RUSHB

Good day, and thank you for standing by. Welcome to Rush Enterprises Inc. second quarter 2026 earnings conference call. 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Rusty Rush, President, CEO, and Chairman of the Board. Please go ahead.

Good morning, and welcome to our second quarter 2026 earnings release call. With me on the call this morning are Steve Keller, Chief Financial Officer, Jody Pollard, Chief Operating Officer, Jay Hazelwood, Vice President and Controller, 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 risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2025, and in our other filings with the Securities and Exchange Commission.

Thank you, Steve. Thanks everyone for joining us today. As we reported yesterday, we generated revenues of $1.9 billion during the second quarter, with net income of $72.8 million, or $0.91 per diluted share. In addition, our Board declared a 3-for-2 stock split for both our Class A and Class B common stock, as well as a post-stock split quarterly cash dividend of $0.14 per share, representing a 10.5% increase compared to our prior quarterly dividend. Returning capital to our shareholders remains an important part of our long-term capital allocation strategy, and we are pleased to continue increasing our dividend while maintaining a strong balance sheet. As I mentioned on our Q1 call in April, we believe the first quarter represented the trough of the down cycle that the industry has been dealing with for the last few years.

During the second quarter, we saw encouraging signs that market conditions are continuing to improve. While the recovery remains in early stages, improving freight rates and customer confidence, increased quoting activity, and significantly stronger new truck order intake all contributed to better business conditions as the quarter progressed. We feel good about the second half of the year. Given where the industry has been over the last several years, I am proud of how our team performed during the quarter. Our diversified business model once again demonstrated its resilience, and our team's ability to execute allowed us to capitalize on improving market conditions and generate solid financial results. We also continue making progress on our strategic growth initiatives. During the quarter, we completed the acquisition of five Peterbilt dealerships in Louisiana, expanding our Rush Truck Centers network through the Gulf Coast region.

We also expanded our Canadian operations through the acquisitions of five commercial dealerships there in southwestern Ontario, further strengthening our presence in one of Canada's largest transportation markets. Last week, we announced we signed an agreement to form a 50%-owned joint venture with MCT Companies, one of the nation's largest Carrier Transicold dealer groups. Subject to customary closing conditions, we expect the transaction to close during the third quarter. Through our investment in this joint venture, we are looking to establish our presence in the refrigerated transportation market, an adjacent business that we believe complements our core dealership operations and will allow us to expand the solutions we offer our customers while also creating long-term value for our shareholders.

This transaction demonstrates one of our strategies for achieving long-term growth. We will continue to evaluate other opportunities to acquire or invest in businesses that are adjacent to the commercial vehicle industry. Our aftermarket operations improved during the second quarter, accounting for approximately 64% of our total gross profit. Parts, service, and collision center revenues totaled $645.7 million, an increase of one and a half percent compared to the second quarter of last year, and our absorption rate remains strong at 130.8. Demand for our aftermarket parts and services improved gradually across much of our business as the quarter progressed, particularly among over-the-road fleet customers. As freight markets have continued to improve and fleets are driving more miles, we are beginning to see repair activity return after an extended period of customers deferring spend on vehicle maintenance.

With the aftermarket recovery, while the aftermarket recovery is still trailing the improvement we are seeing in commercial vehicle quoting activity and new truck orders, we are encouraged by the momentum we built in the quarter. Looking ahead, we expect our aftermarket business to continue improving as fleet utilization increases and new truck deliveries ramp up. Historically, new truck deliveries create additional opportunities for parts and services as customers upfit those vehicles and prepare trade-ins for resale.

We remain focused on improving operational efficiency, growing our managed and national accounts, and continuing to deliver exceptional service to our customers. Turning to truck sales, new Class eight retail sales remained below normal replacement levels during the second quarter. Despite that environment, we sold 3,172 Class eight trucks in the United States, essentially flat with the second quarter of last year, while the overall market declined.

