Rush Enterprises, Inc. Class B Stock

Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc. Reports Third Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rusty Rush, CEO, President, Chairman of the Board. Please go ahead.

Well, good morning, and thank you for joining us for our third quarter 2026 earnings call. With me this morning are Steve Keller, our Chief Financial Officer; Jody Pollard, our Chief Operating Officer; Jay Hazelwood, our Vice President and Controller; and Michael Goldstone, our Senior Vice President, General Counsel and Corporate Secretary. Before we get started, I'll turn it over to Steve for a few 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 discussed in our annual report on Form 10-K for the year ended December 31, 2025, and our other filings with the Securities and Exchange Commission.

Thanks, Steve. We had a strong third quarter. Revenue was approximately $2.1 billion, up 12.4% from a year ago, and net income was $78 million, $0.65 diluted share and up 18.2% from a year ago. We also declared a quarterly cash dividend of $0.14 per share. The biggest drivers this quarter were higher new truck deliveries and improving aftermarket activity.

Freight conditions have continued to get better following a prolonged downturn, and we're encouraged by what we're seeing as we move through the fourth quarter. The quarter also demonstrates the value of the diversified business we built. We serve a broad range of customers across multiple parts of the commercial vehicle market, giving us different avenues for growth as conditions improve.

During the quarter, we completed our 50% investment in MCT Companies, giving us a meaningful entry into the refrigerated transportation space. MCT operates 17 full-service dealerships and 3 mobile service locations across 6 states. This is a great strategic fit and another step forward, providing customers with more of the products and services they need to operate their fleets. Parts and service and collision center revenue was approximately $680 million, up 5.8%. Aftermarket operations generated nearly 63% of our total gross profit.

Our production ratio was 128.3%. Demand improved across our customer base with particularly good growth in energy and wholesale. We also saw encouraging improvement among smaller local customers. We expect that momentum to continue, allowing for normal seasonality. Trucks we're delivering from our backlog should also help create additional parts and service opportunities. At the same time, we're focused on operating efficiently and capturing more of our local customers maintenance and repair business.

Class 8 was particularly strong. We sold 3,880 new Class 8 trucks in the U.S., up 24.4% compared with industry growth of just over 10%. That brought our Class 8 market share to 6.5%. Over-the-road customers drove much of that growth as improving freight rates and need to replace older equipment supported demand.

Our backlog gives us a good visibility into the strong fourth quarter and first quarter of next year, although supply constraints could affect the timing of some deliveries. The bigger question right now is new order activity. Quoting and orders have slowed as customers wait for clarity around the EPA's 2027 emission rules and ultimately manufacturers pricing. We view that largely as just a timing issue. Underlying demand remains healthy, and we expect ordering activity to improve once customers have the information they need to make replacement decisions.

Medium-duty also performed well. We sold 3,265 Class 4 through 7 vehicles in the U.S., up 9.6%, while the overall market was essentially flat. Several large fleets that had deferred purchases earlier in the year took delivery during the quarter and our ready-to-roll inventory helped to serve customers as manufacture capacity tightened.

We remain positive about medium-duty demand going into early 2027. We added inventory during the quarter to help manage possible production constraints, which should put us in a good position to respond to customers who need equipment quickly. Used truck demand was also healthy. We sold 1,913 used commercial vehicles, up 5.5% over the last year, with demand particularly strong among smaller fleets. Limited new truck availability and expected increases in new vehicle prices continue to make used equipment an attractive alternative for many customers.

Our leasing and rental business also had a good quarter. Revenue was up $98.2 million, up 5.3%, driven by improved rental utilization, along with continued growth in full-service leasing and contract maintenance. We expect rental demand to remain healthy next year as some customers consider alternatives to buying higher-priced new vehicles. Overall, I'm pleased with how the business performed this quarter. We generated strong growth, gained share in both Class 8 and medium duty, saw continued improvement in aftermarket demand and maintained a very strong financial position.

During the quarter, we repurchased $10.3 million of our stock, paid $16.4 million in dividends and ended September with $226 million in cash and cash equivalents. Going forward, our focus remains pretty straightforward, serve our customers well, make it easier for them to do business with Rush and continue investing where we see attractive opportunities. That's what our total solution strategy is about. We want to support customers across the life of the vehicle from the initial purchase through parts and service, technology, leasing, rental and other solutions. The more effectively we do that, the more valuable those relationships become for both our customers and Rush.

Finally, I want to thank our employees. Their hard work and commitment to our customers are what make these results possible, and I appreciate everything they do for Rush enterprises. With that, I'll take the questions.

[Operator Instructions] Our first question comes from the line of Andrew Obin.

Just Rusty, maybe you can just -- we talked about it, Rusty, Steve. Maybe we can talk about just regulatory uncertainty and how it impacts your customer behavior going to '27.

Sure, Andrew. I could probably ramble on for 20 minutes talking about it. There's no question that getting regulatory answers from the EPA is critical for manufacturers and customers alike, right? And most people, you may remember, I'm going to try to make this as short as I can. The EPA came out and gave a draft back in July about what the changes they were making to the 2027 January 1 rule.

Basically, they said they were going to allow nonconformance penalties if you chose that, which means you could carry the old engine that we had and still sell it, but there would be a penalty. Heavy-duty was around $6,700, medium around $4,400 plus FET on the heavy-duty engine or you could bring on your new technology, which would be meet the 0.3 35 milligrams, whatever is NOx, if the law has been written for a while. In doing that, you could also use credits to buy that down from 0.65, okay, to 0.35, okay?

So you really had different choices. They got rid of the warranties, they said because there's supposed to be a 10-year warranty on after life after treatment, excuse me. And we're going to go back to the regular 1-year standard warranty on after treatment, not 10 years. And also some other provisions inside that really weren't quite as expensive, but some other provisions they had out there.

Now that's a graph. So it was up for review, a commentary period. All the comments came back, and we kept hearing we're going to get the final decree in November. Now in the last couple of weeks, I'm hearing that we're not going to get it in November. There's been some things that have gone on, I think, in the EPA that are going to delay it. And possibly -- I don't know for a fact, but possibly, we're going to be told just to work off a draft. We'll get the final decree out in January and February, but it's got to go in the 1st of January. So it's kind of up in the air as to exactly is that really is going to stay the same?

Are they going to make adjustments? Will they get NCPs up or down? We don't know, okay? But you have to go off the assumptions that the draft will stay the same, I believe, unless they do come up with the final decree. That being said, all the manufacturers are taking different paths. And that's fluid also. I do know that PACCAR is all in on NCPs. I know that Cummins is in on NCPs through the end of September, rolling in new technology. International has going to go with NCPs for probably 4 months and then roll into the new technology through the summer.

Freightliner is not going to do that. Freightliner is going with the new technology right out of the bat, right out of the chute. Volvo, I feel sure I know they've got new technology. I think it might have a mix. So my point to you would be that it's all different across the board. I've never seen a law. I mean I'm pretty old, right? In fact, I'm really old. So I've never seen an EPA law or decree where it wasn't the same for everybody on one particular date. So it's sort of in some ways, hunted the full implementation of the January 1, '27 EPA law to where it's sort of spread out.

Some will come in on January 1. Some may not do it until the following year. You don't know NCPs, there's no close on the date on it, but it would probably go up a rather large amount in January 1 of '28. So I would imagine that it will allow from a customer perspective. I don't believe we've had time to truly test these engines. That's my personal belief.

So I do believe it gives customers a chance to not have to roll right into this new technology because everybody is after treatment is a little bit different, okay? I can talk forever, okay? All the manufacturers are doing about it a little bit different. So I think from a customer perspective, I would be leaning towards wanting to pay some NCPs, that's my personal opinion, and roll in and test the new technology before I go all into the pool. Let's dive into the shallow end, not to deep end, right? Let's ease our way into it. If I'm a customer, that's how I approach it. But I'm not a customer. I'm just not a dealer. So -- but I've talked to many of them, obvious. I just came back from ATA, and that's definitely not a few of them talk. Now I'm sure some will go in with the proper assurances.

But the manufacturers we represent are going to ease into the pool. This would be the best way for me to tell you, as I just went through. So -- but it's all over the board. is to -- and with still uncertainty driven by our great government that can't seem to write a final decree. But I know there's a lot of legal ramifications. They have to be very careful with the changes. They've tried to make it easier for customers.

By allowing NCPs, most customers would prefer that and then test. I don't believe customers have been given enough time. In fact, I know they haven't with anybody's technology on the aftertreatment to test it. Most folks want to run this stuff for over a year plus before they roll it into their fleet because we've seen throughout history that new technology is not always running just right, right out of the gate, right? There are adjustments that have to be made and sometimes there can be major adjustments. I mean I go back to something that's as simple as going to DEF, which we did in 2010, when we went to the blue to the DEF, like Europe, SCR technology. I'm going to tell you, there was clogged particulate filters all over this country, okay traps and stuff.

Our shops were full of these kinds of things. As we rolled into that, even something that have been running for years in Europe, we had issues with implementing here in the U.S. So people remember those cars, so they would, in my mind, prefer to roll into it. But I'm done, like I said, I could talk forever about it. And you've got my opinions on it. It may not be everybody's but their mind. And so that's -- they're not trying to the lay of the land, which is different depending on who you're talking to, and we're waiting it would be great if we can at least get a final decree because no one likes working off a draft.

And then you get stuff on order and things happen and the decree comes out, it can get a little messy in my mind if we don't get a decree.

Rusty, no, great. I appreciate your comprehensive answer. And maybe another question is on any potential disruptions to OEMs' ability to ship trucks to you given potential supply chain constraints over the next couple of quarters, how that thinking has evolved? And what do you think given that both shipments and orders will look like over the next couple of months?

Any time you ramp up like these manufacturers have, some of these folks have got 6 to 8 increases or more throughout the year. Now they say ramp slowly up, I know. I mean I know both my manufacturers are running at full tilt, okay? But what happens is you put a big strain on the supply base. And it's not always just the #1 supply base. It's not your Tier 1. It's your Tier 2 and Tier 3 suppliers that you're asking to add people, add all these resources and ramp up for a big 6-month period, but then you can't guarantee them Class 8 truck market is always what it is. It's a little volatile. And so you're asking them to ramp up 80%.

Well, then you can't guarantee them ramp down. And so then they got -- it's about hiring people, training people, getting going. and giving them -- so it does put a strain. So what I'm saying is it really on the Tier 2, Tier 3. There are some cases of Tier 1, I'm not going to get specific that have popped up here in the last couple of weeks that are going to make some of these deliveries get stretched out. And it's not one OEM. It's all OEMs that are affected, okay? So don't let -- I think some people make it, but no, it's the OEMs we represent, it's the ones we don't represent.

So what happens if you're trying to keep the lines running good and what happens is you short what I call Tier 2, Tier 3, you're short this gauge or you're short this lens or something. Well, you're not going to just stop the truck and leave it on the line. You're going to take it off, make sure everything is fine, get it tested and put it in a back lot so you get that piece, then you're going to go put it on there. So it's just -- you got to touch the vehicle 2 or 3 times. And when that happens, it did happen. This is nothing unique. This happens every time you have this big surge in manufacturing and order activity. So it does cramp the supply. It does slow down the deliveries. I've got numbers of what my Q4 should be, but I'm not going to guarantee it because some of it could get delayed into Q1.

So I think that's why we feel pretty good about Q4 and Q1. Now I can't tell you much about Q2 because I don't think anybody, no OEM has much backlog. I got we all got a little past with the new engine stuff. So I feel -- but I remember we're a dealer. So we're on the tail of the dog. So we're not manufacturing. We're delivering to customers, which typically takes 30 days to 90 days to 128 days, depending on if it's over the highway or goes into vocational businesses and the bodies and things like that. So that's why I can fairly confidently say, I feel good about Q4 and Q1, Q2 to be known. But remember, we've had 6 months of backlog. And it's not -- and so it's -- by the way, it's going down every day because we're not -- the order intake is not going to be super strong.

But as it goes down and as we get clarity on emissions and we get clarity on pricing, because there's inflationary pieces inside of this besides engines not all the engines. So OEMs and customers or dealers, of course, including me, but really, there will be a meeting of the minds on pricing. But when I told you about all those different technologies on the new stuff, it's really interesting right now because the different technologies, I'm jumping out further to your question, by the way, the different technologies have different cost factors to them and different OEMs are in different positions coming out of tariffs and stuff. It is really a pretty complex game out there right now. I know it's going to get sorted out as backlogs decrease, we'll get sorted out because there is demand out there. I know there's demand for next year. I've talked to customers.

It's just this fall we're in of clarity on emissions and clarity on future pricing, right? But it will get sorted out here in the next 60 days, and we'll get back to normal. There could be a little bit -- there could be a small blip for back half of Q1 and something in Q2, but it will get sorted out because the demand is there. The age of the fleet is up, okay? So regardless about growth, the replacement demand is still there going into next year, which is why I think you see ACTs out there. I don't know, they're up like it's 10% or something. I don't have it in front of me right now, but it is up 8%, 10% -- now subject to change, of course.

But because we'll start the year off in my mind with a better Q1, that's deliveries than what we did last year. So I know I'm going past your question. But yes, back to your question, it will get stretched out due to supply constraints. They will get built in my mind, I don't see anything that's going to blow it all up, but you're also fighting the law, which basically means the engine has to get built prior to December 31 if you're using old technology.

Or should I say, I think it goes down, you have to set the crank in the block. That's how it really reads. But you will build old engines into January, okay? I think there's a 5% piece that the government put in their decree. I know I'm getting, but -- so we will build old engines into January. So if you look at it, there's still another, a little less than 3 months of building old engines, right? So -- but the supply piece to your first question, is going to be -- stretch it out a little bit, right, which I'm fine with. Let's just get it all delivered. I don't look for anybody to not take their equipment, okay? The demand is there. It's just a matter of getting it all built, which stretches out. It's just a timing issue on that piece of it.

Our next question comes from the line of Brady Lierz of Stephens.

Parts and service revenue growth was really strong this quarter. Can you just talk about some of the drivers of that growth? Was that mostly kind of your larger over-the-road accounts? Are you also seeing strength from your smaller unassigned accounts, too? And then just any -- how sustainable you think this growth is into 2027?

Right. Well, first, I do believe it is sustainable. I don't look for it to be dramatic, but it's nice to be even gradual good growth, okay? I would tell you, national account growth was there, but also smaller accounts didn't decline as dramatically as they have been in the last couple of years, right? They were starting to flatten out a little bit, which is nice to see, right? That means you're starting to get to the bottom of that piece of your business because that is typically your more profitable piece. But from a mix perspective, what growth we have was more in the national account piece. And it maybe wasn't as strong as it had been, but it was there, right? I could tell you at the end of the quarter, the 2 -- we measure things per day, how much gross profit per day we produce in our shops.

And August and September, August being the best month of the year and September being the second best month of the year from a per day average. So that was encouraging, right? So we'll see. Remember that in Q4, we do have seasonality. We do have holidays. Q4 is always the toughest, especially November and December as we roll into it just because there's less working days, right?

Yes, we have basically 3 less working days, right? And working day to us is worth $3-plus million a day in gross profit. So we will be battling back in Q4, we always do. years, it's 2. This year, it's 3, the way we look at it, we strip out the holidays. So when you put the figure the holidays in. So that will be a seasonality battle, but that's every year. So what you're really hoping for is, like you said, underlying good, strong growth, understanding seasonality, that's just -- that happens every year, right? But that underlying growth is strong and solid.

