right? They're not squeezing it here and there.

I think that's what we saw in Q1, because service was, for us, was down too. Parts was up, but our service wasn't down as the numbers I pulled from some other folks, but it was close. You know, it was just. As people, as their business gets better, they'll get back to more normalized spending cycle. And that's what I expect to happen because that's what I think is people's, you know. The spot market, folks, was up 25%, 30%, okay, year-over-year. That's a good thing, right? The balance between spot and contract got way back, way better, right? Spot was so cheap for so long that people that had contracts weren't using that. They were using the spot market, right? Where they could take advantage, and it just, you know, spiraled down all the rates over the last three years.

You know, getting a better balance across that right now is allowing folks to be more optimistic. When they're optimistic, people spend money, okay. That's just the way it works. You know, when your business gets better, you don't worry about doing things that are out of the norm for you. You know what the right thing is to do. When things are tough, you squeeze. The same thing we do with our business, no different. You know, I just, you know, as I said many times, I just, you know, I love our business model, whether it's through our leasing or our parts or our service or our sales.

We have many different revenue streams that allow us to balance our way through this last three years. Two-thirds of the trucks on the road are over the road, we managed to, you know, produce decent earnings, right? You know, Andrew, I expect parts and service, all of that initiative is still ongoing. As I said, it was up last year on the parts side. The service side has been my most concerning piece, to be honest with you. Parts was slightly up, it will get even better through that initiative and many other initiatives that I'm not gonna talk about, by the way, that we always have ongoing. You've always got to have something going, I can tell you that. We try.

Maybe, Rusty, you know, you have a footprint across the country. You know, you sometimes share with us what you're seeing in terms of macro. Can you just go, A, what are you seeing in terms of macro overall? Just maybe sort of go on key verticals, right? You clearly have big off-road presence. What are we seeing in key off-road verticals? You know, are you seeing any impact in your oil and gas business from higher commodity prices? I think we talked of on road, just maybe give us an overview of what you're seeing from a macro perspective in some of your key verticals.

Sure. Well, geographically, from a spend perspective, I would tell you that we're up slightly in the first quarter, say, in refuse and construction, right? Most of the other is still not as flat, to be honest with you. We haven't seen that. Our national accounts were pretty flat in Q1. They were up last year and we're not keeping up with our plan. Our plan was already in the first quarter. There's not one huge terrible area, Andrew. We still suffer on our unmanaged accounts. That would probably be the one thing. You remember what I've told you about unmanaged accounts before.

That's the small customer, which still makes up 30% or so of our business. I've got to tell you, 34%, it is a little over 30%. It is, even though it was bad last year, it's down almost another 10%, the Q1 of this year. But we've managed to make it up. You know, we managed to make our revenues up, with, you know, in different sectors.

Like I said, really vocational has been probably the biggest thing that we've managed to keep from a parts and service perspective. When I say that, we're talking about refuse, construction, all the vocational businesses from that perspective. Geographically, I would tell you we've seen, you know, Florida continues to be strong. I didn't touch on oil and gas. We haven't seen that big a bump from oil and gas yet, right? We do expect to possibly see something, but it has not come to fruition yet.

You know, I don't want to go through all the regions, but probably, you know, Texas is always, you know, one of the strongest areas we have along with Florida. If I remember right, we were doing fairly well in the Chicago region this year, up in this, you know, Northern Illinois region too also. I don't want to go through 23 states, but I would tell you that, again, I feel good about all of them, that we're going to continue to get gradual improvement without any of this geopolitical stuff getting in the way.

I think, you know, we're lined up for, you know, continued solid, which is actually better than having some huge pre-buy, right? It goes on from a sales perspective or everything else. I just want to see consistent, solid growth and taking share. Taking share is what it's about. Maybe we didn't take as much share as I wanted in Q1. We were slightly better than what I've seen from other boards, but slightly is not good enough. We're focused on continuing to do what we've done in the past. We've got some other initiatives we're rolling out. You know, all I can say is we're ready. We're ready, willing, and able and excited to what I believe is going to be the better environment, as I continue to say, without any interruption from something outside the industry itself.

Thank you, Rusty.

You bet.

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. One moment for the next question. Our next question will be coming from the line of Cole Couzens of Wolfe Research. Please go ahead.

Hey, guys. Yesterday, PACCAR suggested that recent order strength is perhaps a little misleading and that build rates and retail sales remain more muted and thus the pricing backdrop remains more competitive right now. What do you think is driving recent order strengths and how sustainable are current order rates in the coming months?

Good question, right? Because I believe that while not as robust as, say, what we saw in February, which was, you know, what was that, 46,000 or something, like seventh or eighth best month ever, that's happened. I think that was a little overstated, driven by one OEM. I do believe there's strength in the order intake, and I do believe as long as, you know, I keep bringing up this overseas stuff. As long as that doesn't interfere, I believe there's going to be sustainability to continued solid order intake. Now, is that 30,000 a month or something right now? I consider that a pretty good month myself. You know, I don't know.

From our perspective, and I can only speak about from, you know, I can't speak for more than that, but I know that our, what our order intake is, and it continues to remain solid, you know, with a backlog, right? You know, you don't just wake up one morning and somebody orders a truck from you. There's a process you go through, right? From a quoting and a, you know, a competitive dropback. People are still adjusting to all the tariffs, the OEMs, the customers, ourselves, that, you know, now become part of everyday life. At least we've got, you know, at least we know what they are. Our manufacturers understand from their own personal perspective what they are. I believe we're gonna get to see continued.

I can't sit here and tell you it's gonna stay over 35,000 a month, this, that, and the other. If it continues at 25,000-30,000, we didn't have a month like that for, like, seven in a row. We can think back. We started from a low base as far as backlog. I still believe there's going to be continued strength. Maybe not as strong as a couple of the months we've seen, but continued order strength. I think once we continue to get more clarity around emissions and customers' businesses.

Look, we didn't deliver many trucks the last three quarters, right? You know, people, I know some customers have got off a trade cycle last year, right? That did not buy as much, right? What was it last year? Two hundred and—U.S. was 216,000 or something like that. That's under by 20 some odd thousand what replacement is, and it's continued to be under replacement into Q1. Even without all the outside activity, you know, people have to get back replacing trucks.