That performance increased our U.S. Class eight market share to 5.8%, reflecting the strength of our customer relationships, our diversified customer base, and our disciplined inventory management. Most importantly, customer quoting activity and order intake improved significantly throughout the quarter, reinforcing our belief that the recovery we anticipated earlier this year is beginning to take shape. Looking ahead, we believe that the second half of 2026 will be considerably stronger than the first half with respect to Class eight truck sales. Improving freight markets, strong fleet profitability, and increasing customer confidence are all supporting higher quoting activity. We are also seeing customers planning equipment purchases ahead of 2027 emissions regulations, which are expected to be finalized soon.

With respect to medium-duty commercial vehicles sales, we sold 3,165 new Class four through seven commercial vehicles in the United States during the quarter, down 4.7% compared to the second quarter of 2025. Similar to our medium-duty results in the first quarter, our year-over-year comparison was impacted by the timing of orders and deliveries to several of our larger fleet customers, as our larger medium-duty customers delayed purchasing decisions into the first half of 2026. Like our heavy-duty truck sales, our medium-duty commercial sales improved steadily as the quarter progressed, particularly during June. Although ACT Research expects the broader medium-duty market to remain challenging during 2026, we believe our growing backlog, anticipated deliveries, and available inventory position us to meet anticipated customer demand. We believe that our medium-duty sales will continue to improve as the year progresses and will be roughly in line with our sales during 2025.

Used commercial vehicle demand also continued to improve during the quarter, with June being our strongest month of the year so far. Healthier freight market conditions continue to support customer demand, particularly among buyers looking for a cost-effective alternative to new equipment. While financing remains challenging for some customers, we believe higher new truck prices, combined with the approaching 2027 federal emissions regulations, will continue to make quality used trucks an attractive option. We expect used truck demand to remain healthy throughout the remainder of the year. We believe our disciplined approach to inventory management and pricing positions us well as the market conditions continue to normalize. Rush Truck Leasing delivered another solid quarter, generating revenues of $94.8 million, an increase of 1.9% compared to the second quarter of last year.

Its stable revenue model helps offset some of the cyclicality we experience in new commercial vehicle sales while continuing to generate healthy returns. Looking ahead, we continue to see healthy demand for leasing and rental services as fleets replace aging equipment. As new truck demand improves, manufacturers may eventually reach production capacity constraints. Our leasing and rental activity has historically benefited from reduced manufacturing capacity. Combined with improving rental utilization and continued growth in our contract maintenance business, we believe our leasing and rental operations are well positioned to continue delivering steady growth in the years ahead. To sum it up, I believe our second quarter results demonstrate both our resilience of our diversified business model and our team's ability to execute during a period when commercial vehicle market conditions are beginning to improve.

While the industry recovery still has a ways to go, we are encouraged by stronger order activity, improving customer sentiment, and healthier freight market fundamentals, all of which support our expectation for a stronger second half of the year. We also remain committed to investing in our future through ongoing strategic initiatives, organic growth opportunities, and acquisitions of commercial vehicle dealerships or acquisitions or investments in businesses that are adjacent to the commercial vehicle industry, while continuing to return capital to our shareholders through dividends and shareholder repurchase. We believe these initiatives, together with our strong balance sheet and disciplined operating approach, position Rush Enterprises and our shareholders for long-term success. Finally, I want to thank all of our employees for their dedication, professionalism, and commitment to serving our customers. I think they're the best in the business.

Actually, I know they're the best in the business, and their hard work continues to distinguish Rush Enterprises as an industry leader. With that, I'll take your questions.

Okay, thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brady Lears of Stephens. Your line is now open.

Hey, thanks. Morning, Rusty. Thanks for.

Good morning, Brady.

-taking our questions.

You bet.

I wanted to maybe unsurprisingly start on Class eight sales if we could. Since we talked last May, we did get some clarity from the EPA around 2027 emissions, and then, but just yesterday, a large public truckload carrier mentioned doing a strategic pre-buy. Can you just talk about what you're hearing from your customers on both the pre-buy front and what you expect Class 8 sales growth to look like in the back half of the year?

Well, from the back half of the year, obviously, as I mentioned in the release, we expect to ramp up fairly well. Our backlog is as big as it's been in a couple of years, to be honest with you, where we sit right now. I'll tell you, we're basically sold out. That doesn't mean we don't still have a few trucks to sell, obviously, because we stock a rather large inventory here. But from a large customer perspective, we're basically sold out in what we sell for both our brands on the Class eight side. We can still squeeze a few in there, here or there, but it is very difficult given the current productivity, or should I say, the build rates that are going on right now.