And for right now, it appears to be that way. Also, we're helped by the delivery of vehicles. Anytime we're delivering more new vehicles, some of the work -- there is work, especially in our vocational businesses where we add equipment or get them prepared, predeliver them, add stuff, sticker them, even on over-the-road business, right? There's still a little bit that goes with it of upfitting that we do to get trucks ready to go to the end user. So that's always helpful, too. So it looks like it's -- we will still maintain that with a gradually improving customer base and more trucks to deliver, which will create more gross profit from that perspective for parts and service.

That all makes sense. Maybe just lastly on used truck sales. They stepped up nicely in the third quarter. How are you thinking about used truck sales, especially just going back to Andrew's question earlier about the regulatory uncertainty. Are you seeing any tailwinds to used truck sales from that? Or just any thoughts into '27?

Sure. Yes. Without question, we're seeing used is solid, right? We're managing our inventories well. We're actually I think because the used market has been a little better, some customers are disposing of more of their selves. And we're not taking as large a fleet freight packages as we have in the past. Now when it's bad, they always want you to take them, right? When it's good, they like to sell them themselves, not all the time, but it does see that trend inside of it. So we're going to maintain solid used truck results, I believe, steady as it goes, should I say, stable, no big -- sometimes used is the one thing in the world that will bite it. But I don't see any bites on us coming in the future for the next few quarters. And I believe it will still be solid next year.

Just remember, with these new truck pricing going what's fixing to happen, you're just increasing the spread. That helps used trucks maintain value when new truck prices go up. We're still not anywhere close to back to the percentages that we were 3 years, 4 years, 5 years ago because new truck prices have shot up 30%, 30%, 40% in the last 5 or 6 years.

And used truck values haven't. So percentage-wise, we're still way under -- if you go back historically go over the last decade or other decades, percentage-wise, still a bigger gap than ever. So I don't see any big hit in used coming right now, my friend. I expect them to stay good and strong. I'm not going to sit here and say, I know I've read where some folks big rental leasing companies, they are going to be up 10% next year like-for-like. I'm not going to say that. Glad to see them up a little bit and make this strong and good and solid in my mind. But let's see. I mean, if some of these technologies didn't work out as well and it's after treatment, and there's more to it than just the after treatment. There's been some hardware changes inside some of these engines that are going to come out.

If you had something like that happen, you could see used truck values shoot up, okay? But I'm not here to predict that or say that. So my point being, they should hold in be good, and we should have strong steady go. We've got any issue's getting used trucks right now, okay? We've got buyers out there who're buying used trucks besides trading for used trucks, too. So if there's any issue right now. Like I said, it's just having the right good enough inventory. But we're managing it well. And there's been times in my life when you're in a different position. So I feel pretty good about where we're at.

Our next question comes from the line of Cole Couzens of Wolfe Research.

It sounds like outside of EPA uncertainty, you believe demand is still pretty strong. Coming out of ATA, what gives you the confidence that this order lull is temporary heading into 2027?

What gave it to me because people still said they had demand. Now remember, they're taking a lot of trucks, okay? It's -- besides all the diversity in people's choices and technology, which drives different pricing from the OEMs. Besides all that, okay, they're taking a lot of trucks right now. And they know that customers know, and I'm always wide open about everything. Customers know that they don't have a backlog next year. So they're going to push back on pricing for a bit, but they're taking all these trucks in the back half of the year. We're building at an extremely high rate right now. We really are. Well, those trucks have to be in service, which means they have to outservice other trucks if they replace them. So they have to take trucks out of service, put trucks in service. And that takes a little time for them, too.

It's not like -- it's not like going to the races jumping out of one truck, truck and the next one. It's a little more to it than that because you got to get the other truck ready for disposal, which means you got to fix it up the used truck, the new truck needs to be ready to go on the road. So it takes them a little time. I know that people said they have strong demand, but they're not going to be in a really big hurry. I don't see that. I'm not saying that that's just not what I see. I talked to a lot of people. It will -- right up front. I'm sure that as we get closer to that time frame, look, this industry at times, I've seen this industry have 3 weeks or 4 weeks of real true backlog in it before.

So in the just-in-time world we've created over the last decades, few decades, people can ramp up and get ready and deliver pretty quick. So I think as they roll all this in, they still have a lot to buy next year. I saw some CapEx budgets that were talked about. It just may not be smooth as you go because of these other issues. So that's what gives me the confidence. Plus I look at the age of the fleet, and it's up higher. I talk to people that their fleet, if they want it X, it's X. It's up almost a year higher than what they like, which what that leads to higher maintenance that they're paying, right? They want unless not as reliable, less reliability, the over your fleet is. So it's there, and they're slowly, even though we believe there's legs.

Let's look at -- I'm talking about the over-the-road business. I look for vocational to be good next year, if not better than this year. It's been steady as it goes. But the over-the-road is still 70% of what's going on. And while we know what happened going back to last January, spot rates shot up 30%, 35%. At one time, they peaked at around 50% up year-over-year, and they leveled back down in the 30s range year-over-year, but people start to roll in their contract rates. People that have more dedicated stuff, it takes longer to roll it in. We got more dedicated depends something you're talking about.

But we -- I still believe -- and the real caused by constraint of what drivers and things like that was supply side. It wasn't demand freight side driven. It was supply. I do think the economy still seems to be -- I can't believe how well the economy has weathered all this. The war in Iran, the fuel prices and everything else, the economy continues to show through somehow. So I do believe still we're eventually going to get some demand help drive it.

Right now, it's been -- if you remember a year ago, the government was cracking down on noncompliant drivers and this and that, all these supply side things. So all this has been driven by supply side. I still think there's going to be some legs for some demand, okay, coming next year, just by novice opinion. So if you add that in, folks haven't been really able to grow a lot because there's a lot of driver cost. You're seeing some of the releases. They're better than what they were, but there's still a lot of cost, right? So they're still -- even though they're getting better freight rates, they're spending a lot of -- most people are up 10% in driver pay, right, and plus the other cost of the equipment and things like that.

So I just believe -- so it keeps pressure on the supply side, but I believe demand is coming and people wanted vehicles. It's just a matter of we're taking a lot right now. I need to get clarity on pricing and technology, and I'm going to buy a lot of trucks, okay? Because I need to, as simple as that. Even though I don't make it a simple answer.

No that's super helpful, Rusty. And I guess maybe just a question on margins. You guys had strong revenue growth in both commercial vehicle and aftermarket sales, but margins are still down year-over-year. I'm assuming there's some mix headwinds in there, but can you expand on what's driving that?

It's -- I would tell you, look, margins this quarter from a truck perspective were 10 less than 2 in the last 3 quarters. So to me, they were kind of flat. So I hear you, they were a hair higher. They were in the 8s still, okay? It was 8%, it was 8.1 and it was at one time it was 8.5% back a year ago or so. And really truly, it's a mix. We're getting more fleet business, okay? The small guy comes in always a little later. I'm hoping and expecting to maybe start seeing some improvement. I think our mix is going to get a little better as I look at it going into Q4. I need to see -- I got to make sure what gets delivered on time and what, okay? I don't see margins getting any less for sure.

And I see there's some upside to truck margins in my mind in the next couple of quarters, okay? When it comes to aftermarket, our parts business grew better than our service business. And your service margins are well more than double what your parts margins are, right? So we were -- I think we're only off quarter-over-quarter. We were off 1%. We weren't as good as we were a year ago. That's for sure. 100 bps or more where we're 1% off, but pretty similar to where we have been, it's mainly a mix perspective with better growth in parts than we have in service. So that would be my best answer.

And again, also on that, remember, I'm doing what I said earlier, I said my growth was in the national account fleet business. Well, that's not as good a margin as a small person, right? So again, it's more of a mix thing. And I for sure believe we can get it back. It's just been -- but I'll take it. Like I told somebody said, well, gosh, why would you want to grow -- why would I want to grow that? Because if the small guys were hurting worse, I got to get growth somewhere, but it might come a little bit less margin, right? And that's really what it's about. It's a parts and service mix and it's a customer mix kind of thing. But when the small guy comes back, you'll see those margins get back.

That's helpful. And just one quick follow-up on the supplier delays. Can you -- where is the actual bottleneck? And is the expectation that, that should start to abate as we enter 2027? Or do you see this getting -- like when does this end?

Well, that all depends on demand. okay? The bottleneck is across the board. As I said, in Tier 2 and Tier 3, that these OEMs have well more 1,000-plus trucks that are all really built except for tubular parts or something, right, and they're parked got back. So that bottleneck it's across the board. It's not one particular thing. There's only one Tier 1 thing that I've seen in the last few weeks, and I think people are trying to work their way through it. I'm not going to get specific about that. So those little things will get -- once -- unless we get some orders, there will be no problem come February.

So -- but I do expect this to start getting -- but that's still a ways off. as I said, I walked through our customers are not in a big hurry to take Q1 trucks. They're in servicing all these trucks. I know people that some people, their orders, 50% of what they bought this year are coming in Q4. Well, that means they're going to end service in through Q1, and they'll buy and get trucks on delivery for Q2. That will happen. But that's still a ways off, okay? And with all the uncertainties I talked about, I got time, they'll tell their selves because I know the OEMs don't have any big backlogs next year.

Now they better be careful. I would tell a customer that I do expect acceleration. I can give you reasons why you shouldn't. -- hold off. But I can't -- it's not my money to spend it's theirs. But you got to be careful because I do think when it hits, it's going to hit hard, fast and big, right? I think when orders pick back up, they're going to pick back up quickly, okay? Because some people aren't going to want to miss, okay, and have what happened in the back half of this year where not everybody got everything they wanted in the back half of this year, especially your smaller customers. So it will happen. It's just a timing thing. I have confidence it will happen.

People's needs and someone asked me a minute ago, was there a lot of orders given out of ATA, to that I'm aware of. But I do know there was a lot of talk, a lot of talk about demand that's needed, demand out there. But there's time in their mind because they got so much coming here in this back half part of this year in service. So it could be a slight little bubble in the -- as we transition to new technology, but it's not going to be a big one, and it won't last long. I have confidence in that.

Our next question comes from the line of Avi Jaroslawicz of UBS.

So just trying to think about what Q1 could look like, right? So it sounds like as long as the engine is produced even for the most part by December 31, that it's not going to get an NCP in 2027. So -- and it sounds like some of the supply bottlenecks are kind of downstream of engines. So are you thinking that the OEMs are just going to stock up on as many engines as possible? And how do you think the spillover into Q1 could look like?

Well, if they could, they would -- but there are regulations as to how they can do that. I can remember in the old days when they would have warehouses. We're a little more sophisticated than 40 years ago, okay? It's a little harder to do in the world we live in now. These 2 manufacturers would stack them up big, right? But remember, they don't operate -- first is, they don't operate that way. Everything is just in time. People don't operate like they used to. They don't have warehouses and parts and stuff when the manufacturers don't.

So -- but there is, I think, a 5% carry rule. It's just a matter if they can get a build. I'm not sure -- I don't want to speak for everybody where they are, but I expect everybody to build into January. I don't know if that's 3 weeks, 2 weeks, 4 weeks, probably 3 weeks, 4 weeks into January, if they can get the engines. And I'm not -- I can't answer that question because I said the old rule, and I think it still is cranes going to be laid in the engine by December 31, be totally complete the cranes going to be in the block.

So I would imagine OEMs, some for sure, will want to carry as many as they can legally, and that's what they'll do. So that would tell you you're going to have some already online trucks. And remember, just because the manufacturer builds 200 trucks a day. He's probably got 1,000 trucks going through there, right? They don't build in 1 day or more. So you got all that going through. There's a week plus that's already in the factory, then you got a 5% carry. So that gets you what's a month, 8% or something to 12%, 8.5%. So that gets you close to about 3 weeks to 4 weeks of build in the Jay. And I would imagine that would be the goal of most of the man. I've asked them, that's their business, but that would be my guess. So that gets you 3 weeks, 4 weeks in January, and then we're going to go. We're going to go to NCPs.

And by the way, if you're a customer, you going to just pay an NCP plus whatever for your model and inflation. And that's the part that's being negotiated out right now, okay? So you know what the NCP is. We know costs have risen. So this time in that little piece. So I don't see, especially for folks that are going to be using NCPs, I do not see a big stoppage or some big block in the road to get it done. there could be a little something, but it will just -- it will come to a cost factor, but it's real simple to figure out because the NCP is what the NCP is.

The problem is we're working off a draft, okay? And you got to hope it stays the same. So it does get a little confusing there. So again, I would -- but remember, I am -- we're on the tail of the gulf. So I expect us to have a solid Q1. But I need to wait and see what gets built and delivered in the fourth quarter because of all this tier supply issues, right? So I don't have clarity as to exactly how everything falls out. I feel pretty good about both quarters. But I'm just not sure. So I feel good about Q4. I feel decent good about Q1. Q2, I'll have to get to, but we got time. So as they sort out all these issues, I keep repeating myself about and talking about should them right now. But that's where we're at. That's clearly where we're at. So I'm not going to try to quantify it because I don't know about shortages and things if stuff gets delayed a couple of weeks here or there, what -- where it goes, what it go to vocational, it go here, go there. It will all be all right.

Okay. I appreciate that. Yes, I mean, it sounds like if they can keep building another 3 weeks to 4 weeks into January, then that could take retail sales into pretty much through February...

Pretty much in fourth quarter. That takes you pretty much through Q1, okay? And then I got some uncertainty in Q2, but I've still got plenty of time, okay? Because we got to sort up pricing and technology here real quick. And we'll get that sorted out in the next 60 days, I'm confident, okay?

Got you. On the pricing side.

The demand's there. I am telling you there's going to be demand. I believe there will be demand. I don't look for demand to go away. It just got these uncertainties, man, and it will get itself sorted out, it always does.

All right. On this pricing dynamic, so if I'm understanding it correctly, it sounds kind of like the OEMs kind of underlying core pricing to cover costs and whatnot. Is that somewhat dependent on what the final NCP is going to look like? Is the thinking of it as like a maximum price that can be absorbed for next year and it's just a question of whether part of that goes to their margins or is just passed through or...

Well, from what I hear, we know that we've had some inflation more than the Feds want, right? It happens in the truck business, truck world to manufacturers. They've been absorbing. You can see margins and stuff. it's not hard to go find them, even whether it's even the Europeans have spun off their truck division, it's really easy to go find what truck margins are. So I expect manufacturers, I think, are not trying to be anything like gazing or anything. They're trying to recover some costs plus NCP. Or if you're doing new technology, who knows what it costs, okay, only you do. So -- but if you're going down the NCP route to begin with, which both of my manufacturers are, you're going to just have to bet on the draft and then it's trying to recover the inflationary pressures you've had, right, and cover your increased cost. And that gets you to the number you're supposed to be at, and that's where we will get to, okay? It just takes a little time validation of what those costs really are outside of NCPs.

And if everybody gets comfortable, I'm not going to get into the numbers and stuff I really don't want to. But at the same time, it's pretty simple. You got an NCP it's NCP plus recovering what your increased costs are. I don't think people are looking for big margins going into the year to begin with. It's not like you know you're going to have demand, but you don't have it now.