You know, it's funny to think about it. Probably, I know people thought, am I even gonna be in business? Because that three-year freight recession. All of a sudden you wake up, you're getting more optimistic because you think you're gonna get better rates. They're not going backwards. They've troughed. They're coming back up. You see the spot environment. You go, "Well, I am gonna still be in business, and I do need to buy trucks." Right? I can't be running old trucks all the time with my maintenance charts through to the roof.

I believe there's some natural sustainability to it, and you add in the emissions and other stuff that's coming forward on January 1, and I just believe it's gonna continue to be good. I don't, you know, I don't know. I don't think there's gonna be this huge pre-buy, as I said earlier. You would consider it a pre-buy based upon what the first quarter was, how bad the first quarter retail was and how, well, really Q4, how bad Q4 was, right? You have to get somewhat back in line. The good part is, I don't think it's gonna just be crazy, right?

I think it's just gonna be solid, continued order growth because customers' businesses are getting better, the other outside influence of the emissions, which we, like I said, we'll hopefully know more. We know whatever it is, it's coming. I mean, I hope that helps answer the question. You know, I feel good about it, and I've said that 100 times, I think, already. I'm not, you know. I think it's sustainable for a while myself.

Yep. That's, that's helpful, Rusty. Maybe just another question, just in the context of an improving demand backdrop and visibility to higher truck prices next year, when do you think we can start to see truck pricing move higher this year? Is there a gross margin opportunity ahead of the EPA transition to sell older trucks you might have in inventory, at, towards the end of the year or into early 2027?

Well, you know, when you talk about that, you think about, and trust me, we thought about what inventory is we gonna carry, right, into the first quarter of next year. Just because as long as it's built, as long as that engine stamp dates December 31 or back. We'll make those determinations.

For us, you know, I mean, as far as the back part of the year, there's still build slots. I think a lot of OEMs are protecting some of their Q4 build slots because they're trying to push them forward because you can't just go to the suppliers and say, "Okay, I need three or four months right now," you know? They need to give them a better run rate of that. I know that build rates have moved up at an OEM or two. I've been, at least I've been told that.

You know, I mean, from our perspective, you know, we're trying to make sure we're properly inventoried. You know, you gotta make sure you got a demand for it, you know, we would like to be properly inventoried going into next year. I'm still trying to sell into this year, too. Don't get me wrong. We've done a nice job, but we've still got room to sell in the back half of this year. We still have activity out there, right? We continue to have activity. When you talk about older trucks, I'm not sure exactly what you mean. If you're talking about carrying trucks into next year with these engines, we'll carry some stuff over.

I can't tell you what that'll be, but we're always carrying inventory. You know, it might ramp. We might carry a little bit more into next year. We'll just have to wait to see how the year plays out, because there's still room to build them, right? You know, I, and I hope that answers your question.

Yep. No. That's helpful. Maybe if I could squeeze one last question in.

Sure. No problem. Hey, I'm coming back to your conference for the first time in a while.

We're looking forward to it, Rusty. On SG&A expense, it only increased 2% sequentially in the first quarter. That's a lot better than historical trends in 1Q. Can you maybe talk about the measures you're taking to kind of drive this cost management?

Yeah. Well, a lot like our customers, I knew Q1 was gonna be a trough. This is a credit to the entire organization, you know, from my management staff down to every technician and everyone in the organization. It doesn't matter what you do. It was tough, right? We had to squeeze down, and we did. You know, I, you know, and it was, you know, and it had to be contributed by a lot of folks. Those are never easy steps to make, right? Because normally, you're right. I mean, we were down year-over-year, what, two and a half, I think.

See, I'm looking at just G&A. Remember, I know you haven't followed us for long, but I separate S over here because S is always just a derivative from, you know, truck sales, right? That's the commission piece off of truck sales. The G&A piece is what we were focused. G&A by itself was off 2.5% in spite of inflation, in spite of normal raises last year, in spite of everything else. That took contributions by everybody.

You know, as a business, you know, we're gonna try to maintain that discipline. That's always the hardest part, right, is maintaining it if you get into a growing environment. We're not in a growing environment yet, but I talk about it all day. I can see it coming. Okay. We got to get that parts and service business back because that's really what I drive it off of, not so much truck sales. Truck sales are truck sales. That G&A is driven by what we do in the parts and service business.

I appreciate from everyone's efforts and giving in that first quarter and what we had to do. Made it tougher. We had to do cutbacks. You know, we did them. We executed, and we've done it before. It's just part of being in a somewhat cyclical business. Sometimes you have to make those tough decisions, right, and squeeze it back. Hopefully, our parts and service will continue to go up. You know, we'd love that. We'd love to be able to, you know, hire back some stuff again, and that parts and service business continues to go up. We want to keep the gross we get, mind you, but it takes. There's a cost to doing it, right?

We always tell everybody, you know, we're trying to keep at least, you know, 40%, 50% of every gross profit dollar of parts and service, but it takes people to make it happen. When that starts to grow, we'll be able to maybe add some folks to help us. You know, it's a chicken and egg thing. It was a great job by our team to do that. It wasn't me or anything that I did. It was just an overall effort throughout the organization, realizing how tough the quarter was going to be going into it. I'm just extremely proud of the entire organization and their execution. I look forward to hopefully a little more breathing room as we go downstream, you know, having to be quite so hard and tight on everybody.

Super helpful. I'll turn it back. Thanks, Rusty.

Yeah. Look forward to seeing you folks in a couple of weeks.

You too.

Thank you. That does conclude today's Q&A session. I would like to turn the call back over to Rusty for closing remarks. Go ahead, please.

Yes. Well, I just want to appreciate everybody joining this morning, and we will look forward to speaking to everybody in July, and we'll discuss the Q2 to see if everything's still, the outlook is the same. I'm banking on it. See you. Thank you. Bye-bye.

Thank you for joining today's program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc. reports fourth quarter and year-end earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will open up for questions. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11. Please be advised that today’s call is being recorded. I would now like to hand it over to your speaker today, W. Marvin Rush, CEO, President and Chairman of the Board. Please go ahead.