I guess the most exciting thing to me with the EPA coming out with what they have now, understanding that we still have a commentary period going on right now. When they announce what the regs would be with the commentary period still out there, they did announce NCPs, or non-conformance penalties. Which will most probably, at least for some manufacturers, have already mentioned what their plans are for 2027, which will be utilizing NCPs. I know PACCAR is going to, I know Cummins is going to do a phase-in of their new technology, but they will continue to produce old engines at least through September of next year. I think that gives a nice platform to really ease into the new.

It sort of excites me about next year, to be honest with you, as to what next year will look like, because we're not having a cliff event where everybody's just going to new technology. We will ease in to new technologies if any certain manufacturers choose to. Those are two that I know about. Not everyone has come out and said what their plan is yet, but I do know if I'm a customer and my business is showing the dramatic increases I think that we see in all the releases that are coming out, maybe not reflected totally in Q2, but the beats that I've seen and the optimism that I've seen, that allows you to further test new technologies while still buying at a decent current non-compliance penalty. Not too burdensome, I would say, given the overall cost of vehicles.

That allows you to ease into new technology. With my business getting better, I personally feel that there may be some upside to 2027 at the moment, given what the EPA has come out with. As we ease into it, almost move it all out sort of towards first of 2028 for some OEMs, at least those two that I mentioned that have already announced, and we'll wait to hear what others are doing. Right now, business is solid. That just came out two and a half weeks ago or so. Really now we're just getting into where we can truly quote into 2027. We're right in that transitionary phase, but I feel solid about the back half of this year for sure, without getting into exact numbers, but obviously ramping up into the third quarter and ramping up into the fourth.

Remember, we're not in the production side, we're on the retail side. We for sure should run in through Q1 with what our backlog is for sure. I would tell you we've got three quarters of solid backlog probably right now currently, and we'll wait to see how customers view and how their business continues. If their business continues to improve, but right now, most people believe it will. You're talking about double-digit rate increases for some of these guys right now.

With technology, with stabilization of old technology still going to be available, even if at a little bit higher price, without taking on emerging new technology, with maybe some possible question marks that always come with new technologies, I feel good about at least the first half of 2027 and probably on through the whole year, especially based upon the performance of our customer, our largest sector. Obviously, we're big in the vocational business too, but the over-the-road business is still the largest sector in the Class 8 market out there. I think all those things I mentioned bode well as we move forward for the foreseeable future.

That's very helpful. Thank you. Since we last talked in May also, we've seen a pretty meaningful increase in truckload spot rates. We saw a nice sequential

Yeah

step-up in your parts and service revenue this quarter. How are you thinking about parts and service revenue growth in the second half of the year? Just, are you seeing any headwind to parts and service revenue, just due to the fact that this improvement in the freight market is supply-driven and not demand-driven?

No, I think we've seen it. We have seen some headwinds. The parts and service business have been slower recovery than our order intake from a truck perspective on the Class eight side. It just has. It's been a very competitive environment as people continued to manage their spend. Just like I tell people, it's just like you manage your household spend when it goes down. Now that we're seeing stabilization and business performing better from a customer perspective, we expect that spend to get more in line with normal activity, what we would consider normal activity. It's been tough for a while now on the parts and service side. We've been pretty flat. With some margin compression driven by the competitiveness of the marketplace. As the quarter progressed, we saw it picking up, which bodes well.

As we get into the back half of the year, there's no question in my mind, and I'm even through so far in July, we've seen continued, not ramping up double-digits, but gradually improving and feeling really good about, it will be solid improvement throughout the rest of the year. We feel good about that. We really do. Are we where we need to be? No. Are we improving? Say really a lot over the last 45-60 days, can we see it? Can we feel it? Can we look in our backlog in our shops and see that increasing? Yes, we can. I think one of the things that's really important is that for the first quarter in a while, our small customer base, I've talked about them before. Our unassigned accounts. We've been crushed the last three years in that area.