So you need to go build a backlog. Maybe you can work on it in the back half of the backlog. But right now, people did work on the back half of the backlog this year. I can tell you that, that was back in June and July when they were building it, okay? That will eventually happen again when we get the demand back for the new technology and the new pricing and stuff, upfront, manufacturers will be just trying to recover if they want down NCP, whatever the NCP is, plus the increase cost. I think that's what I'm seeing out there. It's just that, again, customers aren't a big hurry. You try to get them in a bigger hurry. They're not. They're taking so many trucks. I've gone over and over this right now. And that's my take on it. I could be wrong, but I don't think I am. So on where we're at. We're just in this little space right now. I expect everything to sort itself out in the next 60 days is all I can tell you.

All right. And I just want to circle back on the parts and service business. So we were hearing over the last couple of months that some of the spike in operating costs put some pressure on demand there just with some strain on budgets, doesn't look like that was something that showed up in your numbers in Q3. Do you think that was a factor in the quarter for your business? Or we could have seen a stronger improvement had the costs, fuel and driver costs not spiked as they had? Or is this maybe an unrestrained kind of quarter?

Yes. I would tell you, we feel it. We -- I said -- one of the things when I said margins are not as high as they were, say, a year ago, they're in line with where they were the last quarter or 2, real close. Part of that was mix and part of it was competitive pressures to your comment, right? There's -- people were still really tight because especially the smaller guys that may not get all their fuel surcharges, they spend more money on fuel, right? So they're rather watch their maintenance and their repair budgets a lot tighter. Same thing. We've been dealing with for 3 years in the freight recession and you get all this fuel spike, and it adds more pressure into it. It's not just one thing. But yes, we know all the costs are up. You can see it inside the earnings releases, okay? So that's going to put pressure on all expenditures, right? And especially as you get to the end of the year and people put out a lot of their budget, you start seeing it here in Q4 sometimes. But I'm proud of the team.

We went out there, as I said, we continue to grow our national account business with a little less margin. Yes. But it's still help support the overall of what we're trying to accomplish. As I said, August was the best month we had. When you look at the way we do like measuring only by the hour, by the day. September was the second best month we had. So those were encouraging signs, right? So I think there's still underlying opportunity out there for us, like I know there is, okay? All we did was sort of bottom out. We were really flat. We really were flat overall a few months, I mean, last year, into this year, it was really flat. But we saw some increased demand in August and September. I'm not really want to put a number on October yet.

We've got a big week here to get it all figured out. But I feel good that it will be gradually sustainable, right? And at the same time, we're going to continue to look for M&A. I'll tell you that right now. I -- nothing big, but lots -- maybe you can put a lot of blunt singles together out there. But back to your real question, yes, the mix was one thing. It's there. Cost pressures put pressure on margins, right? Because everybody is out there in the marketplace going after it. So it's a lot of things, right? But guess what, we performed. In my mind, we performed as well as anybody in this environment that we were in, still on the parts and service side. I'm scrapping the truck side all the way from the parts and service side.

So we've been performing and continue to perform. We are looking to do that a little maybe next year, probably get some growth tailwinds in that. Last couple of years, it's been really difficult, but we are feeling good about the opportunity to grow our parts and service business sequentially better than we have the last couple of years. I'm not talking about just straight up growth. I'm talking about good, solid, gradual. Now we got to find what gradual is.

Hopefully, in the mid-singles would be nice is what we would like to see next year from a same-store perspective, and I'd be okay with that if that keeps going like that direction. I'm not looking for double-digit parts and service same-store growth. I am looking for mid-singles, maybe upper let's see, depending on the territory, which area it is in the country. But overall, I feel good about underlying demand across the board going into next year, not where we're at now, where we're at in parts and service feels decent. Truck may have a little bubbles going to really be good in Q4 and Q1, and we'll sort through these uncertainties, and I feel good about the whole year as a whole, but it won't be straight line. It never is a straight line.

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

Well, folks, I appreciate your participation and your listening. This is the longest gap I have between calls because it will be middle of February before we talk again. So in closing, I'd like to wish everybody a happy Thanksgiving, a Merry Christmas, a Happy New Year and just overall very happy holidays this year. So enjoy your families, and we will look forward to talking to everybody in mid-February. Thank you very much.

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, Inc. Reports Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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, and 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, and 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 5 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 5 commercial dealerships there in Southwestern Ontario, further strengthening our presence in one of Canada's largest transportation markets.

And 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, and 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 1.5% compared to the second quarter of last year, and our absorption rate remained 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 8 retail sales remained below normal replacement levels during the second quarter. But despite that environment, we sold 3,172 Class 8 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 8 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 the second half of 2026 will be considerably stronger than the first half with respect to Class 8 truck sales. Improving freight markets, strong fleet profitability and increasing customer confidence are all supporting higher quoting activity. And 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 4 through 7 commercial vehicles in the United States during the quarter, down 12.7% 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, and 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. Our leasing and rental business continues to be one of the most consistent contributors to our financial performance. 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, and 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 repurchases. 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 are 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.

[Operator Instructions] Our first question comes from the line of Brady Lierz of Stephens.

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

Okay. 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. And I'll tell you, we're basically sold out. Now 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 8 side.

We can still squeeze a few in there here or there, but it is very difficult given the current productivity, 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, understanding that we still have a commentary period going on right now. But when they announce what the regs would be, with the commentary period still out there, they did announce NCPs or nonconformance penalties, right, 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.

So I think that gives a nice platform to really ease into the news. So 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 is just going to new technology, we will ease in new technologies if any certain manufacturers choose to. Those are 2 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 noncompliance penalty, not too burdensome, I would say, given the overall cost of vehicles.

And that allows you to ease in the new technologies. So with my business getting better, it gives me -- 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 and almost move it all out sort of towards first to 2028 for some OEMs, at least those 2 that I mentioned that have already announced, and we'll wait to hear what others are doing. But right now, business is solid. We're just really -- that just came out 2.5 weeks ago or so.

So really now we're just getting into where we can truly quote into 2027. So 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 in the third quarter and ramping up into the fourth. And remember, we're not in the production side. We're on the retail side, right? So we, for sure, should run into Q1 with what our backlog is for sure. I would tell you, we've got 3 quarters of solid backlog probably right now currently.

And we'll wait and see how customers view and how 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. So with technology, with stabilization of old technology is 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 '27 and probably on through the whole year, especially based upon the performance of our customer, our largest sector.

Now 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. So I think all those things I mentioned bode well as we move forward for the foreseeable future.

That's very helpful. Since we last talked in May, also, we've seen a pretty meaningful increase in truckload spot rates. We saw a nice sequential 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? And 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 8 side. It just has. It's been a very, very competitive environment as people continued to manage their spend. It's like I tell people, it's just like you manage your household spend, right, when it goes down. But 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, but it's been tough for a while now on the parts and service side, right?

We've been pretty flat with some margin compression driven by the competitiveness of the marketplace. But as the quarter progressed, we saw it picking up which bodes well. And as we get into the -- in 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. Is it -- are we where we need to be? No. But are we improving? Say really a lot over the last 60 -- 45 to 60 days, can we see it? Do we feel it? Can we look at our backlog in our shops and see that increasing? Yes, we can.

So 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 it before, right, our unassigned accounts. We've been crushed in the last 3 years in that area. I mean every year has been down double 10%, 10%, 10%. We've finally seen a trough in that, which is a good thing to see, right, up slightly, small single digits. But obviously, if we can -- that's roughly 30% of our service business, 32% of our service business.

So while we've seen growth in national accounts, it's been at very competitive pricing, but feeling like we're going to see the small customer show back up, which is usually better for us. It's part of our mix that we've really been missing that's been declining for us. I think there are many things, along with also increased new truck activity, right? 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 in these other businesses. And even if the over-the-road businesses produce when you're installing APUs and doing all kinds of different things that come off of truck sales.

So I mean, I'm giving you a few different anecdotes here to why I feel good about it, but 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 1-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.

Our next question comes from the line of Cole Couzens.

From a building demand perspective, it sounds like the new EPA proposal could be good for the Class 8 industry this and next year. But 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, right? I mean, at the end of the day, an NCP is going to be a known number, right? It's going to be hard to mark up a known number driven by the federal government. How about that, okay? So -- and be honest with you, so there'll be a pass-through. Now there'll be FET on it. I mean, right now, a Class 8 engine is in $6,800 range, the way most people are interpreting it. As I said, that's plus FET, okay? So 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, okay? It allows for a transition, and I'm sure that it will be like -- and this is not known, but my own thoughts, my own opinion is that will be a 1-year type scenario, and then it will ramp up a lot more by the first part of '28, which will probably make -- by that time, I would expect everybody will be rolling in their new technology anyway, and there won't be much difference, right?

So to me, it makes a little sense from a customer perspective, right? I mean, 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, right? This allows them to come off 3.5 years of freight recession, right, just beat up terribly over the last 3.5 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 -- a little more than just the aftertreatment that goes into some of these engines depending on who the manufacturer is.

So 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 year is what I think you'll see from most folks. But it's not a cliff event, right? It just makes sense for an industry from my perspective, coming off of a terrible freight recession longer than I've seen and allows them to get a little healthier without having the risk of technology, the engine and 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. And that's what Cummins, I think, mentioned, they're going to roll in as the year goes on some and transition in. But different OEMs have different opinions from a customer perspective. I think it's pretty good. I don't consider this a prebuy year. You mentioned the word prebuy.

We're going to end up the year over what the last 10-year average was. I mean we did 95,000 of U.S. Class 8s in the first half, and we've averaged around 230,000 in the last 10 years, okay? Well, that means there's 135,000 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.

So I do not consider 2026 a prebuy year. I could see a 2027 with NCPs out there. ACT has already got '27 higher than '26 because of the slow start to '26. So I could see to '27, you might eventually get to where you call it a prebuy if there eventually is sort of more of a cliff with technology changes coming forward by the time we get to the first to '28, along concurrently with customers' health better than what it was this year, right? So 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.

But 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 is the retail end, we should be thrilled 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 of 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.

Yes. 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.

Sure. Yes, I touched on a little bit of that earlier, but 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. But 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, will be up 15% or something. Because 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. So the stuff in November will. So 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. And I've listed a multitude of reasons why, right, with 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. And while still very depressed from what it was, say, 3 years ago, at least you feel like you're bottoming, right?

And so hopefully, you're troughing in that from that perspective, and you've got upside. And that's 30% of our parts and service business that we've been fighting, we've been fighting that really hard in the last couple of 3 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've talked a lot about just over-the-road here this morning. But I do not want to forget about our vocational businesses, whether it be in construction or refuse or whichever location it might be in or our medium-duty platform, right?

I mean those are all things that 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. So I feel that it's going to continue to get better. I don't want to get overexuberant this morning, but I think there's some legs. I do believe that we've got some legs on this now, especially when I talk to customers, when I see what's going on, when I know -- now I'm getting -- we're not totally done with the EPA. As I said, we're in a commentary period. But we pretty much know that they've cut the warranty, right? Warranty stays where it's been, okay, on the aftertreatment, it didn't go to some 10 years warranty that was costing an extra, the government said $6,000, $7,000, $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 soften while still going towards the 0.35 eventually, NOx emissions to begin with, we have also the credit perspective. And there's a lot of things that go into all that, but I'm not going to get into. But there are many -- I can sit here and talk, there are many things that I think are positive, right? And 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.

So when you're basically sold out for the year, we haven't done that in a while, 6 months out. And rolling into next year, I feel good about us. We've got -- we're going to have inventory to sell to that is not sold. So most -- a lot of this business has been fleet business. There's just positive things. I mean, I could go on and on. You know I'm a ramper. 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, but 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. So I'll be quiet.

Yes. And 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. And by the way, they're going to be able to buy next year with not that big of NCP, $7,000 isn't that bat. In reality, when you're talking about vehicle, [ $200,000 ] vehicle is 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 the business improves. That's what's driving used to be better, right, is lack of availability of new.

And so that's what's going to make the used market stay solid. So 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've been going through 3 years of year-over-year double-digit decreases. So that means 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.

But 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, that's the good ones and they're the ones that are going to make it, and they will get their spending habits back more in line with what they would be normalized spending. That doesn't mean they're going to spend it, 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. I mean you're talking about supply being driven down, so that drives the miles up on the ones that are driving. I mean you don't want me -- I could go on, but things just continue to look for solid sequential improvement, not going to double or anything like that, but 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 is cyclical, but should have some legs on it for a while, driven by supply coming out. Now -- and we're getting some growth on the other side to the coin. So if that continues to improve from a tonnage and a mileage, from a load perspective, then you have a couple of years of legs on this thing.

Our next call comes from Avi Jaroslawicz of UBS.

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

That's right.

So wouldn't there still be some incentive to prebuy this year?

Well, there'd be -- the problem is production, right? I think we're fairly sold out. I mean 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. But I would tell you, we're fairly sold out, all right? Most OEMs are. They may not say they are, but -- and what they do have left. And by the way, that doesn't mean they cannot figure out how to produce more, okay, based upon current build rates. Now you could see some build rate increases that will produce a little bit more capacity, right? But 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 from -- look, I'm speaking for the OEMs ourselves, and I don't like doing that.

But I would imagine they will tweak as best they can to make sure they're working weekends and doing everything they can. But 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 guys folks to do, not necessarily OEM. It's not necessarily OEM constrained. It's constrained with the second and third-tier suppliers. So -- but they manage that part of it. I realize $6,000, $7,000 is something. But 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 '27.

And yes, it's a little money. But at the same time, it's not the end of the world given what these vehicles cost nowadays. I mean the trucks have gone up in the last 6 years, like 35%, man. And by the time we get to next year, it's crazy. But -- so it's a production problem. But at the same time, I go back when you say, I hate this word prebuy. It's still going to be around the average total. That's all I can tell you if we -- delivery-wise.

Now the production side might be higher, but it will roll into Q1. But again, I go back to with the EPA saying what they have said, giving closely -- 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 overall perspective, ramped up quite dramatically here in the last 4, 5, 6 months.

So -- and I see a lot of positive out there. And that was after last year was under and the first half of this year was way under, what replacement was. So I see replacement catching back up. I still -- and I don't think right now, we're just catching replacement. We'll have to see if anybody tries to grow, they usually do. And that creates a cycle, right, eventually. So -- but like I said, we're pretty much production constrained outside of any OEM increases. And I know they're trying, but I'm going to let you talk to them about what they're able to do.

All right. Okay. I understand that. And so one of the things you mentioned there was potential to see some prebuying next year ahead of the engine changeover in 2028.

Yes.

Yes. 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 seems to be a little less than that. And there's more time to get these engines tested and work out the bugs in them. So why would you expect a prebuy 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 -- I go back to 2010 when we switched to DEF. There was more clog particulate filters around this country that you could take a stick at, okay? Our shops were full of them. Anybody with a memory knows that there's -- it's never as smooth as you anticipate. Maybe I'm wrong, but typically, in this one, not everybody is using the same technology, right? Not everybody is going to DEF.

And so like it was at that time. Everybody's got different -- I'm not an expert on all, but different aftertreatments, not exactly the same as how they go to market. So 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 you're going to -- 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. And proven technology allows you to understand what your uptime is, and your reliability is.

And so that's my opinion, okay? It's just an opinion, but it is mine. 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 a little bit -- may not -- maybe it's $4,000 or $5,000 when we get to '28, who's to know, and I'm not here to tell. I mean 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 has been tariffs and things like that, that affect different OEMs, different ways. I'll just say that.