Good morning, and welcome to Rush Enterprises, Inc.’s fourth quarter and full year 2025 earnings conference call. With me on the call today are Jason Wilder, Chief Operating Officer; Steven L. Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary. Before we begin, Steve will provide some forward-looking statements disclaimer.

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 12/31/2024, and in our other filings with the Securities and Exchange Commission.

Thanks, Steve. As we reported in our earnings release for 2025, we generated revenues of $7.4 billion and net income of $263.8 million, or $3.27 per diluted share. In the 2025, revenues were $1.8 billion and net income was $64.3 million, or $0.81 per diluted share. I am also pleased to announce that our Board of Directors approved a cash dividend of $0.19 per share. 2025 was another challenging year for the commercial vehicle industry. Freight rates remained under pressure. Excess capacity continued to be a factor, and customers faced uncertainty around trade policy and emissions regulation. All these factors negatively impacted demand, particularly for new trucks in the over-the-road segment, and also created a more difficult aftermarket environment. Despite these conditions, I am proud of how our team performed. We remained disciplined, generated strong cash flow, managed expenses effectively, and continued investing in the long-term growth of our business. Toward the end of the fourth quarter, we began to see improvement in new Class 8 truck demand. Quoting activity and order intake both increased, and that momentum has carried into the first quarter. We believe a key driver of this improvement has been increased clarity, particularly around tariffs and the EPA’s anticipated confirmation of the 2027 NOx standard. With some of that uncertainty behind them, fleets are beginning to plan for future vehicle replacement cycles again. We also continued to expand our network in 2025. We acquired IC Bus dealerships in Ontario, Canada, with an area of responsibility that includes the provinces of Ontario, Quebec, New Brunswick, Nova Scotia, and Prince Edward Island. In addition, we added a full-service Peterbilt dealership in Tennessee with Trucks Plug Centers Nashville Central. These strategic additions strengthen our footprint and enhance our ability to support customers over the long term. During the year, aftermarket parts and service and collision center revenues totaled $2.5 billion, essentially flat compared to 2024, and our annual absorption ratio was 130.7% compared to 132.2% in 2024. In the fourth quarter, aftermarket revenues were $625.2 million, up from $606.3 million in 2024. Absorption was 129.3% compared to 133% in the prior-year period. While aftermarket conditions were challenging in 2025, we continued to see strength in key customer segments such as the public sector and medium-duty leasing. Our focus on operational efficiency, reducing dwell time, improving parts delivery, and strengthening service execution also supported our performance. Demand remained soft in January, but we are beginning to see signs of improvement. As fleet utilization increases and customers address deferred maintenance and aging equipment, we expect parts and service demand to strengthen. Looking at vehicle sales, we sold 12,432 new Class 8 trucks in 2025, representing 5.8% of the U.S. market. In Canada, we sold 338 new Class 8 trucks, representing 1.4% of the Canadian market. As I mentioned earlier, demand was soft for much of the year, particularly among over-the-road fleets. However, demand from our vocational and public sector customers remained relatively stable, helping offset some of the weakness in the over-the-road segment and highlighting the benefit of our diversified customer base. ACT is forecasting new U.S. Class 8 retail sales of 111,300 units in 2026. We believe the first quarter will represent the trough for Class 8 retail sales, and we are encouraged by recent improvement in order intake. Fleet ages remain elevated by historical standards, and we expect replacement demand to increase as the year progresses. With respect to medium-duty commercial vehicles, new U.S. Class 4 through 7 retail sales totaled 217,412 units in 2025, down 15.6% compared to 2024. Despite that decline, we sold 12,285 new Class 4 through 7 commercial vehicles in the U.S., down 8.5%, significantly outperforming the market and increasing our market share to 5.7%. In Canada, we sold 993 new Class 5 through 7 commercial vehicles, representing 6.3% of the Canadian market. We continue to be pleased with our medium-duty performance. We believe our diverse customer mix and Ready to Roll strategy continue to differentiate us from our competitors. ACT is forecasting U.S. Class 4 through 7 retail sales of 218,225 units in 2026, up slightly compared to 2025. While we remain cautious given weak order intake over the past several months and broader economic uncertainty, we are beginning to see improved quoting activity. We are well positioned to fulfill orders as customers move forward with purchasing decisions. We sold 6,977 used trucks in 2025, down 1.9% compared to 2024. As freight rates improve and prebuy activity builds ahead of future emissions regulations, we expect used truck demand to improve in 2026. Our leasing and rental business delivered another solid year. Leasing and rental revenues totaled $369.6 million in 2025, an increase of 4.1% compared to 2024. In the fourth quarter, lease and rental revenue increased 3.6% year over year. This business continues to benefit from the strength of our full-service leasing operations, supported by strong customer demand and a younger fleet. From a capital allocation perspective, we remain disciplined and continue to return capital to shareholders. During 2025, we repurchased $193.5 million of our common stock. We also announced a new stock repurchase program authorizing the company to repurchase up to $150 million of common stock through 12/31/2026. In addition, we returned $58 million to shareholders through our quarterly dividend program, a 5.6% increase compared to 2024. These actions reflect the strength of our balance sheet and our confidence in the long-term outlook for our business. Looking ahead to 2026, we expect market conditions to remain challenging in the first quarter, but we are optimistic about the remainder of the year. With fleet ages elevated and maintenance needs increasing, we expect both commercial vehicle sales and aftermarket conditions to improve as we move into the second quarter. While we cannot control the pace of the market recovery, we can control our execution. We believe we are well positioned to respond quickly and effectively to our customers’ needs as conditions improve. Historically, when the cycle turns, demand for both new commercial vehicles and aftermarket parts and service rebounds quickly, and we believe the strategic investments we have made over the past several years will help us serve customers better and gain market share. Finally, I want to thank our employees for their hard work and commitment through 2025. This was a very demanding year, and their focus and execution were critical to our performance. With that, we will open it up for questions.

Thank you. And as a reminder, to ask a question, you need to press 11 on your telephone and wait for a name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Brady Lierz from Stephens. Your line is open.