Every year it's been down double-digit 10%. We've finally seen a trough in that, which is a good thing to see. Up slightly, small single-digits. Obviously, that's roughly 30% of our service business, 32% of our service business. While we've seen growth in national accounts, it's been very competitive pricing, but feeling like we're going to see the small customer show back up, which is usually better for us, or it's part of our mix that we've really been missing, that's been declining for us. There are many things, along with also increased new truck activity.

I mentioned in the release, and I mentioned in my earlier comments that, there's upfitting and a lot of things that go on because of our diversified customer base when you're in the construction and refuse and these other businesses, and even in the over-the-road businesses produce when you're installing APUs and doing all kinds of different things that come off of truck sales. I'm giving you a few different anecdotes here to why I feel good about it, that I believe it will continue to improve throughout the remainder of the year, would be what I would tell you. There's not going to be this one-month dramatic jump, but I do believe sincerely that it will continue to improve and continue to ramp up with everything. As much as anything, given the health of the overall, the largest customer base we have, the over-the-road business continuing to improve.

That's all very helpful, Rusty. Thanks so much for the time, and I'll leave it there. Pass along.

You got it.

Thank you. Our next question comes from the line of Cole Kuzens. Sorry about that.

Perspective, it sounds like to me.

Your line is now open.

Hey, guys. Thanks for taking my question.

Good morning.

From a build and demand perspective, it sounds like the new EPA proposal could be good for the Class eight industry this and next year. Let's say an OEM wants to sell a current model truck with an NCP next year. How does that impact your pricing and margins in that scenario, if at all?

I think you answered the question, if at all. At the end of the day, an NCP is going to be a known number. It's going to be hard to mark up a known number driven by the federal government. How about that? Okay. To be honest with you, there'll be a pass-through. There'll be FET on it. Right now, a Class 8 engine is in the $6,800 range, the way most people are interpreting it. As I said, that's plus FET. Your 12% federal excise tax on top of that. At the same time, there's a commentary period going on right now, so it is subject to possible change. I do believe there are differing viewpoints on this by different OEMs, and I'm not going to get into all of it here.

You can ask them individually yourself, but I do believe they have different opinions of the NCP, the amount of the NCP, et cetera. Personally, I think it's fairly fair. It allows for a transition, I'm sure that it will be like this is not known, but my own thoughts, my own opinion, is that will be a one-year type scenario, and then it will ramp up a lot more by the first part of 2028, which will probably make, by that time, I would expect everybody will be rolling in their new technology anyway, and it won't be much difference. To me, it makes a little sense from a customer perspective. Look, I know certain OEMs felt certain ways about it. At the same time, if you take a customer sentiment, they're happy about it.

This allows them to come off three and a half years of freight recession. Just beat up terribly over the last three and a half years. This allows them to gather themselves, maybe replenish their fleet with some older technology, known technology, as we roll into new technology from an aftertreatment and even a little bit, there's a little more than just the aftertreatment that goes into some of these engines, depending on who the manufacturer is. I don't see a lot of downside from a customer perspective. Like I said, different OEMs are going to have different opinions, but customers will probably be pretty happy to have an NCP, a choice, and then watch it transition later through the years, what I think you'll see for most folks. It's not a cliff event.

It just makes sense for an industry, from my perspective, coming off of a terrible freight recession, longer than I've seen. It allows them to get a little healthier without having the risk of technology, the engine in their trucks without that risk, and they can try out more, right? I would expect customers to buy some new technology and run some new technology from certain OEMs that offer both platforms. That's what Cummins, I think, mentioned. They're going to roll in as the year goes on some and transition in. Different OEMs have different opinions from a customer perspective. I think it's pretty good. I don't consider this a pre-buy year. You mentioned the word pre-buy. We're going to end up the year over what the last 10-year average was.

We did 95,000 in the U.S. Class 8s in the first half, and we've averaged around 230 the last 10 years, okay? Well, that means there's 135 to roll in, which is close to a 40% retail upside in the back half of the year compared to the first half of the year, which gets you right back. You're going to be very close to what the annual average has been in the U.S. over the last 10 years. I do not consider 2026 a pre-buy year. I could see a 2027 with NCPs out there. ACT has already got 2027 higher than 2026 because of the slow start to 2026.