So we'll have to wait and see what that pricing will be the first of '28. The 2 OEMs I represent have not priced a new technology. How about that? Okay. So how might I know what it will be? I know what I'm roughly told, but it has not been priced.

Okay. Yes, that's fair enough and definitely interesting times.

Yes. There's a lot of variables out there right now. There really is more variables and you throw in all the tariff stuff in the last year and 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 '25 with tariffs starting up and now rolling the EPA variables that we're dealing with now. And there's just a lot of variables out there for manufacturers. There really is.

Right. Yes. 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? And 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 on the truck business. But at the same time, a very similar business model, right? It's refrigeration units. I've been through their shock up of shops with Bill and the gentleman that we're doing the JV with. And that's a solid organization we're partnering with.

And 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. But that JV will be looking for growth as we go forward. It's not a one-off for sure. And we've had these discussions with -- 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. And over time, those opportunities that we believe will be there for us to -- for further growth.

And that's why we're not getting into it for a one-off, that's for sure. And 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 our relationships that this organization has. So 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 Eaton. So we got work to do, right? So -- but 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 target, I think, August 31.

So we'll roll it in later this quarter. And you add that to the acquisitions we did during the -- earlier during this quarter, while they may not be hugely accretive to begin with. They just -- 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. And so we leverage off of every -- regardless of where we represent, it's Rush trucks that are first and foremost and when it comes to how we interface with customers. So that ability -- don't worry, they will be accretive.

But we've got to get our systems and our things into place. But 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 gives us 20 locations in Canada and just further increases our customer touch in both areas. Louisiana further across Interstate 10, we almost got it. We don't have it all covered. We got most of it all covered across the United States, 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 3 of the 5. And 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 a national account perspective, right? So 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.

And that's exciting. It's not an add water and stir thing, but I can guarantee you it will be -- in a couple of years from now, it will 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. And 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, and 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.

Our next call comes from Andrew Obin with Bank of America.

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

Yes. The Canadian is on the international side, Andrew. And that is a -- without getting specific, do I have room for growth? Yes, okay? But that is a combination of working with our manufacturer. Both of these acquisitions were not done just on some -- us running off. They were working with the manufacturer, getting their blessings around it. And I would tell you that there are other opportunities up there. I don't want to get -- 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.

So 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 being very successful for us, school bus business with international. So we will continue to look at those opportunities, Andrew. I mean I have -- 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 to us. And I'm very pleased with that joint venture and looking to grow it, I'll be honest. But there's room. I just really can't get into the specifics that obviously involves other people's businesses, proprietary businesses. So I don't want to talk about it.

But yes, we have room in our agreement with the OEM. Now we do it lockstep hand-in-hand with them, but there is room for sure. 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 of 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 Reports First Quarter 2026 Earnings Conference Call. [Operator Instructions]. 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, 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 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, and thanks, everyone, for joining us today. As we reported yesterday, we generated revenues of $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.

And 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 at Rush Truck Centers in June. So 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 the sub segments, especially for some of our over-the-road customers. But overall, we were able to deliver growth, which speaks to the strength of our relationships and our execution. We also started 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 began 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. But 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. So overall, while the first quarter was slow, we expect sales to improve gradually in the second quarter and then pick up in the second -- pick up more in the second half of the year.

Renewal leasing continue to be strong and 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.

So 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.

[Operator Instructions] Our first question for the day will be coming from the line of Avi Jaroslawicz of UBS.

So glad to see that the year is still on track for improvement sequentially. But just thinking about the second half here, it sounds like there's still a decent amount of uncertainty around the prebuy for this year on just a number of fronts, whether the OEMs are going to have new engines ready and how the rules are going to be enforced and the demand dynamics around that. Can you just give us a rundown on how those different moving parts are shaping your expectations?

Well, that's a good statement there, Avi. It's kind of crazy. We're at April 30 tomorrow. We've got 8 months left in the year, and we still don't have definitive regulations printed, okay? Now 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 going to keep supposedly at 0.35, but they have not clarified about credits, et cetera, if there's going to be NCPs, things like that. We're probably still 60 days away from it. But regardless of that, we do know that there are going to be new emissions regulations. So I think that's spurred customers to go ahead.

Order activity, as you can see, starting in December has been up dramatically from where it was the prior 7 or 8 months from an order intake. So even with that uncertainty, 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. So we'll still have to follow that and see. We hope to know within the next 45 to 60 days. But if I've been -- if I told you that 45 days ago and held my breath, I wouldn't be in very good shape because I told you I'd know by now. So it keeps the can kicked down the road a little bit. So I think the most important thing is that customers' business is people are more optimistic.

Finally, because of the contraction on the supply side, right, of taking trucks out, whether it was through non-domicile because 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. So the supply side squeezed down. Customers are more optimistic about rates. Coming in, if you'd asked me 3 or 4 months ago, everybody said, I know this is one of your question, but you know me, I'm going to ramble on, that we're going to be flat to low singles and it was mid-singles. Now people are looking at maybe high single-digit increases. So people are optimistic.

At the same time, to your point, about emissions, not knowing clearly what it's going to be, what the stated, but we do know it's going to be worse, whether there would be NCPs and the cost would go up dramatically or the total enforcement of what's out there for EPA January '27. So that's about the best thing I can tell you is there's still uncertainty, but you know something is coming down the tracks, right? You just don't know exactly what.

Got it. I appreciate that, Rusty. And just to follow on a point there. So 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. So what are you seeing there? And when do you think we might see parts and service volumes inflect positively?

Yes. It's funny. People -- theoretically, 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 of 3 quarters, right? Even in spite of inflation we've had, we've remained flat. And that's because people have tightened their belts.

The best thing I can see is for their business to get better, right? Historically, when customers feel better about looking forward and more optimistic, there will be no postponing of any maintenance or any repairs because it's just like anything. When your income level goes down, you learn how to take your outcome, what you spend down to. It's no different than you as a person managing your household. So that's what customers have done. The most encouraging thing for me is going to be seeing -- hopefully seeing second and third quarter releases and list and hearing about contract rates going up. So that optimism that we see out there comes to fruition is the best way I can describe it.

We expect -- I would tell you this, we've been growing slightly. I'm not happy with it, but we have gradually gone January, February was better than January. March was better than February. And April, it looks like it's going to be a little bit better than March. So I think as conditions improve, not just truck sales, but obviously, parts and service, too, will improve with that. And that's -- it's just a matter of because tonnage has gone up. Tonnage was up for the first time, I think, in 2 or 3 years in February, if I'm not mistaken, I'm not sure where it was in March. But it is getting a little bit better, not just from the supply side, but I think on the other side of the house.

Now people are going to -- 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. But the general macro, I think, environment for continued improvement at the customer level is it's there without any interruptions from geopolitics or something like that. But -- so I mean, I just do believe that things are going to be better. I don't want people to get -- I believe we're going to be up in some areas, it's going to build through the year.

And because we're on -- and I believe it's not going to go away in '27. My personal belief is I see a nice -- a pretty good 4-month run anyway. I'm not going to try to forecast outside of a year, but I feel pretty good about where it is. But it's going to be a gradual -- I just believe it's going to continue to get better based upon conversations I have with many customers and people around the industry.

And our next question is going to be coming from the line of Brady Lierz of Stephens.

You mentioned that you expect overall commercial vehicle sales to improve gradually. Could you just help us break that out between your heavy-duty and your medium, light duty just 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 2 trends would be helpful.

Yes. Sequentially, yes, because it was so off in Q1, right? Sometimes you get numerator denominator, right? So from a percentage basis, yes, you're going to see medium improve quicker because heavy-duty obviously wasn't off as bad as the market. We were off about 6%, market was 20%, 21%. And we were way off in medium and a lot of it was timing, yes. So sequentially, medium will pick up quicker because we're starting at a lower base, right, if you want to talk about sequential.

We -- if I was to look out for the year, I expect a better year on the Class 8 side up over the last year and maybe medium will be closer. It will catch back up to flat maybe for the year. So that bodes pretty well for the next few quarters because we started such a hole on the medium-duty side. But I expect heavy-duty to continue to ramp up, if you want me to throw a number out, say heavy-duty is up 15% in Q2. And if things hold together, we get through all the emissions clarification and business that continues to look better for our customer base, both across the board vocationally and over-the-road.

Over-the-road is what we've talked about mainly. We do a lot of vocational business, over-the-road is still the biggest market that's out there, right? You're talking 2/3 of the market. So if that continues to get better for that customer base, we will continue to increase quarter-by-quarter as the year goes, and I believe for sure roll into Q1 because remember, from an emissions perspective, it's all about when the engine was built and usually -- I don't want to get into the weeds. Usually, those engines will be built maybe halfway through January of next year. And because we are the retailer and it takes anywhere from 32 days to 5 months, depending on the type of product it is to get there, that bodes well for us all the way through next year in Q1.

And I don't -- if the economy is in good shape and the business is still aligned, look, the number that's going to come out this year probably is not going to be anything more than a normal replacement. The deal is it's going to be backloaded, right? I mean 41,000 units was all Class 8. It was COVID, second quarter of 2020, I think it was -- second and third quarter of 2020, that's the lowest in 6 years. And medium was the lowest since 2015. So it wasn't just us, even though we were a little worse on the medium side.

So 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 going to be an add water and stir thing just in Q2, but you better believe Q2 better be better than Q1, but it's not going to creep dramatically, but it's going to build. And I believe that's the case across our whole business model, right? I really -- I feel good. There's not one segment that I can sit here right now and tell you, I feel bad about. And I feel good. I'm not going to sit here and feel great like that, but I feel good about the whole thing. I want to watch it continue to evolve. We're still working business, okay? We really are.

We've been -- we've had -- as I've said, we've had nice order intake with the majority of it going to start coming in, in Q2. I said maybe up 15% on Class 8 and maybe a little more, maybe a little less, but somewhere in that range, the timing rules and all those things, too. But it should build from there through the rest of the year and through Q1 anyway for sure. And typically, hopefully, our parts and service will build, as I told you, has been slowly building. I'm looking forward to seeing it ramp up a little faster, but I don't always have my finger on that trigger.

Makes sense. Maybe I just -- for my second question, I just wanted to follow up on an earlier one and maybe ask about it from a different angle. 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? 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, the first thing was supply, right? You really want the environment to be better from a demand perspective, right? You have supply and you got demand to your point about supply. Supply has been pulled out for really the last 3 quarters, okay? If you took the last Q3, Q4 and Q1 and strung them together, it's going to scare you how low a retail was from a demand perspective, to be honest with you, it would be under 200,000 units in the U.S., okay, annualized. But that has taken the supply up. But you need a combination of both, right?

So it was nice to see the tonnage bumped up in a couple of the months. I think it was February, I'm not mistaken, if I'm not mistaken. And even though it's not robust, you got both of those, I believe it will continue. And like I said a minute ago, even if we -- there's something like 41,000 in the U.S., ACT says it will be 225,000, right? Well, it means it's going to have to average 60,000. So that's a 50% bump, 60,000 a quarter, but it's not going to be loaded like that, it will probably be 50,000 in Q2. And then so that just bumps up Q3 and Q4, right, to even get to that 225,000, which is really under replacement or right at replacement. It's really under replacement. So that is a driver.

But people have to -- 3 years freight recession man, that was -- I've never seen one like that, right? And I felt so sorry for a lot of our customers. I really did. 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. So I've had to watch the suffering for the last 3 years. So it's just -- I feel better. I feel good for them. I'm kind 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. But I believe that if demand will hold right, I can't -- I'm not an expert on the demand side.

There's too many macroeconomic influences on the demand side. I do know that the average age of fleet is probably a little over 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 bit anecdotes that I've got that make me feel good about it. And like I said, even if we have a big ramp-up and do 60,000 average 180-plus thousand in the last 3 quarters, we're still only going to be a replacement cycle. So that's not a huge big prebuy that scares you going forward from my perspective, which means we should roll through '26 and there won't be this big drop in '27. That's my viewpoint on the whole thing as I look at. I know -- I don't know if I answered your question because sometimes I just answer my own question.

No, I think you did. And I appreciate it.

So we're in good shape. The supply thing is really good because non-domiciled drivers, when we cracked that, it was -- there was a bunch of different anecdotes that have helped try to align that up and get it in line. And now it's not -- and just because we're going to have a little prebuy, I don't want to -- it won't be huge, so it won't get out of balance again. We may have maybe a couple, 3 years of nice growth across that segment.

And the next question will be coming from the line of Andrew Obin of Bank of America.

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

Yes. I would tell you, the first quarter, we were probably close to in line. Everything is 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? But we can get to our manufacturers. And probably the hardest hit piece was service. Service was back for us in Q1, and that's why maybe our margin mix was down a little bit because it comes into a mix, as you know, your margin is much higher on service than parts.

But I was nervous. What are we doing wrong, right? But not that it makes you -- I don't want to ride the same boat with everybody else, so don't ever expect that. But at least I do know that across what I've been able to track across pretty much a large group of dealers that I was able to get their retail environment. Service was off across the board, 3% to 4%. It was up 4% across a group -- group of 200-some-odd dealers. How about that? I have that information. So it doesn't make me feel any better. We were up a little less than that.

So -- but it still was interesting that the spend -- customer spend was off in Q1. And it's just the ending of, as I said, tightening your belt, right? People have just tightened their belt the last couple of 3 quarters. When you asked about the initiative, yes, our initiatives are still there for sure. We grew our national account business, okay? But 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 can extend maintenance intervals. There's many things you can do. You don't have to fix every oil leak, okay? You don't have to -- you can extend your oil change maintenance interval 5,000 miles or something. As I said earlier, when things are tight, that's what people do. And that's why when their business gets better, people get back into a more normalized part of the cycle, what they do normally, right? They're not squeezing it here and there. So 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 well. The numbers I pulled from some other folks, but it was close.

So it was just -- but 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 as people -- the spot market folks was up 25%, 30%, okay, year-over-year. So that's a good thing, right? The balance between spot and contract got way better, right? Because 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 spiraled down all the rates over the last 3 years. But getting a better balance across that right now is allowing folks to be more optimistic. And when they're optimistic, people spend money, okay? That's just the way it works.

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 things to do, but when things are tough, you squeeze. And it's the same thing we do with our business, no different. I just -- as I've said many times, I just -- I love our business model, whether it's through our leasing or parts or service or sales, we have many different revenue streams that allow us to balance our way through the last 3 years, 2/3 of the trucks on the road or over the road, and we managed to produce decent earnings, right?

So 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, and it will get even better through that initiative and many other initiatives that I'm not going to talk about, by the way, that we always have ongoing. That's -- you've always got to have something going, I can tell you that. So we track.

And maybe, Rusty, you have a footprint across the country. You sometimes share with us what you're seeing in terms of macro. Can you just go and just, a, what are you seeing in terms of macro overall and just maybe sort of go on key verticals, right? You clearly have big off-road presence. So what are we seeing in key off-road verticals? And then are you seeing any impact in your oil and gas business from higher commodity prices? And clearly, I think we talked of on-road, but just maybe just 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 -- is not -- it is flat, to be honest with you. We haven't seen that. Our national accounts were pretty flat in Q1. Now they were up last year, and -- but we're not keeping up with -- should I say, with our plan. Our plan was already in the first quarter. It's been -- there's not one huge terrible area, Andrew.