Hey, great. Thanks. Good morning, Rusty. Thanks for taking our questions. I want to maybe start, unsurprisingly, on Class 8.

As you mentioned in your prepared remarks, we have seen an improvement in orders late in 2025 and here early in 2026. Can you just talk about what you are hearing from your customers? Are you expecting this to be a pretty meaningful prebuy here in 2026 ahead of the 2027 regulations? Just any clarity there would be helpful. Thank you.

Be happy to. The answer would be cautiously, but maybe not even cautiously, but optimistic that yes, there will be a prebuy before we get into the 2027 emissions regulations. You know, based upon not just the regulations, right, but you can incorporate regulations all you want. I was around—well, you were probably still in high school back in 2010—when we went to SCR. We were supposed to have this big, you know, buy and buy. Obviously, it was the worst year in forty years. Right? We had a little economic problem going on, which—so what I am reflecting on is not just the fact that the 2027 emissions, but the fact that their business is improving. And I am not going to get ahead of myself and say it is, like, accelerating or ramping up rapidly, but it is improving, especially over the last ninety days. I do not have to tell you. You know, spot rates have been up. Five to six months ago, most people would have thought going into their contract rates were probably going to be flat. Now people are hoping to get contract rates up, you know, mid-singles. Right? That line between spot and contract has moved nicely with where spot was so much lower before. So, you know, your business has to be good. And I am not going to say it is great, but you at least need to be able to see forward. Right? And that is important. We had so much uncertainty last year with regulations, with EPA regulations, with tariffs, and everything else. So now you can focus on these regulations and do it while your business is, you know, gradually getting better. It may not be reflected in all the first quarter reports, but I think most customers feel that their business is improving. When you talk about—we are talking about over-the-road customers right now because that still is the biggest segment, even though we are more diversified than most folks when it comes to vocational and over the road. But we still need that over-the-road customer to be solid. Right? It is the biggest piece of what you do still. And so combining, you know, some—most—we do not have full clarity, but we know we are not changing it. We know it is going to be 35. The government—when I am talking about NOx and stuff—so we realize that is going to be there. You know, they have not clarified everything, but you pretty much know what the cost is. And, you know, when you are doing something like this, the cost is one thing. It is, you know, a little bit new aftertreatment systems, and I watched 2010 when every particulate filter was clogged up when we came out of SCR back in ’10. I am sure there are a lot of people that still remember that. You know, you can have issues when you come out. So I am just giving you background. So you combine the EPA issue, clarity on tariffs, which has given clarity to pricing throughout this year, which we did not have last year, and their business getting better. So I am optimistic. The issue will be this. The issue will be we are going to run out of time. So, you know, it is already—we are, what, eight days away, nine days—what is it? Ten days away, excuse me, from the end of this month. I apologize. And we will be into March already. So I do expect order intake to remain what we have seen over the last couple months in that range, if not maybe even a little more because I think people are lining up. So I do believe Class 8 order intake is going to continue solid. You have to remember, we had a five or six month run last year, a six month run that was close to being less than the last two months. Five months for sure were close to being less than the last two months. So, I mean, all that—I know it is a long-winded answer, but you folks are used to my long-winded answers. I try to give you a full perspective here. Yes, the emissions piece is there. Yes, that is important. But it is also important that people can at least see a little further in their business and have clarity, which we did not have. So the combination of the two—yeah, I think we are going to get—you know, and I think you may run into a problem with supply side, problem with tier-two and tier-three suppliers. We are not there yet by any stretch because there was a lot of backlog to fill up. But it will be interesting to see where we are sixty days from now. So, I mean, a lot of customers are realizing they better—I think some go—well, I know they are—that they better get it on board now and not wait till summer, or we may run out of—it is hard to ramp up for that shorter period of time. You know, OEMs will ramp up. There is only so much you can do when you do not have clarity past, you know, January 1, really. But I do not see—just going further—I do not see ’27 to be a huge drop off either because we are going to get started. It is going to be—we are going to get started light here in Q1. Okay? There is no question. Lighter than we were last year in Q1. So you start in a hole. So, you know, the year could be similar, maybe slightly up. It is going to be, you know, packed into the back three quarters of the year, should you say?

I shut up. No. That is all very helpful

color. If we could just talk about parts and service for a second. You know, typically, you see a pretty nice sequential step up in the first quarter compared to the fourth quarter. But has the severe winter weather we have seen this year impacted that at all? Just want to get any thoughts there. And then, you know, if you could just talk about some of your strategic initiatives in parts and service. You know, you have mentioned in the past growing the technician headcount. Just how are those initiatives progressing?

Yeah. Well, I do not—I am not going to say, as I mentioned earlier, January was a tough month. When you ask about the freezes—well, we were shut down for about a week in the Dallas–Fort Worth area, and some other areas, we were—you know, down in the South, they do not know how to handle ice and snow. I can tell you it is not like—you know, it is funny that, you know, cold weather is good for your parts and service business, say, in Chicago. They are used to handling it. They have got snowplows. They do not have any snowplows in Dallas. Nothing iced over five days. Okay? We were almost shut. We really were. We were running skeleton crews. It was detrimental, let me tell you, to our southern stores in some areas. So that is why January was a real tough one. We are starting to see life, a little more life. You know, as I have said all my life, if I could just get rid of November through February—but I am from—you know, we are from the South. We were raised here. We are from Texas. And if I could just get rid of November through February, I would have, except for Christmas and Thanksgiving. But, you know, we are getting to the end of it, and, you know, we are starting to see, you know—it is typical seasonality, I would tell you. It was soft in January. It was soft in November and December, but that is seasonal. That is not something we do not deal with in the past. January was probably softer than it usually was because some of our bigger areas on the Peterbilt side were down, which are further south, got frozen up a little bit. And we do not operate—some of these places do not operate well in that. But I think it is just normal. We got hurt a little bit, but we should come out of it here as the sun comes out and heats up, as we get into March and April. I see no reason we will not, and we are seeing signs in February that things are better than what they were, which is just typical. From a strategic initiative, you know, our mobile service piece is something that we are really big on, and we continue. Last year was a big year for us from a mobile investment perspective. I can tell you we took on, like, $4 million more depreciation in mobile units last year than we had in 2024. So those are investments that we make where the payback comes back over the next five or six years as you ramp all that up. You would like to think it is all immediate, but it is not always all immediate. So we continue to ramp up that piece of our business. It is a larger piece of our business than it ever has been. It was running around 30%. Now it is running, like, mid-thirties or more of our overall business. So, going forward, we continue to believe that is going to be a big piece of what we do outside of our shops. I would say that is the most important. We did go backwards a little bit in technicians in the fourth quarter. But, you know, I think we were—you know, I am not sure exactly why. I am not going to say it was dramatic, so I am not going to make any big deal of it. But, you know, we are focused on continuing to get back to adding especially higher-level skilled technicians as best we can and are doing our best to train the young ones. You would be amazed that, you know, the turnover usually comes in those first-year, second-year folks. And we continue to have programs to work our way through that. But, yes, we will continue to try to grow technicians like we have in the past while we are still doing it profitably. You have to be careful when you are doing that because you have to be able to do it profitably, not just do it for the sake of doing it. You know, we have got some great programs from a delivery perspective. We are running pilot projects. I do not want to get into all that stuff. Some of that is what I consider proprietary. But you can rest assured we are not sitting on our hands. We never have and we never will. We will be out there running out front, hopefully. These are always getting chased, so you have to have something going on.