I could see 2027, you might eventually get to where you call it a pre-buy if there eventually is sort of more of a cliff with technology changes coming forward, by the time we get to the first of 2028, along concurrently with customers' health better than what it was this year, right? There's my opinion right there, okay? It's not set in stone, but I think it's a possibility. I think we just have to let it unfold. I do believe NCPs are going to make 2027 a better year without a blip of any kind as we roll into it. Remember, like I said, for us as the retail then, we should be rolled with what we've got in the backlog through the first quarter, if not into the second quarter, some, with what's in our backlog.

With NCPs and customers' health getting better, there may not be a blip if a technology change go about. People will just pay that extra $7,000 or so and roll right along, right? Because they're getting old technology, proven technology, while just paying a little price for it that's not too exorbitant. Just my thoughts.

That all makes sense, and it's super helpful, Rusty. Maybe just also, can you speak to what trends you're seeing so far in July, whether it's across commercial vehicle sales or aftermarket, and maybe expand a little bit more on the trends you're seeing with small unassigned accounts versus some of your larger national accounts please? Thank you.

Sure. Yeah, I touched on a little bit of that earlier, I don't mind being a little bit repetitive. Obviously, truck deliveries are going to continue to increase, right? We're receiving trucks more than we have received before. Remember, when we receive trucks, it is typically 30 days, depending on applications, to 120 days before we deliver to the end user. I expect July, August, September and throughout to continue to ramp. It's not going to double or anything like that, but if you were to ask me about truck in this quarter, we'll be up 15% or something. Remember, our carry is going to go into next year. Like I keep saying, the stuff we build in December will not be delivered in this year. It will get delivered into January and February. Some stuff in November will.

This will ramp for us and continue to ramp as we go forward. Parts and service, I already said I expect it to continue to get better. I've listed a multitude of reasons why, right? Which the small user being one of them, right? We saw a 4% sequential increase from Q1 to Q2. Not a lot, but we did see that. While still very depressed from what it was, say, three years ago, at least you feel like you're bottoming, right? Hopefully you're profiting and that from that perspective and you've got upside. That's 30% of our parts and service business that we've been fighting. We've been fighting that really hard the last couple, three years and producing the results we have, given the diversification, whether it's by that customer segment or market segment or whatever. We deal with a lot of markets.

I know I've talked a lot about just over-the-road here this morning, I do not want to forget about our vocational businesses, whether it be in construction or refuse or whatever vocation it might be in, or our medium-duty platform, right? Those are all things that go. We work on everything in our shop. The over-the-road business gets the major focus because it is a huge, it's the biggest market. Yet at the same time, we supplement it with diversity from a geographic and a market perspective. I feel that it's going to continue to get better. I don't want to get over-exuberant this morning, I think there's some legs. I do believe that we got some legs on this now, especially when I talk to customers, when I see what's going on. We're not totally done with the EPA.

As I said, we're in a commentary period, we pretty much know that they've cut the warranty, right? Warranty stays where it's been, okay, on the after-treatment. It doesn't go to some 10 years warranty that was costing an extra, the government said six, seven, $8,000. That was going to have to be priced in, right? We've changed the length of the life expectancy. We've done some things, the government has, to solve, and while still going towards the 0.35 eventually, NOx submissions to begin with. We have also the credit perspective, there's a lot of things that go into all that, I'm not going to get into. There are many. I can sit here and talk. There are many things that I think are positive, right?

Not all of them will probably come to pass, but there's a lot of, should I say, positive feelings around our industry right at the moment. When you're basically sold out for the year, we haven't done that in a while, six months out. Rolling into next year, I feel good about us. We're going to have inventory to sell to that is not sold. Because with most, a lot of this business has been fleet business. There's just positive things, man. I could go on and on. I'm a rambler, so, but I don't want to get ahead of my skis. I don't want to get out over my skis either. This still has to come to pass. At the same time, I can't sit here and give you negative thoughts that I may have in the past. Allow it.

Allow it to come to us, and I think that's what we'll see happen. We'll continue to see improvements like we saw from Q1 to Q2 from a result. Even though it wasn't all top-line driven or margin driven, we managed this company from a G&A perspective extremely well in the quarter. I'll be quiet.