I expect our -- we still suffer our unmanaged accounts. That would probably be the one thing. If you remember what I told you about unmanaged accounts before. That's the small customer, which still makes up 30% or so of our business. And I've got to tell you, it is a little over 30%. It is -- even though it was bad last year, it's down almost another 10% the first quarter of this year. So -- but we've managed to make it up. We managed to make our revenues up with -- in different sectors, like I said, really vocational has been probably the biggest thing that we 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 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. I don't want to go through all the regions, but probably -- but Texas is always one of the strongest areas we have along with Florida.

And if I remember right, we were doing fairly well in the Chicago region this year in Northern Illinois region, too also. But 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 we're lined up for continued solid, which is actually better than having some huge prebuy, right? It goes on from a sales perspective or everything else.

I just want to see a consistent solid growth and taking share because taking share is what it's about. And maybe we didn't take as much share as I wanted in Q1, which were slightly better than what I've seen from others, but slightly is not good enough. So we're focused on continuing to do what we've done in the past. We've got some other initiatives we're rolling out. And 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 of the industry itself.

[Operator Instructions] And our next question will be coming from the line of Cole Couzens of Wolfe Research.

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 strength? And how sustainable are current order rates in the coming months?

Good question, right, because I believe that -- well, not as robust as, say, what we saw in February, which was 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 we're going to 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. So I don't know -- from our perspective, I can only speak about from -- I can speak for more than that, but I know that what our order intake is and it continues to remain solid with a backlog, right? 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 competitive drop back. And people are still adjusting to all the tariffs, the OEMs, the customers, ourselves that will come part of everyday life, at least we've got -- at least we know what they are.

Now our manufacturers understand from their own personal perspective what they are. And so I believe we're going to see continued -- I can't sit here and tell you it's going to stay over 35,000 a month as I said the other. But if it continues at 25,000 to 30,000, we didn't have a month like that for like 7 in a row, and we continue that. So we started from a low base as far as backlog. But 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.

And I think once we continue to get more clarity around emissions and customers' businesses, look, we didn't deliver many trucks the last 3 quarters, right? So people -- I know some customers have got off a trade cycle last year, right, that did not buy as much, right? It was last year, the U.S. was 216,000 or something like that. Well, that's under by 20-some-odd thousand what replacement is, and it's continued to be under replacement into Q1. And so even without all the outside activity, people have to get back to replacing trucks. It's funny that you think about it. Probably I know people thought, am I even going to be in business because that 3-year freight recession. All of a sudden, you wake up, you're getting more optimistic because you think you're going to get better rates, they're not going backwards. They've trough, they're coming back up.

You see the spot environment. You go, I am going to still be in business. I do need to buy trucks, right? I can't be running old trucks all the time with my maintenance charts through the roof. So 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 going to continue to be good. I don't know -- I don't think there's going to be this huge prebuy, as I said earlier. But you could consider a prebuy based upon what the first quarter was, how bad the first quarter retail was and how, well really Q4 -- how bad Q4 was, right? So you have to get somewhat back in line.

And the good part is I don't think it's going to just be crazy, right? I think it's going to be solid continued order growth because people's business is -- customers' businesses are getting better. And then the other outside influence of the emissions, which, like I said, we'll hopefully know more, but we know whatever it is, it's coming. So I mean, I hope that helps answer the question. But I feel good about it. And I've said that 100 times, I think, already. I'm not -- and I think it's sustainable for a while myself.

That's helpful, Rusty. And 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? And is there a gross margin opportunity ahead of the EPA transition to sell older trucks you might have in inventory towards the end of the year or into early 2027?

Well, when you talk about that, you think about -- trust me, we talk about what inventories were going to carry, right, into the first quarter of next year just because as long as it's built, as that engine stamp dates December 31 are back. So -- and we'll make those determinations. For us, I mean, as far as the back part of the year, there's still build slots. So 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 3 or 4 months right now. They need to give them a better run rate of that.

I know the build rates have moved up an OEM or 2. I've at least I've been told that. So I mean, from our perspective, we're trying to make sure we're properly inventoried. You got to make sure you got the demand for it, but we would like to be properly inventoried going into next year. I'm still going 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, but 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. It won't be -- I can't tell you what that will be, but we're always carrying inventory. So it might ramp. We might carry a little bit more into next year. We just have to wait and see and see how the year plays out because there's still room to build them, right? So I hope that answers your question.

Yes. No, that's helpful. And maybe if I could squeeze one last question.

Sure. I'm going back to your conference for the first time in a while.

We're looking forward to it, Rusty. But 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?

Yes. Well, a lot like our customers, I knew Q1 was going to be a trough. And this is a credit to the entire organization 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. It was -- it had to be contributed by a lot of folks. And those are never easy steps to make, right? Because normally, you're right. I mean we were down year-over-year, what, 2.5%, I think. And what -- 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 truck sales, right? That's the commission piece off of truck sales.

The G&A piece is what we were focused. And G&A by itself was off 2.5% in spite of inflation, in spite of normal raises last year, in spite of everything else. But that's the contributions by everybody. As business, we're going to try to maintain that discipline. That's always the hardest part, is maintain if you get into a growing environment. We're not in a growing environment yet. I talked about it all. I can see it coming, okay? We got to get that parts and service business back because that's really what I'm driving it off of, not so much truck sales, truck sales and truck sales. That G&A is driven by what we do in the parts and service business.

So I appreciate from everyone's efforts in giving in that first quarter and what we had to do, made it tougher. We had to do cutbacks. But we did them, we executed, and we've done it before. And it's just part of being a somewhat cyclical business. Sometimes you have to make those tough decisions right and squeeze it back. So hopefully, our parts and service will continue to go up, and we love that. We love to be able to hire back some stuff again 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, we're trying to keep at least 40%, 50% of every gross profit dollar of parts and service, but it takes people to make it happen.

So when that starts to grow, we'll be able to maybe add some folks to help us. It's a chicken and egg thing. But 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. So I'm just extremely proud of the entire organization and their execution. And I look forward to hopefully a little more breathing room as we get downstream without having to be quite so hard and tight on everybody.

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 us this morning, and we will look forward to speaking to everybody in July, and we'll discuss Q2 and see if everything is 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 Reports Fourth Quarter and Year-end Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to your speaker today, Rusty Rush, CEO, President and Chairman of the Board. Please go ahead.

Good morning, and welcome to Rush Enterprise's Fourth Quarter and Full Year 2025 Earnings Conference Call. With me on the call today are Jason Wilder, Chief Operating Officer; Steve 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 December 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 fourth quarter of 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 face uncertainty around trade policy and emissions regulations. 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 remain disciplined, generating strong cash flow, manage expenses effectively and continue 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 for [indiscernible]. 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 the future for future vehicle replacement cycles again.

We also continue to expand our network and 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 Duplex Center's National Central. These strategic conditions strengthen our footprint and enhances our ability to support customers over the long term.

Turning to the aftermarket, parts and service and collision center revenues totaled $2.5 billion for the year. essentially flat compared to 2024, and our annual absorption ratio was 130.7% compared to 132.2% in 2023. In the fourth quarter, aftermarket revenues were $625.2 million, up from $606.3 million in the fourth quarter of 2024. Absorption was 129.3% compared to 133 in the prior year period. While after market conditions were challenging in 2021, we continue to see strength in key customer segments, such as the public sector and medium beauty leasing. Our focus on operational efficiency, reducing dwell time, improving parts delivery and strengthening service execution also supported our performance.

Demand remains 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 A trucks, representing 1.4% in 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 211,300 units in 2026. We believe the first quarter will represent the trough for Class A retail sales, and we are encouraged by recent improvements 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 to 7 retail sales totaled 217,412 units in 2025. Down 15.6% compared to 2024. Despite that decline, we sold 12,285 new Class 7 commercial vehicles in the U.S., down 8.5% significantly outperforming the industry and increasing our market share to 5.7%.

In Canada, we sold 993 new Class 527 commercial vehicles, representing 6.3% in 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 4-7 retail sales of 218,245 units in 2026, up slight compared to 2025. While we remain cautious given weak order intake over the past several months, can broader economic uncertainty, we are beginning to see improved quoting activity, and we are well positioned to fulfill all orders as customers move forward when purchasing decisions. We sold 6,977 used trucks in 2025 down 1.9% compared to 2024 as freight rates improve and pre-buy activity builds ahead of the future emissions regulations, we expect to use 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, leasing 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 [indiscernible]. 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 authorized the company to repurchase up to $150 million of common stock through December 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 price 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 is a very demanding year and their focus and execution were critical to our performance.

With that, we will open it up for questions.

[Operator Instructions] Our first question will come from of Brady Lierz from Stephens.

I wanted to I wanted to maybe start unsurprisingly on Class 8. As you mentioned in your prepared remarks, we've seen an improvement in orders late in '25 and here early in 2026. But can you just kind of talk about what you're hearing from your customers? Are you expecting this to be a pretty meaningful pre-buy here in 2026 ahead of the '27 regulations? Just any clarity there would be helpful.

Sure. We'd be happy to. The answer would be cautiously maybe not even cautiously. We're optimistic that yes. there will be a prebuy before we get into the 2027 emissions regulations. Based upon not just the regulations, right, but you can incorporate regulations all you want. I was around Well, you were away still in high school back in 2009 and '10.

When we went to SCR, and we were supposed to have this big buy and 9. Obviously, it was the worst year in 40 years, right? When a little economic problem going on. So what I'm reflecting on is not just the fact of the 2027 ambitions, but the fact that their business is improving. And I'm not going to get ahead of myself and say it's like accelerating or ramping up rapidly, but it is improving especially over the last 90 days. I don't have to tell you, spot rates have been up as 6 months ago, most people would have thought going in there, contract rates were probably going to be flat. Now people are hoping to get contract rates up mid-singles, right? that line between spot and contract has moved nicely.

More spot was so much lower before. So your business has to be good. So you got to and I'm going to say it's great, but you least need to be able to see forward, right? And that's 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 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're talking about over-the-road customers right now because that still is the biggest segment, even though we're more diversified than most folks when it comes to vocational over the road. But we still need that over-the-road customer to be solid, right?

This is the biggest piece of what you do still. And so combining some most we don't have full clarity, but we know we're not changing. We're always going to be 35 the government when I come talking about NOx and stuff. So we realize that's going to be there's a little they haven't clarified everything, but you pretty much know what the cost is. And when you're doing something like this, the cost is 1 thing. It's a little bit new after treatment systems. And I watched in 2010 when every particulate filter was logged up when we came out a SCR back in '10.

So I feel there's a lot of people that still remember that you can have issues when you come out. So I'm 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 is getting better. So I am optimistic. The issue will be this the issue will be we're not going to run out of time. So it's already were, what, 8 days will weigh 9 days, what is 10 days wait, excuse me, from the end of this month, I apologize and we'll be into March already. So I do expect order intake to remain what we've seen over the last couple of months. in that range, if not maybe even a little more because I think people are lining up. So I do believe Class 8 or is going to continue solid. You have to remember, we had 5 or 6 months on last year. a 6-month run that was close to being less than the last 2 months, 5 months, for sure, we're opposed to being less than the last 2 months.

So I mean, all that I know it's a long-winded answer, but you folks are used to my long-winded answers, I just want to give you a full perspective here. Yes, the emission piece is there. Yes, that's important. But it's also important that people can lease a little further in their business to have clarity, which we didn't have. So the combination of the 2, yes, I think we're going to get and I think you're you may run into a problem with supply side problem with Tier 2 and Tier 3 suppliers.

We're not there yet by any species because there was a lot of backlog to fill up. But it will be interesting to see where we are 60 days from now. So I mean, a lot of customers are realizing a bit better I think some goes to I know they are they better get on board now and not wait until summer or we may run it's hard to ramp up for that sort of period of time. Williams will ramp up but there's only so much you can do, you don't have clarity past January 1, really. But I don't see just going further, I don't see 27 to be a huge drop off either because we're going to get started. It's going to be we're going to get started like here in Q1, okay? There's no question lighter than we were last year in Q1.

So you start in a hole. So the year could be similar, maybe slightly up but it's going to be packed into the back 3 quarters of the year so you say I should.

No, that's all very helpful color. Maybe we could just talk about parts and service for a second. 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've seen this year impacted that at all? Just want to get any thoughts there. And then if you could just talk about some of your strategic initiatives in parts and service. You've mentioned in the past, growing the technician head count mods, just how are those initiatives progressing?

Yes. Well, I'm not going to say it, as I mentioned earlier, January was a tough month when you ask about the freezes, I mean we were going to shut down for about a week in the Dallas-Fort Worth area and some other areas. We were down in the south, we don't know how to handle ice and snow. I can tell you, it's not like it's funny that weather cold weather is good. for your parts and service business, say, in Chicago. They're used to handling it. They've got snow blows. They don't have any snow lows in Dallas, nothing is over for 5 days, okay? we were almost we really were we were running skeleton crews. It was detrimental let me tell you, to our southern stores in some areas.

So that's why January was a real tough one. We're starting to see life a little more live. As I've said all my life, if I could just get rid of November through February, but I'm we're from the south recently on Texas. And if I could just get rid of November epay, I would have except for Christmas and Thanksgiving. But we're getting to the end of it and we're starting to see it's typical seasonality, I would tell you, here was sold in January and we solved in November and December for but that's seasonal. That's not something we don't deal with in the last January was probably softer than it usually was because some of our bigger areas on the feeder book side or which are further south, that frozen up a little bit.

So and we don't operate some of these places don't operate well on that. But I think it's just normal. We'll be we got it a little bit. But we should come out of it here as the sun comes out and it heats up here into March and April. I mean I see no reason we won't. And we're seeing signs in February. The things are better than what they were, which is just typical from a strategic initiative, our mobile service thesis something that we're really big on and we continued last year was a big year for us from a mobile investment perspective. I mean, I can tell you, we took on more depreciation in mobile units last year than we had at the end of '24. So those are investments that we make that payback comes but over the next 5 or 6 years, right, as you ramp all that up, you like to think it's all immediate, but it's not always all immediate.

So we continue to ramp up that piece of our business. It's a larger piece of our business than it ever has been. It was running around 30%. Now it's running more like mid-30s or more of our overall business. So going forward, we continue to believe that's going to continue to be a big piece of what we do. outside of our shops. I would tell you that it we did go backwards a little bit in Dagnitions in the fourth quarter. But I think we were I was just I'm not sure exactly why it wasn't I'm not going to say it with dramatic, so I'm not going to make any big deal out of.

But we are focused on containing to get back to adding especially a higher-level skilled technicians best we can and are doing our best to train the young ones. You'd be amazed the turnover usually comes in those first year, second year folks because we continue to have programs and work our way through that. But yes, we'll continue to try to grow technicians like we have in the past, while we're still doing it profitably, right? You can go to be careful when you're doing that, but you got to be able to do it profitably, not just do it for the sake of doing it. We've got some great programs from a delivery perspective. We're running a pilot project.

I don't want to get it all I'm not going to get into all that stuff. How about that. Some of that is inside proprietary. But you can rest assured we're not sitting on our hands. We never have an ever will. We'll be out there running or running up front, hopefully, because you're always getting chased so you got to have something going on.