Yep. Absolutely. Well, one final one for me, and then I will pass it along. You know, you have mentioned quite a few times just throughout this challenging freight market the last couple of years, one of your priorities has been controlling your expenses—controlling the controllable. You did a nice job of that in 2025, particularly in the fourth quarter. Can you just talk about how we should think about expenses in 2026 given both your focus on wanting to maintain that cost discipline, but also considering we are expecting the market to improve here in 2026.

Right. Well, let me say this. If we get into really—well, I believe we are not there yet—if we can get a growth where we really feel some real growth, I am not ready to declare the claim. And I am talking parts and service growth, not truck sales. Remember, truck sales are—when you go, everybody goes SG&A, SG&A. Well, we run it different. S is attached to truck sales. G&A is attached to all the other expenses. Right? Because S is a variable commission piece driven by what truck sales are. So you sort of have to look at them in two separate buckets. Right? And that is how we do it. And, you know, I would hope that we can maintain our G&A at least close to flat. Okay? That is my plan here. Would be to do that. Now,

half

of the growth—if the parts and service business ramps up, we always talk about the fact that we will spend half of the gross profit growth. Now let me back up a second. Remember this about Q1. Do not comp Q1 to any other quarter. Q1 always jumps from Q4. Okay? You have got all your payroll taxes restarting, and the majority of our equity costs go out—half the equity costs in the company run in one quarter, and that would be in Q1. So if you look at our historical record, it will always show a jump from Q4 to Q1. So do not forget that. I would just compare it to last Q1 because that is always a jump that we have. That is what I would tell you to do, not compare it to Q4. You know, a lot of different things in Q1, like your payroll tax runs down as the year goes on, etcetera. And really, more than anything, the equity costs—the majority, not majority, but half the equity cost in the company—run in one quarter, and that would be in Q1. So, again, do not compare it to Q4; compare it to last year’s Q1. But we would hope to do a good job for now staying close to that number last year. But it is possible that it will ramp up some if our gross profits in parts and service start going up. We cannot just—you know, it takes people to do what we do. People turn wrenches. People drive and deliver parts. People do all these different things. And it is not like I am loaning money here. I am handling hard assets and stuff like that. But I would love to have that problem. So, hopefully, we will continue to see growth. And if we do not, I am planning on keeping it as flat as possible. If we stay flat in parts and service, I am planning on keeping as close as I can, with as little inflation as possible, to where we were. But we are hoping to have some growth. And, like I said, after getting out of January, seeing a little uptick here in February, which started up. But I am used to the seasonality of the business, whether I like it or not. And I just have to deal with it, and, hopefully, we will pop out in the spring like always.

Very helpful. Thanks for all the color, as always, Rusty. I will go ahead and pass it along.

You got it. No worries. My pleasure.

Thank you. One moment for our next question. Our next question will come from the line of Avi Jaroslawicz from UBS. Line is open.

Hey. Good morning, guys.

Yeah. Good morning, sir.

So, Rusty, as of where things are standing today—and

kinda discussed it a little bit already, just there—but what are your expectations for price/cost in the aftermarket business? I think it was somewhat of a tailwind last year, just as you raised prices of inventory to match the cost increases you were seeing. But then there is a lag for when those hit COGS. So how should we be thinking of what—yeah. Should that be a headwind here in 2026? And if so, roughly, what are we talking about?

Yeah. You could have a slight headwind as inflation—you know, with inflation slowing down. Okay? But I do not look at it as it would be monumental. There will still be inflation. It may not be quite as much. You know, inflation can be a tailwind to you when you are doing it if you can maintain. So I would tell you—what, a little bit of a headwind—but when you look at it as a percentage of the whole, it is something that, if you have a growing market, you could overcome without any—without question. So while we will have inflation, I do not expect the inflation from that perspective, from a parts perspective, to be as much as last year from what we are seeing from the suppliers and the OEMs right now. But it will be there. It just will not be quite as much. Hopefully, you know, what we are talking about is the market will get better and grow. You know, the overall market was flat—not just for us, for everybody—or even down. And for some people, whether it is independents or dealer-operated stuff, some of them were negative last year. So, you know, I am hoping that we get into a more—of, you know, as our customer base gets healthier, their spend will be more normalized. You know, you have to think about it like this, the way I look at it. These guys were over three years in a freight recession. And I have been around—I hate to say how long—but I am young. Young at heart. But I have seen a lot. You know, when it gets like that, people do not necessarily spend like they would if their business was normal, when they are in a recession. You saw companies lose money that never lost money. Well, guess what? When that is going on, you are going to put off spend. You are going to add—you know what I am doing? I am adding 5,000 miles to the oil change. You know what? I am not fixing that fender. You know what? I am not doing this. So the health of a customer is the most important thing out there. And, yes, we do a lot of vocational stuff. The over-the-road market is still the biggest piece. And this—even the small—I mean, we have been off double digits from our small customer for the last—each year for the last three years. So, you know, I—and you go, that is bad. Well, that may be bad, but right now, I am going to say, I look at it as a positive. I look at it—it cannot get much worse. Right? It is only one way to go, and that is up. So, you know, I hear you about the little bit of headwind, but I think the overall market, when I look at the possibilities, a healthier freight market is going to be way better than a little bit of headwind. And it is not overwhelming headwind either, by the way. But I still think there is going to be some inflation. There is no question. But other than that, we will be able to hold our earnings. You can see, I think we ran 37% blended parts and service in Q4, which is in line—looking back—with 37.2%, 37.6%, 35.8% actually, the last ’25. So my point being, 37% is solid. And I would hope we could maintain in that same range—blended parts and service margin—regardless of inflation. But, you know, the health of our customer base, especially the largest customer base, the over-the-road carrier—and once the big carrier gets healthy, guess what? The little carrier follows along. And that is where more of your retail parts and service comes from. Not more, but a chunk of it that has been super depressed. And so, to me, I am not trying to get—it is not there yet, but I have seen these cycles before, and I do not want to get too bullish or anything, but if things go according to historical, then I think we should be in fairly good shape to capitalize on that.