Yeah, last one. Any signs on the small unassigned versus the national accounts?

The small, well, the small guys, if they missed out from a truck sales perspective, tell them I might have some inventory they can buy from a parts and service perspective. By the way, they're going to be able to buy next year with not that big of NCP. $7,000 isn't that bad. In reality, when you're talking about vehicle or $1,000 vehicles here, okay? You're not talking about some 10% or 15% price increase here, right? You just may be a little longer to get it as their business improves. That's what's driving used to be better, right? Is lack of availability of new, that's what's going to make the used market stay solid. It's really on the parts and service I just spoke about. I think I said we were up 4% sequentially. In my mind, just call it flat.

We were trough. We'd been going through three years of year-over-year double-digit decreases. That means it's the health of even the smaller carrier, in spite of all these fuel issues, right? In spite of all the geopolitical stuff that's going on. I've been fairly amazed at the resilience of the market. Of course, that has to do with the business model and the pass-through of fleet to the shippers that have gone into place for the last 30 years. At the same time, I feel good about it. I think the small carrier is, if he's survived this far, he's going to make it, okay? If they've made it this far, though, that's the good ones, and they're the ones that are going to make it, and they will go. They'll get their spending habits back more in line with what they would be normalized spending.

That doesn't mean they're going to spend, but they're going to get back to more normalized maintenance and repair, and that just bodes well for us. There's more miles being driven. You're talking about supply being driven down, that drives the miles up on the ones that are driving. I could go on. Things just continue to look for solid sequential improvement. Not we're going to double or anything like that, solid sequential improvement, which is good, I think, for a longer period of time. Most people believe that this freight recovery should have 24 months on it or so. We've been around long enough to know this thing's cyclical but should have some legs on it for a while. Driven by supply coming out. We're getting some growth on the other side, too, the coin.

If that continues to improve from a tonnage and a mileage, from a load perspective, you have a couple years of legs on this thing.

Okay. Helpful, Rusty. Thank you. I'll turn it back.

You bet.

Thank you. Our next call comes from Avi Yarilovitz of UBS. Your line is now open.

Thank you. Good morning, guys.

Good morning.

Yeah, Rusty, I know you've already spent a lot of time talking about it, but just sticking on the dynamics of pre-buying this year versus next year, would you say that you don't really think we've seen or you're seeing pre-buy demand this year? Or is it really more about just how much the OEMs can produce? Because thinking about $6,000-$7,000 NCPs before the FET, it's not nothing for next year.

That's right.

Wouldn't there still be some incentive to pre-buy this year?

Well, the problem is production, right? I think we're fairly sold out. There's a little left out there, but it's not a lot, and I'm sure it might get a little pricey. You know how it is. I would tell you, we're fairly sold out. All right? Most OEMs are. They may not say they are, but what they do have left-- By the way, that doesn't mean they cannot figure out how to produce more, okay? Based upon current build rates, you could see some build rate increases that will produce a little bit more capacity. They've got to get in place pretty quick here because it's not that easy to ramp up. I don't expect people to be putting on extra shifts. I expect people to be maximizing. Look, I'm speaking for the OEMs themselves, and I don't like doing that.

I would imagine they will tweak as best they can to make sure they're working weekends, and doing everything they can. I would tell you, what's going to happen, typically happens right now, is you're asking the second and third-tier suppliers to ramp up. Okay? That is fairly difficult for some of these folks to do. Not necessarily the OEM. It's not necessarily OEM constrained. It's constrained with the second and third-tier suppliers. They manage that part of it. I realize $6,000, $7,000 is something. At the same time, with improving business conditions, and then with a known technology, that's a proven technology, without any changes, that's why I feel the rollover will just roll into 2027. Yeah, it's a little money, but at the same time, it's not the end of the world given what these vehicles cost nowadays.

The trucks have gone up in the last six years, like 35%, man. By the time we get to next year, it's crazy. It's a production problem. At the same time, I go back when you said, I hate this word, pre-buy. It's still going to be around the average total, that's all I can tell you, delivery-wise. The production side might be higher, but it'll roll into Q1. Again, I go back to, with the EPA saying what they said, if these numbers stick, definitive numbers on an NCP, and customers' business getting better, I just think this rolls over and continues into 2027. I could be wrong. It's just my opinion, without much of a blip. Customers' businesses, from the old road perspective, ramped up quite dramatically here the last four or five, six months. I see a lot of positive out there.