Yes, absolutely. Well, 1 final 1 for me and then I'll pass it along. You mentioned quite a few times just throughout this challenging freight market the last couple of years, 1 of your priorities has been controlling your expenses, controlling the controllable you did a nice job of that in 2025 in 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, I mean let me say this, if we get in to get to really what I believe we're not there yet, if we can get into a growth where we really feel some real growth. I'm not ready to claim and I'm bugging parts and service costs. Remember, truck sales are when you go everybody goes, SG&A, SG&A, we run it differ is attached to truck sales. G&A is attracted to all the other expenses, right? Because that's the variable commission piece driven by what truck sales are. So you sort of you got to look at it in 2 separate buckets, right? And that's how we do it. And I would hope that we can maintain our G&A at least close to flat, okay?

That's my plan here and in Q1 would be to do that. Now as we ramp up, if the parts and service business ramps up, we always talk about the fact that we will spend half of the growth because we just half of the growth will more have to be sped the gross profit growth. Now when I let me back up a second. Remember this about Q1, don't comp Q1 to any other quarter. Q1 has always jumps from Q4, okay? We have you've got all your payroll taxes restarting and all our equity costs go up.

The majority of our, not all, majority of our equity cost go out in Q1. So if you look at our historical record, it will always show a jump from Q4 to Q1. So don't forget that. I would be compared to last be what I would tell you to do not compare to Q4 because that's always a jump that we have. You start up a lot of different things in Q1, like payroll taxes run down as the year goes on, et cetera, and really more than anything, the equity costs are all the majority not majority, but half the equity cost in the company run in 1 quarter. and that would be in Q1. So again, don't compare it to Q4 compared to last year's Q1. But we would hope to stay do a good job for now staying close to that number last year, but it's possible that it will ramp up some if our gross profits in parts of service are going in. We can't just it takes people to do what we do.

People turn rates, people drive deliver parts, people do all these different things. So it's there's not like owning money here. I'm handling hard assets and stuff like that. But I'd love to have that problem. So hopefully, we will continue to see growth. And if we know that I plan on keeping it as flat as possible, okay? If we stay flat embarks in service, I'm trying to keep it as close as I can with as little inflation as possible to where we were, but we're hoping to have some growth. And like I said, we're after getting out of January or seeing a little uptick here in February, but it's not enough. But like I said, I'm used to the seasonality of the business, whether I like it or not. And I just have to deal with it and hopefully, we'll pop out in the spring like always.

Our next question will come from the line of Avi Jaroslawicz from UBS.

So Rusty, as where things are standing today and you kind of discussed it a little bit already, just there, 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 should that be a headwind here in 2026? And if so, roughly what are we talking about?

Yes, you can have a slight headwind as inflation with inflation slowing down. Okay. But I don't look at it just to be monumental, okay? There will still be inflation. It may not be quite as much. Inflation can't be a tailwind to you when you're doing that you can maintain. So I would say we'll have a little bit of a headwind. But when you look at it as from a percentage of the whole, it's something that if you've got a growing market, you could overcome without question.

So while we'll have inflation, I don't expect the inflation from that perspective, from a parts perspective to be as much as last year from what we're seeing from the suppliers and the OEMs right now. But it will be there just won't be quite as much. Hopefully, what we're talking about is the market will get better and grow. The overall margin was flat I mean, not just for us, for everybody or even down over some people or some whether it's independents or dealer-operated stuff. Some of them were negative last year. So I'm hoping that we get into a more as our customer base gets healthier, their spend will be more normalized. You got to think back like this the way I look at it. This over 3 years in a freight recession. And I've been around I hate to say how long, but I'll be I'm young. Young at art, but we've seen a lot. When it gets like that, people don't necessarily spend like they would if their business was normal when they're not in their business in a recession, you saw companies lose money that never lost money.

Well, guess what? When that's going on, you're going to put off you're going to put off spend. You're going to add you know what I'm doing. I'm backing 5,000 miles to the old change. You know what, I'm not fixing that center. You know what I'm not doing this so the health of the customer is the most important thing out there. And yes, we do a lot of locational stuff, but the over-the-road market is still the biggest piece. And even the small I mean we've been off double digits from our small customer for the last each year for the last 3 years. So as the best bad.

Well, that may be bad. But right now in the safe but I look at it as a positive. I look at he can't get much worse, right? It's only 1 way to go and that's up. So I hear you about a little bit of , 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's not overwhelming headwind either, by the way. But I still think there's going to be some inflation. There's no question. But other than that, we've been able to hold our bars. As you can see, I think we ran 37 blended parts and service in Q4. So which is in line, probably if you look you're looking back, it's in line, we're 37.2,% 37.6%, 30s, 58 actually in the last Q1 of '25. So my point being, 37% is solid. So and I would hope as we can maintain in that same range blended parts in the service margin regardless of inflation.

But the health of our customer base, especially the largest customer, basically over-the-road carrier once the big carrier gets healthy, I guess what the little carrier follows along -- and that is where more of your retail parts and service comes from a lot, not more, but I talk of it that has been super depressed. And so that to me, that's I'm not trying to get I'm not it's not there yet but I've seen these cycles before, and I don't want to get too bullish or anything. But if things go according to historical, that 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 still better than the industry, but a sharper deceleration than the industry in the quarter? So how are you thinking about the shape of the medium-duty demand here in 2026? Do you think it's going to be fairly similar to what we see in heavy duty or.

I don't know. I have some concerns around it, to be honest with you. But I haven't seen the acceleration in it over the last 60, 90 days that I've seen in the heavy-duty side. But a lot of times, the medium-duty business is a lot of leasing and a lot of different customer base, right? And it's tied more to the general economic activity of things going on locally in a lot of ways because it's not more diversified type of products, not just not [indiscernible] leasing in box trucks and stuff. There's a lot of other medium-duty segments that we play into. So I we're seeing more quoting activity right now. It hasn't come to fulfillment but since the heavy ads, but lotteries, it will be springtime as we get around here going up with the NTA and some things like it's 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. I can't sit here and tell you that we're going to sell lots and lots more. I would imagine we would be some maybe based on ACT going at pretty flat, to be honest with you, we would stay in line with the percentage of the market we're at now. But I can't tell you I've booked it all already. That's for sure. but I can also tell you, I'm not afraid. So we've got a pretty good sales force out there. And it will represent many brands. And we feel good it will come. It just hasn't really happened yet for us, to be honest.

But the quoting activities picked up, you got a quote before you got a quote before you can order to get in order and get it built and get it delivered. So I'm confident that we'll execute in the lines of where we have historically here, if not grow it, I've got stuff going on. I'd like to see happen. It might allow to even grow it, but I don't want to get out of here my skis on.

Our next question will come from the line of Andrew Obin from Bank of America.

Rusty, 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 whether they're onetime in nature. It sounds like you're sort of warming up to the fact that orders could actually improve faster. Could you just unpack this for us? Just what are you seeing happening with industry waters over the next 3 to 6 months, how that's going to play out?

Sure. I may be a little repetitive here, Andrew. But I thought I'd try to answer, but we believe that about 90%, once we got clarity, remember, we already started on November 1 let's get that right. 232, the when they changed the tariff rules took effect first of November. Then we got some clarity a little later after that. about, well, we're going to hold on and keep the 2027 rules in place from the emissions perspective. except for we're going to loosen up a few things here.

We probably it hasn't come out yet. But the beds have said, we're not going to keep all the warranties not hasn't been physically done, but they have communicated to customers and the like, that we're going to cut the warranties back. Well, that was more than half the cost. We're going to be a little flexible on credits and how you do that. And I'm not the genital expert.

So you had all that go down. Well, that gave clarity, right? So then you started us we started looking out next year, I spoke of. They knew they really wanted they pulled back on purchases last year in the second half. And you can't do that for too long. You've got to bottle that got your maintenance is going to go through the roof your fleet goes up on these big fleets. So people really started talking, I would tell you in November. And all were remember what it was 18,000, 20,000 units, I can't remember. But was picking up, and then we had a big December, $40,000, $30,000, $40,000, I mean, and then it was 30,000 last month. We at the same time, as I said earlier, people's businesses they started to be able to see your tender acceptance rates came down from 98% acceptance to low 90s.

We started even in the high 80s, which started to drive spot market of it. It wasn't just weather did here recently, and people felt better about where they were at from in contracts going forward. You can just there's been a little bit of tightening, right? So that gives you and people worried it isn't sustainable, right? The first 30 days. And now I'm going I don't know him, maybe I'm going to be wrong. Maybe it's not sustainable. I have a feeling that after 3.5 years this company somewhat sustainable, if not gradual, right? But sustainable, whether it's there's not some spike but a gradual sustainable improvement in their business. You tie that in with how you've got clarity you know what it's going to be at the end of '27. You may have slowed down on some uropanies it did in $25 million Well, that's why I think you're going to see a good order intake this month also. I'm just guessing it's a short month, but it will be solid.

I do believe it's a shorebase we know February but I would expect it still to be solid. And from people I've talked to some people I talk to. So and I think what's going to happen is if the backlogs and I don't know for everybody because I even heard of 1 OEM that has some shutdown weeks here in the first quarter. Now why I'm dealing with, I don't believe, but I've heard of 1 OEM that has and I'm not here I don't want to get it all that. But my point being, I know for people that they're filling up here not filling up, but you're getting orders, right? You've got to so all of a sudden, the backlog is increasing, okay? Well, then people look at it here as we get into the spring time and say, wait a minute, I don't want to get left behind in the fourth quarter because some people you see these orders. Remember, they're not on build immediately, but they are building a backlog. Most of them spread over time.

So I just believe I could be wrong. I mean it's just my gut and maybe touch with the market that yes, it will continue because people are feeling their business is great, but they don't feel in the dumps sometimes when you've been living in the swamp dumps, it doesn't have to get a whole lot better to make you feel better, right? And it's been 3 years of prolonged freight recession, but at least now you got to believe because remember, the first thing that happened is capacity is coming out, right? everybody reads about non-CDL driver non-drivers they've been taken out here and there. and they have. And but that's not an ad water and stir thing. But as that goes on, can you have less can take of drugs. Remember, we built a lot less trucks in the back half so 25 than what we did in the for first half. So you slow that pick it down, you start taking some of those noncompliant CDL drivers out you start squeezing the capacity piece.

And all of a sudden, their business starts getting a little better. The economy looks a little better. ISM looks better. I think there's a lot of things that tend to make me believe how long was emission regulations coming January '27, we're going to have pretty good last 3 quarters of the year, right? Now and I'm not predicting demand gloom after that, but that's a little far out to me to understand right now. I'm just dealing with what I got in the present and over the mid rest of this year, and we'll talk about '27 as we get halfway through a little further through the year this year. But I feel good that kidney is sustainable and will lead to maybe even a third year.

The problem is you start off remember, the first quarter is going to be off so you're starting to hold to begin with, so you got 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 you're highlighting the improvement over the road, finally driving your optimism for the rest of 26 you've 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 if we could talk about 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 issues on over-the-road recovery.

Very well put, Andrew. Yes, we're seeing it on that side of the market. Yes, we love the diversity of our customer base, you know that. I would tell you the vocation pieces I don't see the pickup that I see across, but I can see fairly flat to where we have been, right? Because we've been pretty solid in it. I got to be honest with you. So as you said, can help us over the last couple of years when this over-the-road freight recession.

We've been really solid around that area. So I think that, let's say, I don't want to get into specifics. We might be a little softer in 1 segment and up a little in another segment. But when you look at vocational as a whole, I'm going to say we're really probably flat with where we have been. I don't see any huge decrease or anything. We may because some of them, we were still catching up from Cove in the last couple of years when it couldn't get drugs 3 years ago.

So we have fulfilled maybe some of that pent-up demand somehow is more like business as usual. But I don't see any big downtick is for back to business as usual. Some of the people we do business with were playing catch up 24 and 25 from not getting as much product in '22 and '23, to be honest with you. So where they may be off a little is not off because they're off.

It's not because they played a little catch-up and we were able to capitalize on that. So when I look at those businesses, they're doing well, but they've caught back up to their normal replacement cycles. They got left out a little bit some of those groups at left out back in '22 and '23, and that we picked them back up '24 and '25. So just because someone may be bought from me or some they're buying 750, 800 doesn't mean in their business. It's bad. It just means they've caught back up, right? So you got to but I think overall, it will be somewhat flat at locational pieces.

It's been a while since you've been constructive about over the road. Good to hear.

Well, it's nice to feel even though it's a big piece and but it's a for us, locates big as you don't. So it's nice to feel that you've got an opportunity to maybe a little bit when I saw over the road, I'm hoping our small customer base comes back. I haven't been a little bit I'm a little I'm optimistic there. I mean, I don't want to get overly anything. We talk to you in April and I'll have a whole lot better feel for what's going on, right?

The sustainability of what we're seeing and I'm not on to get over but like you said, it's been a while since we've been able to talk optimistically about the over-the-road business. And I just am looking forward. I think things are going to be better, right? So you add that with everything else we got the Scott here in Q1 because we're just taking away remember, people get excited because these orders taking it.

Orders taking in did not mean Rust has delivered them yet we are the tail of the dog, right? A lot of times we got to do a lot of upfitting and things like this to trucks when we get them. So that's why when you hear me. talk about, well, took orders us, well, that doesn't mean I'm going to add water and deliver them 30 days later. It contains 3, 4 months to get them out there and get them delivered because of what has to be done because we are the we are we're the last guy that touches the end user. So even though they're manufactured to mean we don't have as you know, we have upfitting places around the country. where we make sure to do all those things that customers need a one-stop shop is where we like to be. You bet.

[Operator Instructions] Our next question will come from the line of [ Cole Cousins ] from Wolfe Research.

From a Class 8 pricing perspective, can you talk to what you're 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?

Yes. Well, you probably didn't do real well asking that question of the OEMs did you so you're asking me, put me on the spot. I would tell you right now, we're still building backlogs. I would say I have where let's say there are no big discounting going on compared to where we run there's no huge raises now because that's 1 of the things as we get later in the year.

I wouldn't be surprised to see a supply demand if demand exceeds supply, even around long enough to know what that means. I won't even try to tell you. Everybody knows what that means. It's okay? And so we're not there yet. Backlogs need to be backlogs need to be built up. They've been growing down pretty good and people were building trucks in 4 weeks for you if you wanted it. So once backlogs get built up, and we'll just let the OEMs decide and we'll be the poor guy in the middle trying to get deals done.

But right now, I would say right now, most OEMs are still in the process of getting their backlogs more healthy. So I'm not going to say it's total throw out there right now because it's not, but I mean it's not it's balanced at the moment. But we continue you start popping some 40,000 if you start by 2 or 3 more 35,000, 40,000 months in, which are not necessarily typical of these months coming up in March and April, February month in March and April, and probably going to see demand as outpace supply. And I'll let you take it from there.

No, that makes a ton of sense. And maybe just I know we've 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 aren't as good as they seem, and people are customers are trying to get in line ahead of EPA '27 as backlog start to build again?

I feel very good about how solid what we took was, how about that on with that. I mean I see nobody out there trying to put placeholders okay? The business we took, I would he would take a recession or something for these folks not to take what they ordered, okay? That's how solid I feel about it, okay?

It's not people putting placeholders as you know, you've seen wrap-ups before, when people put placeholders out there just so they get old slots. That's not what's going on at the moment, obviously, none of that, to be honest with you. I see people being proactive, understanding what I just went through on the last question. They don't want to get caught that demand out of whack demand supply piece, right? You know what that means like we already know what that means.

So they're trying to be proactive, not just to the mentions but also to knowing this year is probably going to back up and whether you can get that second or third tier supplier, Yes. And that's what I say you know what happens with the man outpace supply where price goes, right, Let's get real. So I think people are catching up. They probably didn't purchase as much in the back half of last year because they didn't.