That makes sense. Appreciate that. And then on the medium-duty side of the business, saw a pretty sharp drop off in sales there in Q4. Still better than the industry, but a sharper deceleration than the industry in the quarter. So, you know, how are you thinking about the shape of the medium-duty demand here in 2026? Do you think it is going to be fairly similar to what we see in heavy duty? Or

I do not know. You know, I have some concerns around it, to be honest with you, but I have not seen the acceleration in it over the last sixty, ninety days that I have seen in the heavy-duty side. But a lot of times, you know, the medium-duty business is a lot of leasing and a lot of different customer base. Right? And tied more to the general economic activity of things going on locally in a lot of ways because it is more diversified-type products. Otherwise, leasing and box trucks and stuff—there are a lot of other medium-duty segments that we play into. So we are seeing more quoting activity right now. It has not come to fulfillment as much as the heavy has, but a lot of times, you know, it will be springtime. As we get around here going up with the NTEA and some things like—it is a big conference that comes up, the convention—things like that, where some of these things happen. So I am sure that it will line up historical. You know, I cannot sit here and tell you that we are going to sell lots and lots more. I would imagine we would be maybe based on ACT calling it pretty flat, to be honest with you. We would stay in line with the percentage of the market we are at now. But, you know, I cannot tell you I have booked it all already. That is for sure. But I can also tell you I am not afraid. We have got a pretty good salesforce out there. We represent many brands,

and

you know, we feel good. It will come. It just has not really yet for us, to be honest. But the quoting activity has picked up. You have to quote before you can order, and you have to get it ordered and get it built and get it delivered. So I am confident that we will execute in the lines of where we have historically, if not grow it. You know? I have got some stuff going on that I would like to see happen. It might allow us to even grow it, but I do not want to get out and put my skis on.

Alright. Appreciate that color. And thanks for the time.

I got you. My pleasure.

Thank you. One moment for our next question. Our next question will come from the line of Andrew Obin from Bank of America. Your line is open.

Russ, this is Steve. Good morning. Well, good morning, Andrew.

Just a question. Just going back to something you said. I think you guys were fairly

skeptical, and there was a big industry debate about ACT orders last month and were they one-time in nature. It sounds like you are sort of warming up to the fact that, you know, orders could actually improve faster. Could you just unpack this for us? Just what are you seeing happening with industry orders over the three to six months? How that is going to play out? Thank you.

Sure. I may be a little repetitive here, Andrew, but I thought I tried to answer. But we believe that, you know, once we got clarity—remember, it started on November 1. Let us get that right. When they changed the tariff rules, took effect November 1. Then we got some clarity a little later after that about, well, we are going to hold on and keep the 2027 rules in place from the emissions perspective, except for we are going to loosen up a few things here. We are going to—probably, and it has not come out yet—but the feds have said we are not going to keep all the warranties. Now, it has not been officially done, but they have communicated to customers and the like that we are going to cut the warranties back. Well, that was more than half the cost. We are going to be a little flexible on credits and how you do that. And I am not the technical expert. So you had all that go down. So that gave clarity. Right? So then customers started looking out next year. They knew they really wanted—they pulled back on purchases last year in the second half. And you cannot do that for too long, or you are going to—you have to bottle that up. Your maintenance is going to go through the roof. Age—your fleet age goes up on these big fleets. So people really started talking, I would tell you, in November. And, you know, in November, I do not remember what it was. It was 18,000–20,000 units. I cannot remember. But it was picking up, and we had a big December—38,000–40,000, I think—and then it was 30,000 last month. Well, at the same time, as I said earlier, people’s businesses—they started being able to see your tender acceptance rates came down from 98% acceptance to low 90s—even in the high 80s—which started to drive, you know, your spot market up. And it is not just weather that did it here recently. And people felt better about where they were at from, you know, in contracts going forward. There has been a little bit of tightening. Right? So that gives you—and people worry, is it sustainable? Right? The first thirty days. And now I am going out on a limb. Maybe I am going to be wrong. Maybe it is not sustained. I have a feeling that after three and a half years, it has got to be somewhat sustainable, if not gradual. Right? But sustainable, whether it is not some spike but a gradual sustainable improvement in their business. You tie that in with now you have got clarity. You know where it is going to be at the end of ’27. You may have slowed down on some purchases—some companies did—in ’25. Well, you know, that is why I think you are going to see some good order intake this month. Also, I am just guessing—it is a short month—but it will be solid. I do believe it. It is a short month because we know February, but I would expect it still to be solid, from people I have talked to. So, you know, I think what is going to happen is, as the backlogs fill—and I do not know for everybody because I have heard of one OEM that has shut down weeks here in the first quarter. Not anybody I am dealing with, I do not believe, but I have heard of one OEM that has, and I do not want to get into all that. But my point being, I know for people that I am dealing with, they are filling up. Not filling up, but you are getting orders. You are building a backlog. Most of them spread over time. So I just believe—I could be wrong—it is just my gut and maybe touch with the market, that yes, it will continue because people are feeling their business is not great, but they do not feel in the dumps. Sometimes when you have been living in the swamp—in the dumps—it does not have to get a whole lot better to make you feel better. And it has been three years of prolonged freight recession, but at least now you have to believe, you know—because remember, the first thing that happened is capacity is coming out. Everybody reads about non-CDL, or noncompliant drivers—there has been taken out here and there. And they have. But that is not an add-water-and-stir thing. But as that goes on, you take—you have less intake of trucks. Remember, we built a whole lot less trucks in the back half of ’25 than what we did in the first half. So you slow that spigot down. You start taking some of those noncompliant CDL drivers out, and you start squeezing the capacity piece. Then, all of a sudden, business starts getting a little better. Economically, it looks a little better. The ISM stuff looks better. I mean, there are a lot of things