That was after last year was under, and the first half of this year was way under what replacement was. I see replacement catching back up. Right now, we're just catching replacement. We'll have to see if anybody tries to grow. They usually do. That creates a cycle, eventually. Like I said, we're pretty much production constrained, outside of any OEM increases. I know they're trying, but I'm going to let you talk to them about what they're able to do.

Right. Okay. I understand that. One of the things you mentioned there was potential to see some pre-buying next year ahead of the engine changeover in 2028.

Yeah.

How are you thinking about those dynamics? If $6,000 to $7,000 increase for next year is manageable enough, broadly speaking, the incremental cost increase in 2028 wouldn't be in that ballpark even. It would seem to be a little less than that. There's more time to get these engines tested and work out the bugs in them. Why would you expect a pre-buy potentially next year?

Because it's proven technology. Okay? Because it's proven technology. I've been around a long time. I've seen technology changes before. I've never seen one without a blip. That doesn't mean it's the end of the world, but I've never seen one. I go back to 2010, when we switched to DEF. There was more clogged particulate filters around this country than you could shake a stick at. Okay? Our shops were full of them. Anybody with a memory knows that it's never as smooth as you anticipate. Maybe I'm wrong, but typically, in this one, not everybody's using the same technology. Not everybody's going to DEF like it was at that time. I'm not an expert on all of them, but different after-treatments. Not exactly the same as how they go to market.

I have to believe that if I'm a customer, I'm willing and wanting to have more of what proven is and be the last one to join the new. Even though people will say, "We'll get better fuel mileage" and things like that. I know that uptime is the most important thing I have going for me. Proven technology allows you to understand what your uptime is, and your reliability is. That's my opinion. It's just an opinion, but it is mine, that customers would prefer to go with proven technology. There'll still be a little bit of an increase, even for the new technology. I realize maybe it's $4,000 or $5,000, when we get to 2028. Who's to know? I'm not here to tell.

There's some other things behind the scenes you've got to remember that have gone on in the last year that make this an interesting time. There's been tariffs and things like that affect different OEMs different ways. I'll just say that. We'll have to wait and see what that pricing will be the first of 2028. Neither.

Yeah.

The two OEMs I represent have not priced new technology. How about that? Okay. How am I to know what it'll be? I know what I'm roughly told, but it has not been priced.

Okay. Yeah, that's fair enough. Definitely interesting times.

Yep. There's a lot of variables out there right now. There really is. You throw in all the tariff stuff from the last year, you throw in the EPA stuff. There have been more variables in this, whatever, 12-month window, than I've seen in a long time. A 16-month window, go back last April of 2025 with tariffs starting up, now roll in the EPA variables that we're dealing with now. There's just a lot of variables out there for manufacturers. There really is.

Right. Yeah, no, that makes sense. I just want to switch topics maybe from talking about the cycle to some of what you guys are doing. Would love to hear more thoughts about the MCT deal and the entry into the refrigerated trailer market. How you're thinking about that as a strategic move and the long-term vision here. How are you thinking about continuing to grow within that space? Really, is this a launching off point, or is this more of a one-off type of deal?

Well, first off, no, it's not a one-off deal. We're committed to the space. We've studied the space for a while now, for well over a year, and we think we found the right partner as the launching off point. Okay. A sizable deal inside of a market that is obviously not as large as the truck business, but at the same time, a very similar business model, right? It's refrigeration units. I've been through their couple shops, with Bill and the gentleman that we're doing the JV with, and that's a solid organization we're partnering with. I do believe it's a solid manufacturer that we will be able to grow with. I'm not going to put numbers on that growth, right? We haven't even closed the first JV or the first deal. That JV will be looking for growth as we go forward.