And I don't really, that's about the best way I can tell you is solid, right? Yes. I go back to everyone I get to you their business is better. I've said that 3 or 4 times also, right? So it's not just mentioned, remember, I want I long winded this earlier. It's not just the like you said, you're going to go on top of the 2 questions and I'll answer the same way. Their business is better. You've got emissions coming. You feel better, like I said, you've been in the Duflo. Maybe it's not a straight fee but it's a gradual climb up, if you're good about where you're at, you're trying to plan for your future. You know you're going to be in business for a long time, and you need to do the right thing. You just put that together, and I think that's what you're going to see and that's what you're seeing.

And I don't believe that activity level is going to go away. It may not may be 35,000, 40,000 every month. But we some people that aren't participating are going to wake up here in 60 days. If we have a couple, 3 more months of order intake like this to low and that's what you asked about price. That's where we're 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 can feel well enough about what's going on for doing the right things to for their business plan and not waiting until the last minute to do that knowing that there still is putting back there's backlog out there still to be built. We better wait until July would be my comment where you might get caught because ramping up production.

I think these OEMs are having to make decisions right now in the next 30 to 60 days, what they're going to do in the back half of the year. You got to remember that's more labor, that's more of this, and it's the second and third tier suppliers that have been down in the last half of last year. you ask them to ramp up. I got to go who long for, right? And that's where you run into a problem. And that's what could happen. So if I'm planning on being in business and around a long time, and I'm a smart player, then I'm not working it right now, okay?

That's what I'm doing because that could be an issue, Scott. And as you know, but you better be looking out. You may not be living just in the moment, you'd better be looking out a little ways would be my comment to anybody, and I'm not trying to place their tactics. I'm just telling you that you run into issues with that, right? And we'll just I think if I'm not mistaken, when the engine is built is the 2 or you're a lot, but hanging One, you got to remember. So when you get towards the end of this year, it's about the Indian, right? Engines all have to be built both in the '26 before you go in to '27. So it could be an interesting back half. Let's just say that.

That makes that's good color. I appreciate it, Rusty. And maybe if I could squeeze 1 last question in.

Of course, 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 hasn't really come back yet, but maybe there's some hope that it will through the year but maybe can you talk to what you've seen from the national account level and maybe from a higher level, talk to some of the initiatives you guys are pursuing to grow national account mix going forward?

Yes. You bet we are. We always national accounts is easier and more effective and more controllable. I can't it's hard to control what we call the unassigned accounts. That's still 30% of our business, roughly and that's the little folks, right? So we just want that to come back because that's going to be a higher margin, right? When you do national got business, I understand they're national for a reason. -- they're not paying retail, okay? So while it can be a little hard on your margins, it's still more solid sustainable repetitive business, should I say, right? So you're looking for that foundation, right? The treatment of cherry on top comes when you get the smaller retail guy back in the game.

You got us not listening to me on the phone right now okay, those folks. But they're still a part of what we do so but I mean, our national gun business was up not as much as we had been up, but it was up some side of the house, not so much. But in some areas, it was for last year, we will continue to focus on that.

And so but we were up not as much as we had. We were up buying like overall blended all OEMs were above 6%, okay? So we will continue to grow that. understanding you're blending revenue, you're buying margin, you're doing all that. We love that fees. We're going to get you to focus on that piece. It's the sustainable piece, more sustainable. It doesn't have the volatility of the small customer out there, right? So but that's why I'm open. But you got to get those guys the national accounts have to feel better, which they do the buy all the time.

They just may not buy quite as much sometime. We were up 6 years before, we were up double-digit incentive, right? Again, like I said, you're growing the revenue margin is not as high as the other. We work the blended margins, but I think everybody understands that, right? So and we're fine with that. we'll manage that piece. It's much more manageable than the unassigned accounts because they're not assigning really don't know don't know who they are, right? So smaller. But hopefully, later this year, is 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 of years from now. But for right now, I would tell you, I'm hoping that some capacity still comes out, which is a small guy, but the 1 that's left will be a healthier customer, okay? And we will see some pickup in that later this year, too. As rates go up, it helps everybody, not just a big guy. It helps a little guide too. And so I don't know, it's a long-winded answer there, but I hope some of that I gave you some points there that you can grab that makes some sense to you.

Thank you. I'm 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. and short time what we talk again. We'll talk in February, a couple of months away. So Excuse me, I may not be said I was looking at it April, my pad, 2 months from February and April, we'll 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.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Rush Enterprises, Inc. reports Third Quarter 2025 Earnings Results. [Operator Instructions] I would now like to turn the conference over to Rusty Rush, President, CEO and Chairman of the Board. You may begin.

Good morning, and welcome to our third quarter 2025 earnings release call. With me this morning are Jason Wilder, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel and Corporate Secretary.

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

As indicated in our news release, we achieved third quarter revenues of $1.9 billion and net income of $66.7 million or $0.83 per diluted share. I am pleased to announce that our Board of Directors approved a $0.19 per share cash dividend. The commercial vehicle industry continued to face challenging operating conditions in the third quarter of 2025. Freight rates remain depressed and overcapacity continues to weigh on the market.

In addition, while the industry gained some clarity regarding the tariffs that will be imposed on certain commercial vehicles and parts beginning November 1, economic uncertainty and regulatory ambiguity remains, especially with respect to engine emissions regulations. These factors are impacting our customers' vehicle replacement decisions.

Despite these headwinds, I am proud of the financial performance our team delivered in the third quarter. Our employees' commitment to operational discipline and customer service was evident in our ability to maintain strong aftermarket results and manage expenses effectively. And I'm deeply grateful for their dedication.

Our aftermarket operations accounted for approximately 63% of our total gross profit in the third quarter, with parts, service and collision center revenues reaching $642.7 million, an increase of 1.5% compared to the third quarter of 2024, and our absorption ratio was 129.3%.

In the third quarter, our aftermarket products and service businesses remained resilient despite ongoing market challenges. Our strategic focus on technician recruiting and retention, expanding our aftermarket sales force and identifying new customer segments helped to offset weak demand.

Looking ahead, we anticipate continued challenges in our aftermarket business due to seasonal trends and broader industry headwinds, but we remain confident that our diversified customer base and operational discipline will allow us to successfully navigate the remainder of the year.

With respect to truck sales, we sold 3,120 new Class 8 trucks in the U.S. during the third quarter, accounting for 5.8% of the total U.S. market. While this represents 11% year-over-year decrease, we outperformed the market primarily due to stable demand from our vocational customers, underscoring the strength of our diversified customer base.

Looking forward, economic and regulatory uncertainty continues to dampen customer demand, particularly with respect to new Class 8 trucks. We believe that the weak demand the industry is currently experiencing will negatively impact new Class 8 truck sales for at least the next 2 quarters. That said, if stricter emission laws become effective as planned and if capacity continues to exit the market due to bankruptcies, retail sales being below replacement levels, and continued enforcement of government policies regarding English language proficiency and non-domiciled drivers, Class 8 truck sales may be strong in the second half of 2026.

In the medium-duty market, we delivered 2,979 Class 4 through 7 medium-duty commercial vehicles in the U.S. in the third quarter, representing an 8.3% year-over-year decrease and a 5.6% market share. We also sold 448 Class 5 through 7 commercial vehicles in Canada, which represents 10.7% of the new Canadian -- of the Canadian Class 5 through 7 commercial vehicle market.

Despite ongoing industry headwinds, our medium-duty results in the third quarter outpaced the broader market. Our performance was bolstered by a significant increase in bus sales following our acquisition of an IC Bus franchise in Canada, which further diversified our customer base. Looking ahead, we expect medium-duty commercial vehicle sales to remain stable through the remainder of the year.

We sold 1,814 used commercial vehicles in the third quarter, essentially flat compared to the same period in 2024. While financing remains a challenge for used truck buyers, we believe our inventory is rightsized and that our used truck sales strategy is on track. Unlike the new truck market, the used truck market is less exposed to tariff concerns and regulatory uncertainty, which may provide customers more confidence and incentive to consider used trucks as part of their fleet mix in the near term. We expect fourth quarter used truck sales to be in line with the third quarter.

Rush Truck Leasing achieved record revenues of $93.3 million in the third quarter, up 4.7% year-over-year. Our full-service leasing revenue increased as we brought new vehicles into service, which also helped lower operating costs and increased profitability. Rental utilization was lower year-over-year, but improved sequentially, and we are confident our leasing and rental performance will be solid for the remainder of the year.

On the capital allocation front, we remain focused on returning value to shareholders during the third quarter. We repurchased $9.2 million of our common stock as part of our expanded $200 million repurchase authorization, and we also paid a cash dividend of $14.8 million in the quarter.

In summary, despite the aforementioned industry headwinds, I believe we've delivered solid results, and I'm proud of our team's performance in the third quarter. Our employees across the U.S. and Canada continue to demonstrate resilience, and I'm deeply grateful for their dedication.

With that, I'll take your questions.

[Operator Instructions] And our first question comes from Andrew Obin from Bank of America.

I'm sure the team works very hard. Just a question, could you just tell us, we've been stuck in this cyclical malaise for a while now. We've been waiting for the turn of the cycle for a while now. Can you just expand and tell us what are you seeing? When do you feel things actually bottom? And what's the path going forward? What gets this thing sort of on court and just lets the sales actually go up eventually?

Right. And I'm guessing, Andrew, that you're speaking about from my customers' perspective. Is that correct?

Yes, correct. Yes.

Okay. Well, great. Well, I just so happened, I spent the last couple of days in lovely San Diego, California at ATA, which is the largest truck convention -- our customer truck convention there is. So I met with quite a few customers while I was out there. And I think as I mentioned in one of the paragraphs there in the press release, and I mentioned a little bit earlier, this is the first time I'm going to say, I mean, we've been 3 years in a freight recession, 3, okay? This usually doesn't last, but 12 to 16 months, I have never seen in my career, it go so long, right? And you could figure out why supply was not coming out, right?

There's supply and then there's demand. I can't really speak to demand as well. That's more of an economic-driven, the only economy-driven stuff around tariffs and just around the economy itself. But from a supply side, the crazy thing is it just has not come out of the market. It always comes out faster. And I think if you look at it after rates were way up in '21, '22 and they started coming down. That's been that 3-year row, just depressed freight rates from the customer perspective, especially on the truckload side, not so much on the LTL side, but on the truckload side for sure.

And I think the government has finally got their arms around some of this when -- I mean, one of the things I learned while I was there is you read a lot and people are saying this is non-domiciled driver thing and the English-speaking proficiency, but really around the non-domiciled driver thing. Most some of the numbers I've heard before, well, if we can enforce that, it's going to be up to the states to enforce that, okay? And I've heard numbers of 5% or something. Well, I was there. Some of the carriers I talked to said that was way understated. And like 15 to 20 of the states are really starting to enforce it right now and that they all have to get on board. And so over the next little bit, it could take out up to 15% of the drivers, which are probably some of the smaller carriers have been using to hang on and stay. Those are the carriers that usually go out in a freight recession first, not your more well-capitalized bigger guys, but the smaller carriers are always that variable piece that get in and get out based upon where rates are. And so that's one of the things that I believe will, for sure, help.

Also, I think we -- people continue to buy trucks after we came off of allocation, we should have not slowed down selling trucks or producing trucks quicker than we did because there's 2 sides to it, right? That's the attrition side. Well, the other side is what are you producing, right? Well, right now, the last -- the back half of this year, I mean, you're talking we're going to be down in production 30%, 35%, 40% at all the OEMs combined. I'm not sure exactly where it is, but it's down dramatically. And I think that's going to continue into the first quarter for sure, maybe the first half.

If you add that, you think about that, so you're shutting down the supply side, the intake side, you're taking people out of the attrition side. Well, you should start to get a more rightsized or balanced fleet out there with what market demand is, right, or what freight tonnage is. And I think you can see that if you look out.

Now on top of that, even though the carriers, and I'm on their side, would prefer that it's changing the law that's going into effect right now. The current law, the way it stands is 35 -- don't give me, it's changing to 35 particulates on the NOx side. It's 200 currently, okay? But the new law says 35. I'm with the carriers. They would prefer a pause on 35 and they -- but I'm not in the middle of that, but you see folks and customers that are putting pressure on the EPA to pause that law.

Right now, I can't tell you where it goes. But if it stays as is and goes into effect, I do believe it will change -- if it stays as is, you will see change in the warranties will come down because a lot of the cost for that is going to be more. But it's still going to add more cost where tariffs have added more cost to an industry that's been in a 3-year recession. But people are asking for, like I said, carriers are asking to say 200, and I support them on that. I don't know. But currently, if you look at the law, it said it's going to go to 35. Well, that's going to add more cost also by the end of next year.

So you tie that in with tariff costs, which are happening for sure, starting Saturday with the new tariffs, I mean, the tariffs already all year, but with the new 232 rule and how that affects everything, you're going to put -- the EPA thing will only increase cost on trucks at the end of next year. So you add that with a better rightsized fleet, for the environment. That's why I wrote you can see a much stronger back half of next year.

Now I would prefer that we also have freight tonnage growth with that. So it's not just regulatory driven. I think if we can get some freight growth, which I hope we get some certainty. I mean uncertainty for everybody has been the craziest thing trying to run a business all year, okay? But we get some certainty around whatever it is, add that in, like I said, take it supply out. And even if it stays that 35% will help truck sales, but I'd like for my customer to be more healthy. And I think getting the right-sized fleet is the most important thing with a pickup in freight tonnage. And that's why you see some optimism.

I'm more optimistic now for that -- the big over-the-road market. Look, that's still 2/3 of the market that's out there, all right? Vocational is awesome. And we do more in vocational than 1/3 of our business, but that's still the largest segment, and it has been obviously headwinds for everyone, my customers more than me for the last 3 years.

So I know that's a long-winded answer, but you're used to my long-winded answers, I'm hoping. And that's sort of the way I see it right now. I have a little more optimism than I have had after coming back from San Diego, that's not happening right now, okay?

Remember, we had 5 months, 6 months of the lowest order intake since 2009. I'm the tail of the dog. So we are going to feel it in Q4 and Q1 without question. At the same time, it feels good to really believe that you can see real drivers to get back and get the market rightsized long as the economy stays in good shape. That's sort of the way I see it.

And just a follow-up question. I ask it on every call, but what's your read on the macro, just general macro outside of the stuff that feeds into your customer base? Is it getting better? Is it getting worse? What are you excited about? What are you worried about?

No. I'm not an economist, Andrew. What I worry about? I worry about unemployment, which for sure would affect consumer demand. That bothers me. I worry about -- I don't feel that we have seen the full effect of tariffs, no way. We had a prebuy prior to August, but we're draining those -- as we drain those inventories down, we've got to restock. I have seen many large companies, manufacturers, customers across all segments that have eaten a lot of those costs. I don't see them eating those costs forever, which ends up being pushed down to the consumer at the end of the day.

Those are the 2 things that bother me more than anything. I'm hoping we can get around all that. But I do -- an inflationary -- a little more inflationary environment if tariffs get pushed through because everybody knows that people prebought prior to August, but we're draining those. So -- and you put that in, we get some more unemployment. You read some of the stuff you see. I see a little anecdotes out there myself that have me a little nervous, a little bit concerned. I can't say this is going to -- this is a number or this is what's going to happen. But I do have some concerns as I look at -- just look around myself and try to pay attention to what's going on, right?