that

tend to make me believe, along with emission regulations coming January ’27, we are going to have a pretty good last three quarters of the year. And I am not predicting doom and gloom after that, but it is a little far out for me to understand right now. I am just dealing with what I have got in the present over the rest of this year. We will talk about ’27 as we get halfway through or a little further through the year. But I feel good that it is sustainable and will lead to maybe even a better year. The problem is you start off—remember, the first quarter is going to be off. So you are starting in a hole to begin with. So you have to climb back out and then catch back up, which you should do for sure in the back half of the year—deliver more trucks than we did last year. For sure.

Great. Rusty, and just a follow-up. I mean, it clearly seems that the improvement over the road is finally driving your optimism for the rest of 2026. You have alluded to other parts of the economy getting better. Can you just talk about off-highway, which has been such a moneymaker for you over the past year—sort of got you through the drought? But maybe, you know, if we could talk about, you know, sort of these corporate fleets, if we could talk about construction, if we can talk about waste. What are you seeing in those markets? Because those tend to be economically sensitive as well. But, as I said, it seems to us that your message is very clear on finally starting to see green shoots on over-the-road recovery.

Yep. Very well put, Andrew. Yes. Seeing them on that side of the margin.

Yes.

You know, we love the diversity of our customer base. You know that. I would tell you the vocational pieces—I do not see the pickup that I see across, but I can see fairly flat to where we have been. Because we have been pretty solid in it. I have to be honest with you. So, as you said, it has helped us a whole lot over the last couple years. When there is an over-the-road freight recession, we have been really solid around that area. So I think that—let us say, I do not want to get into specifics. We might be a little softer in one segment, up a little in another segment. But when you look at vocational as a whole, I am going to say we are going to be probably flat with where we have been. I do not see any huge decrease or any—you know, we may—because some of them, we were still catching up from COVID the last couple of years, when you could not get trucks three years ago. So we have fulfilled maybe some of that or the pent-up demand. So now it is more like business as usual. But I do not see any big downtick. It is more back to business as usual. Some of the people we do business with were playing catch-up in ’24 and ’25 from not getting as much product in prior years, to be honest with you. So, you know, where they may be off a little, it is not off because they are off. It is off because they played a little catch-up, and we were able to capitalize on that. So when I look at those businesses, they are doing well, but they have caught back up to their normal replacement cycles. They got left out a little bit—some of those groups got left out back in ’22 and ’23—and then we picked them back up in ’24 and ’25. So just because someone may have bought 900 from me or something, and they are buying 750–800, that does not mean business is bad. It just means they have caught back up. Right? So you have to report. But I think, overall, we will be somewhat flat in the vocational pieces.

Thank you, Rusty. It has been a while since you have been constructive about over the road. Good to hear. Thanks so much.

Yeah. Well, it is nice to feel—even though it is the big piece, you know? But for us, vocational is big as well. So thank goodness. It is nice to feel that you have got an opportunity to maybe—you know, and I hope when I say over the road, I am hoping our small base comes back. I am a little

a little

optimistic there. I do not want to get overly anything. Wait till I talk to you in April, and I will have a whole lot better feel for what is going on—the sustainability of what we are seeing. And I am not trying to overwork it. But, like you said, it has been a while since we have been able to talk optimistically about the over-the-road business. And I am just looking forward—I think things are going to be better. So you add that with everything else we have got. In Q1, this is—we are just taking out—people get excited because they always say orders taken. Orders taken does not mean trucks delivered yet. We are the tail of the dog. A lot of times, we have to do a lot of upfitting and things like this to trucks when we get them. So that is why, when you hear me talk about, well, he took orders for us—well, that does not mean I am going to add water to the furnace and deliver them thirty days later. It could take three, four months to get them out there and get them delivered because of what has to be done, because we are the last guy that touches the end user. So, even though they are manufactured, we have upfitting places around the country where we make sure that we do all those things that customers need. A one-stop shop. That is where we like to be.

Thank you.

You bet.

Thank you. And as a reminder, to ask a question at star 11, star 11. One moment for our next question. Our next question comes from the line of Cole Cousins from Wolfe Research. Your line is open.

Hey, guys. Thanks for taking my questions.

From a Class 8

pricing perspective, can you talk to what you are seeing across the market at this point? Are OEMs raising

prices yet, or does it remain pretty competitive

as OEMs look to protect or gain share, and maybe how do you see this progressing through the year with EPA ’27 on the horizon?

Yeah. You probably did not do real well asking that question to the OEMs, did you? Okay. So you are asking me. You put me on the spot. I would tell you right now, we are still building backlogs. I would say, you know, there is no big discounting going on compared to where we were, but there are no huge raises now because that is one of the things. As we get later in the year, I would not be surprised to see—if supply and demand—if demand exceeds supply, you have been around long enough to know what that means. I will not even try to tell you. Everybody knows what that means. Okay? And so we are not there yet. Backlogs need to be built up. They have been drained down pretty good. People were building trucks in four weeks for you if you wanted it. So, you know, once backlogs get built up, we will let the OEMs decide, and we will be the poor guy in the middle trying to get deals done. But right now, I would say we are in the—OEMs are still in the process of getting their backlogs more healthy. So I am not going to say it is total cutthroat out there right now because it is not. But it is balanced at the moment. But if you start popping two or three more 35,000–40,000 months—which are not necessarily typical of these months coming up; in March and April, you are probably going to see demand obviously outpace supply, and I will let you take it from there.