It's not a one-off, for sure. We've had these discussions. We've had these discussions, and we feel good that we're going to be able to bring even a stronger balance sheet and partner well with the organization that we're doing the JV with. Over time, those opportunities that we believe will be there for us for further growth. That's what we're not getting into it for a one-off, that's for sure. It aligns perfectly with what we do. There's so much overlap in customer base that we believe that relationships that we have, we'll be able to bring to the table and also leverage off relationships that this organization has. I think it's a win-win for both MCT, for a Carrier, and for Rush. Now, the proof of the pudding is in the eating, so we got work to do, right?

I'm extremely excited about it. Should get it closed by the end of August, I think, is the timing for it right now. That's what we've got targeted, I think August 31. We'll roll it in later this quarter. You add that to the acquisitions we did earlier during this quarter. While they may not be hugely accretive to begin with, those 10 dots, those are 10 more dots on the map for Rush that allow us to service a customer base better than anyone else from a service perspective. No one has as many dealerships as we do scattered across the U.S. and Canada. We leverage off of every, regardless of who we represent, it's Rush Truck Center first and foremost, and when it comes to how we interface with customers.

That ability, don't worry, they will be accretive, but we've got to get our systems and our things into place. It's great to have the state of Louisiana represented on the Peterbilt side and on the International side. What we did up in Canada, I guess there's 20 locations in Canada, and just further increases our customer touch, both areas. Louisiana, further across the Interstate 10, we almost got it. We don't have it all covered, but we got most of it all covered across the U.S., across I-10, which is obviously a large corridor for the South, from a long highway perspective, and even for large vocational customers where they have operations. When we do one of these deals, I'll tell you something interesting. I went over and visited the stores, and I told the stores in Louisiana, I went and visited three of the five.

I told them, I said, "Look, one thing I can promise you is that a year from now, you're not going to know 50% of the customers in your shop. Why? Because when we take on an acquisition, we bring a huge customer base with it, especially from the national account perspective." Right? Now we have to grow the sales forces, grow our parts and service sales forces, get out there and use our standard operating procedures and get in there and do it. That's exciting. It's not an add water and stir thing, I can guarantee it'll be, a couple years from now, it'll look a whole lot different than it does now, for both of those acquisitions, just because of how we go to market, and we're looking forward to growing the other.

I'm telling you this, we will continue, as I mentioned, if you heard me in the script, we will continue to look at other adjacencies that make sense around the core expertise of Rush Enterprises, which is taking care of selling, servicing, and taking care of commercial customers, both large and small, transportation customers. It will be something around that core expertise. There are other adjacencies that I do believe that we'll continue to look at while growing the one we just entered and continuing to look for growth across our dealership network at the same time.

All right. Sounds good. Appreciate the thoughts and the time. Thank you.

You bet.

Thank you. Our next call comes from Andrew Obin with Bank of America. Andrew, your line is now open.

Hey, how are you?

Good morning, Andrew.

Good morning. Just a question, more deals in Canada, just how much room do you have in Canada, and is it going to be PACCAR? Is there room to grow Navistar frame or network, if you can chat about that? Thank you.

Yeah. The International side, Andrew. Without getting specific, do I have room for growth? Yes. Okay. That is a combination of working with our manufacturer. Both of these acquisitions were not done just us running off. They were working with the manufacturer, getting their blessings around it. I would tell you that there are other opportunities up there. Obviously, I can't get into more details, but we do believe there are other opportunities, and we do believe we have room for growth, given the framework of our agreements with them in Canada. I'm not going to get any more specific. If you remember last year, we acquired a bus dealership in Canada last summer, which has been very successful for us. School bus business with International. We will continue to look at those opportunities, Andrew. Remember, that's a JV for me.

We did that back in 2019. At that time, it was 50/50. We currently have it at 80/20, obviously 80 us. Very pleased with that joint venture and looking to grow it, I'll be honest. There's room. I just really can't get into the specifics. That obviously involves other people's businesses, proprietary businesses. I don't want to talk about it. Yes, we have room in our agreement with the OEM. Now we do it lockstep hand in hand with them. There is room for sure.

Thank you very much.

You bet. Okay.

My apologies. This concludes the question and answer session. I would now like to turn it back to Rusty Rush for closing remarks. Rusty, back to you.

Sure. We appreciate everybody's attendance this morning and look forward to a solid Q3 and have a call in October, late October. We'll see you then. Everybody have a great close to their summer.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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.

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