Like I said, I'm not an economist. I'm just looking at it from my street level, but I do have quite a bit of touch and feel with a lot of different companies and things out there. So besides all the big stuff you read about when you read about UPS and these big companies that are laying off right now, Amazon by laying all these people off. There you go. That's what I'm worried about.

And I'll -- just feeding into that, I'll just take advance and ask one last question. How is your parts and service business trending on a daily basis into the year-end? Is it getting better? Is it getting worse because that's also a good indication and also obviously has quite a bit of torque to your financials.

Yes. Well, it was flat to slightly up for the third quarter, but September was softer than I would have liked. Remember, we naturally or yes, we naturally have seasonality. And I've always told folks if I could get rid of sometimes November, December, January and February, I might keep the holidays for the kids. But other than that, from a business perspective, if I could sometimes we're in the south, -- it can help a lot of our stores in the South, the majority of them are. So that's a little harder, a little softer. You have fewer working days.

We typically tick down 3% or so, 3% to 4% from Q3 and Q4 and Q1. It will start picking back up, hopefully by late February, March. It softened a little quicker in September. I'm waiting to get October finished tomorrow night. I'm hoping that we can try to get pretty close to flat with last year. I'll be really close, I think. But it's still to be -- how about TBD, to be determined. There are certain things I look at that show month-over month, we got the same amount of backlog in our work in process in the parts and service. But I do -- I'm hoping it's just like normal seasonality, and we have a slight downtick and less -- we have 1 less working day, which is quite a bit of gross profit as big as our parts and service operations are and it's the holidays, factories shut down between Christmas and New Year, but you deal with that every year.

So I'm hoping we stay in the range of what we typically do. I was a little disappointed with September. Typically, we'll start in October. But we'll see here by the end of the working -- the month by midnight tomorrow night on Halloween because they'll be closing tickets and doing what they do every month, getting it all in. So we'll see, but I expect it to be fairly close to flat with last year's number, which if we're there, given the environment, I'll be okay with it. I'll be okay with that.

Our next question comes from Brady Lierz from Stephens.

I wanted to start kind of just with the outlook for the remainder of '25 and the first half of '26. You've mentioned a couple of times on the call that you expect a challenging end to '25 and for that to persist into 1Q. But can you expand just a little on that? I mean what are your customers telling you as to why they're not placing orders? Is it just uncertainty around regulation? Or is it uncertainty around tariffs? Or is it both? And if we got more certainty around those items, could we see a meaningful improvement -- and then maybe just kind of related, your vocational customers seem more resilient. So are there some company-specific opportunities you have to help offset this weakness and outperform the market?

Well, from a delivery perspective, we slightly outperformed the Class 8 dip. I think [indiscernible] market was up more than that, I think, in Q3. But around -- I'll go to your first part, Q4, first Q1, maybe partially into Q2, I can't tell. Look, remember, like I said earlier, we're the tail of the dog. And when you look at the order intake from April, May, June, July, August, September, it's like September, it was 20,000 units. We have months that was 7,400 units. This is North America, 11,000. Those were the worst order intake months since 2009.

I know that every manufacturer has taken more down days over the last -- since July. Everybody built as much as they could in the first half of the year. There is not one manufacturer, not one that hasn't taken many down days and weeks, okay, so far in this quarter, okay? So we're building less trucks. I guess it's less to sell because there's been less demand. And you can circle lead. That's all of the above. When you see you hit it, it's really 3 things. It's their business. It's everybody's business, but the uncertainty, tariffs that make freight go up and down and cost of trucks go up and down. And then you add in, can we get an answer on emissions next year because everyone I spoke to, if their business can get a little bit -- a little -- which we're not -- I'm not saying they're getting it now because you got to take care of those supply issues that I rambled on and talked about earlier when I talk about the amount of trucks on the road, has to get in line with freight.

If you can get that back in line, bring some certainty, here's what the emissions regulations are, whatever they are. And if they stay as they are currently under the law, I don't think there's any question in spite of the large freight customers, they'll probably try to pull a little bit forward, not have huge prebuys, but they will try to shift some stuff maybe they do in Q1 or '27 or Q2 and try to shift some of those purchases into the back half of the year. If it stays as it's written right now and doesn't get -- there's not a pause and they get a little relief, which I said before, for their sake, it might hurt my truck sales in the back half. But for their sake, I just assume they get it -- get that relief. But it's what you said. But really, they need to get aligned -- really, we've got to get the supply aligned with tonnage, and to where they can get a little contract rates.

I mean if you look at the TL side, I mean, if they got 2%, they were lucky this last year because they were going down, down, down 10%, 15-plus percent the prior couple of years. Well the cost of trucks and everything operationally and inflation went up, up and up, they have nots, you've seen the ORs and some of these things, and they're not what they historically have been on that side. Now LTL still fared better. Of course, 2 years ago, they got a little tailwind with the demise of yellow and stuff. So when the third largest carrier goes out. And there's many fewer barriers to entry or there's excuse me, more barriers to entry in LTL with all the doors and terminals and all the stuff that's required in that space. So they've weathered it better than the TL side.

But I just got to tell you, the next couple of quarters is going to be tough. You can tell by the order intake that's been there. And it wasn't like everybody was ordering trucks handover fish. Some people -- it was -- we weren't even -- it's difficult to give a price on a trucks deal. But remember, the tariffs, the definition of it just came out 1.5 weeks ago, okay? And these manufacturers are just pouring through it, trying to make sure they clearly understand it, okay? Because it gets pretty complicated as to where -- how these tariffs are figured out from where you build and what are your suppliers because people use different suppliers and where that comes from, et cetera. I would tell you that we'll probably have a whole lot more clarity as to how things are going to pick up in the next 30 to 45 days.

There wasn't a lot of clarity at ATA because people -- it was good for some manufacturers and bad for others. And they're trying to sort it out with the Rule 232 is what I'm talking about, but that just came out, whatever, 10, 12 days ago, 10, 11 days ago, and folks are just pouring through it, making sure that they understand it right. So I mean I'll be honest, you couldn't price a lot of people right now. And when you can't do that from a manufacturer, that somebody is supposed to buy something. It's been crazy all year because you would price like you would give quotes that were only good for 90 days, right, or maybe 120 based upon the ever-changing environment around tariffs.

Well, that's difficult. You've got all these question marks. If this happens, this will, if not, it's no good. I mean this is the world we've been living in for the last 6-plus months, which has made it extremely difficult. So as all I can tell you is clarity, clarity, clarity and less uncertainty and continue taking supply out and hopefully get a little bump in freight early on in tonnage here. I don't see it right now. But I would hope as we get into the first part of next year, we do see something by the time we get out of Q1, into Q2, something there while you're taking supply out over here, while you're building less trucks, so your intake is less. So you should naturally be squeezing down the supply of trucks. I mean that's all I can -- the best way I can describe it, which for me, the hard part was while we were in a freight recession, we just kept building and selling trucks longer than we probably should have. But now we're on that rightsizing piece, along with the government activities around drivers that are going on the things I mentioned earlier. So anyway, I have some optimism. It's just not over the next 6 months. Okay.

That's very helpful color. And if I could just follow up on medium-duty. Medium-duty has continued to kind of be a stable growth driver for your business. Can you talk about what you're seeing in medium-duty into the end of the year? And just maybe any preliminary thoughts on medium-duty in 2026?

Medium-duty is a different environment, right, a different market by far than the Class 8 world. I would tell you, we expect it to be fairly flat in Q4 with Q3 on the medium side. Most of the downturn will be -- for us will be on the Class 8 side, for sure. Like I've mentioned, there's no question we're going to deliver fewer trucks and things because you can see order intake, that kind of tells you what you're going to eventually come to regardless of what our share percentage might be, there's going to be a lot less deliveries in this country because we haven't taken many orders in for the last 6 months.

I would tell you there's a lot of leasing around the medium-duty, okay? And also what we call our Ready-to-Roll inventory. It's just -- it's more about the general economy and what's going on around there. Housing has a lot to do with. There's a lot -- the leasing companies. I would tell you, we're working some stuff that had me somewhat hopeful for the entire year next year. But it too will probably suffer some, maybe not to the degree, right? It will be more stable, I believe, than the Class 8 business will for the next couple of quarters. But at the same time, I don't know that we can comp -- I don't believe we'll comp to the same that we did this year, but it won't have as big a hit, say, as the heavy-duty side will right now.

So that's about all I can tell you about it. It's pretty much hand-to-hand combat out there still right now, right? If you want a truck, I still build a queue this year. All good news tell me, there's lots of slots open for everyone, for all manufacturers. So that's -- it's going to be November 1, and we shut down, most manufacturers shut down in the last 10 days of the month of December. So -- and they're still not full by any stretch in their backlogs, and that's why they keep taking shutdown days. I'm talking about all manufacturers. Some will probably do better than others, but I'm not going to get into all that right now.

But -- all I can tell you is that medium-duty should weather better from a downturn perspective given the diversity of its -- of the markets it serves because it serves so much the general economy. But it's not totally -- it will get – it will suffer some for sure, though.

That's super helpful. Maybe just a final quick follow-up. Could you share what you're seeing in the used truck market, particularly how is used truck pricing trending just given this, like you said, volatile backdrop to say the least?

Well, I think it's been fairly stable. And when I say that, normal depreciation, unlike, say, a year ago, if you asked me that, I would have told you no, depreciations for 2 years for sure, we're double depreciating. I would tell you now depreciation is more in line with what you typically would see from a percentage perspective. So that's good.

And our used trucks, while it's always more difficult winter time with used, but we've done a really nice job. I'm proud of the job we've done on the used side all year long, managing our inventories and staying and doing whatever we have to do to support our customer base. Because remember, one thing about used is you have -- you've got -- you take trades, right? So you have to have the flexibility and the ability to take trades. We've managed -- we've taken our inventory up a little on purpose during this last couple of quarters to try to move more, not to -- we've taken it way down, okay? I think we've probably split the middle on where our inventory is currently from where I used to carry it to where we do now because you got to turn your used inventory. And our turns are -- they're maybe not as tight as they were at one time, but our production overall, you got to have inventory to do that for sure.

As always, when you think about, as I mentioned in my comments to open, used trucks, they don't have to worry about tariffs or emissions, do they, okay? So there is somewhat of an advantage to that -- there's not -- there's certainty around used trucks. So they're not worried about tariffs or, as I said, emissions. when you're buying a unit. So that's a plus. So we've had a really nice year, and we expect it to be solid going forward. I mean the problem is just -- the volumes just can't make up for when heavy-duty pops down.

But remember, we -- the thing about the company, and I think sometimes people lose sight of is we have many revenue streams. Remember, I got a great leasing fleet. We're super profitable in our leasing operations. We're profitable on our parts and services. You can tell all the time. Everybody is focused always on truck sales, and they are a big piece of what we do. But at the same time, they're not the most -- parts and service is the one stable piece that you -- when I say it -- it does not have the volatility of the Class 8 truck sales market.

So fortunately, we have all those revenue streams that help us weather the storm, but we top it up, knock it out of the park when you're not -- you need to have all pieces contributing. But the good part is, unlike some other businesses where they're tied to just 1 or 2 revenue streams, we have many more, which allow us to get through environments like we're seeing right now and continue to put out the kind of results we do.

Are they the best results we've ever had, of course, not. But we're not going to sell as many trucks, but they're going to be solid and they're going to be good. And forgive the environment, a whole lot better than my customer base has had to put up with. I feel sorry sometimes what they've had to go through the last 3 years. A lot of them have anyway, especially like I said, on the truckload side and some of the others.

So anyway, I know it's probably more you want to hear about, but that's just how I it. But now we're good where we're at on used and hope to continue to have solid quarters there.

Our next question comes from Avi Jaroslawicz from UBS.

So I know parts and service business is a pretty big focus area for you guys in trying to grow that. Can you just remind us what you're doing to pick up more share in that part of the business? And is that more challenging to pick up more share in a softer market like that, like what we're seeing now? And also, where are you still seeing opportunity within that space?

Well, it is more challenging without question, right, because the overall market is down. I would tell you we're holding our own this year. I don't know that we've picked up as much as we would like to because when you get in this type of environment, it becomes much more highly competitive and especially with the inflation stuff we've seen in the parts arena this year, it becomes more competitive, to be quite honest.

Some folks are just looking to turn cash, right? And sometimes margin sometimes takes a backseat. So you have to balance what you're doing between taking share and margin and results at the same time. And so that becomes a challenge in this type of environment when it's not a growing sector, we've remained fairly flat all year, right?

I would tell you we're in line, maybe a little bit better than the overall from a dealer -- break it into independents and dealers. And I would tell you from a dealer perspective versus other dealers, I think we're in pretty good shape. The independents, they can get down and dirty when it comes in this type of environment. But our overall deal is this. And over time, I don't want to look at it just every quarter. I'd rather look at it annualized and over a couple of 3 years.

If the market goes up, just make a simple math, 5%, we want to go up 6%, okay? Why that means we're taking share. We have historically been able to do that and then throw a little M&A in there and do better than that some years, right? But -- so I'm not going to say we've done that this year, but I think we've taken some maybe not as much as I would like. We want to be 20% better, right? Because to be 20% better, if you're taking a little bit more, you're just slowly ramping up your share. It's not an add water and stir arena.

And as far as what we do, like our technology and our data is second to none, okay? So it's continuing to take that. And without getting into each and every project that we have out there, we always have projects going on to help enhance it that support growth, right? They're not just -- we don't go about it the same way every year like what we go about our business, but we keep enhancing and adding technology and stuff to make it easier and easier for our customers to do business with us. And that's the key piece from our perspective as we look at going forward.

Our industry is -- it's not like consumer, right? It tends to operate a little behind the time well, which can be challenging because you have to keep pace with your customers, right? And when I say that, I don't want to downgrade our industry, but it's typically still a little more hands-on than, say, some other consumer type things and how you go about it. But technology continues to be a bigger piece of it. And I don't like to get into some of the things we do just because I consider them proprietary. I think those investments and also our investments in folks and people, our growth in the mobile service area, those types of things, we have goals that are pretty well stated out there.

I think most a lot of investors understand that because we expound on them quite a bit when we go to conferences. I have 3 up here coming up in the next month. to let people know those types of investments, where we want to grow our mobile service fleet to x and then we want to take our total technicians, and we want to grow our outside service -- excuse me, our outside parts and service, what we call ASRs, take those guys more -- grow that part of our business, too.

But sometimes you got to be careful because in a market that's getting really tight, you need to have a market out there, but we still think there's a lot of runway, and we will continue to do it and have the goals we have around, like I said, to try to do about 20% better from a growth perspective. If market goes up 5%, we want to go up 6% because it's not somewhere you're going to go from 5% to 15%. If market is 5%, we're not going to take 15%, I mean if I'm giving stuff away or doing this and doing that. And that would not be -- I don't believe that's the right way to go about it.

That concludes the question-and-answer session. I would like to turn the call back over to Rusty Rush, President, CEO and Chairman of the Board, for closing remarks.

Well, everyone, this is the longest gap between earnings calls. We won't be talking to everybody until February. So in the meantime, I wish everyone a happy holidays and safe holidays, and we'll talk to you in February. God bless you all. Thank you.

This concludes today's conference call. You may now disconnect.