Okay. Yep. That makes a ton of sense. And just—I know we have asked a lot of questions about this—but to follow up on Brady and Andrew’s questions, maybe to put a finer point on it, how much of what you saw in December and January do you think was replacement CapEx versus growth CapEx versus some degree of prebuy activity? And if it was some degree of prebuy activity, can you maybe talk to the risk of potential order cancellations late in the year if things maybe are not as good as they seem and customers are trying to get in line ahead of EPA ’27 as backlogs start to build again?

I feel very good about how solid what we took was. How about that? I see nobody out there trying to put placeholders. The business we took—it would take a recession or something for these folks not to take what they ordered. That is how solid I feel about it. It is not people putting placeholders. You have seen ramp-ups before where people put placeholders out there just so they can hold slots. That is not what is going on at the moment. I see none of that, to be honest with you. I see people being proactive, understanding what I just went through on the last question. They do not want to get caught in that demand-out-of-whack demand-supply piece. You know what that means. We already know what that means. So they are trying to be proactive, not just to the emissions, but also knowing that it is probably going to back up—whether you can get that second- or third-tier supplier. And that is what—I hate to say it, but you know what happens when demand outpaces supply—where price goes. Let us get real. So I think people are catching up. They probably did not purchase as much in the back half of last year because they did not. And, you know, the best way I can tell you is it is solid. I go back to—remember what I kept telling you—their business is better. I have said that three or four times also. It is not just emissions. Not just the emissions. You asked about price. I will answer it the same way. Their business is better. You have got emissions coming. You feel better. Like I said, you have been in the dumps so long—it is not a straight V, but it is a gradual climb up. You feel good about where you are at. You are trying to plan for your future. You know you are going to be in business for a long time, and you need to do the right thing. And you just put that together, and I think that is what you are going to see. That is what you are seeing, and I do not believe that activity level is going to

to

go away. It may not be 35,000–40,000 every month, but some people that are not participating are going to wake up here in sixty days if we have a couple, three more months of order intake like this and go, whoa. And that is what—you asked about price. That is when we are going to see how things move along then with that. So I would tell you that the folks that are on top of their game, feel well enough about what is going on, are doing the right things for their business plan and not waiting till the last minute to do that, knowing that there still is plenty of backlog out there still to be built. You better not wait till July would be my comment, or you might get caught, because ramping up production—I mean,

these

OEMs are having to make decisions right now, in the next thirty to sixty days, what they are going to do in the back half of the year. You have to remember that is more labor. That is more this. And it is the second- and third-tier supply chain that has been down in the last half of last year that you ask them to ramp up. They are going to go, well, how long for? And that is where you run into a problem. And that is what could happen. So, you know, if I am planning on being in business around a long time, and I am a smart player, then I am out working it right now. Okay? That is what I am doing. Because, you know, that could be an issue. It is not an issue now, but you better be looking out. You better not be living just in the moment. You better be looking out a little ways would be my comment to anybody. And I am not trying to play scare tactics. I am just telling you that you run into issues with that. And we will just—I think, if I am not mistaken, the engine’s build is the ’27 mark—not model year, but—one thing you have to remember: when you get towards the end of this year, it is about the engine. The engines all have to be built by the end of 2026 before you go into 2027. So it could be an interesting back half. Let us just say that. How about that?

That makes—that is good color. I appreciate it, Rusty. And maybe if I could squeeze one last question in—

Of course you can. You know I hate to talk.

I heard you on the small accounts being down double digits for the past couple of years. It sounds like that has not really come back yet, but maybe there is some hope that it will through the year. But maybe can you talk to what you have seen from the national account level and, from a higher level, talk to some of the initiatives you guys are pursuing to grow national account mix going forward?

Yeah. You bet we are. We always were. You know, national accounts—it is easier, more effective, and more controllable. It is hard to control what we call the unassigned accounts. That is still 30% of our business, roughly, and that is the little folks. Right? So we just want that to come back because that is going to be a higher margin. When you do national account business, understand they are national for a reason. They are not paying retail. So, while it can be a little hard on your margins, it is still more solid, sustainable, repetitive business, should I say. So you are looking for that foundation. The cream and the cherry on top comes when you get the small retail guy back in the game—the guy that is not listening to me on the phone right now. Those folks. They are still a part of what we do. But our national account business was up—not as much as we had been up, but it was up in some sides of the house—not so much in others—but overall, for last year. We will continue to focus on that. And we were up—not as much as we had. We were up by, like, overall blended, all OEMs were above 6%. So we will continue to grow that, understanding that you are blending revenue, you are blending margin, you are doing all that. We love that piece. We are going to continue to focus on that piece. It is the sustainable piece—more sustainable. It does not have the volatility of the small customer out there. So—but that is why I am hoping. But you have to get those guys—the national accounts—have to feel better, which they do. They will buy all the time. They just may not buy quite as much sometimes. We were up six years before—we were up double digits. Again, like I said, you are growing the revenue. Margin is not as high as the other. We work the blended margin. But I think everybody understands that. And we are fine with that. We will manage that piece. It is much more manageable for me than unassigned accounts because they are not assigned. You really do not know who they are. Small firms. But, hopefully, later this year, as the big guys get healthy, the little guys usually follow. But then they get growth. Then what happens is they get too good. They get too big, and we go back in the cycle again a couple years from now. So, right now, I would tell you, I am hoping that some capacity still comes out, which hits the small guy, but the ones left will be our healthier customers. And we will see some pickup in that later this year too. As rates go up, it helps everybody. Not just the big guy. It helps the little guy too. I know it is a long-winded answer there, but I hope I gave you some points there that you are going to grab hold of that make some sense to you.

Yep. Okay. Yep. That is helpful. Good to hear from you guys. I will turn it back.

Thank you.

Thank you. I am not showing any further questions in the queue. I would now like to turn it back over to Rusty for any closing remarks.

Hey. We appreciate everybody’s participation this morning. It is a short time before we talk again. We will talk in April. So, thank you.

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.