Good morning. I hope everyone has been able to get through obviously a little new technology to the lakes this morning. We had a couple of emails with a couple of folks having trouble. But hopefully, everybody will get sorted out this morning and be able to join us for the call. So I'm going to get started. Good morning and welcome to the Second Quarter 2022 Earnings Release Conference Call. On the call today are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Vice President General Counsel and Corporate Secretary. Now Steve will say a few words regarding forward-looking statements.

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include 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, 2021 and our other filings with the Securities and Exchange Commission.

As indicated in our news release, we achieved second quarter revenues of $1.8 billion and net income of $110 million or $1.92 per diluted share. Earnings per share excluding the one-time gain related to our acquisition of a controlling interest in Rush Truck Centers Canada Limited were $1.75 per diluted share. We are very proud of our accomplishments this quarter. Not only did we achieve record high quarterly profits, we also completed the conversion of our previously acquired Summit locations to our SAB businesses, acquired an additional 30% of Rush Truck Centers Canada Limited, repurchased $38.4 million of company stock, and declared a cash dividend of $0.21 per common share, representing a 10.5% increase in our dividend and our fifth increase since 2018. Our results in the second quarter were due primarily to strong freight demand and healthy consumer spending. New truck production continues to be constrained due to component supply issues, but our Class 8 new truck sales substantially outpaced the industry. Our aftermarket results also significantly outperformed the market due to strong demand for parts and service throughout the quarter. Our results were also positively impacted by 19 locations acquired in the fourth quarter of 2021, as well as 15 locations in Canada, through our additional investment in Rush Truck Centers Canada Limited, whose operating results are now consolidated in our financials. In the aftermarket, our parts service and body job revenues were $598.3 million, up 34.3%, and our absorption ratio was 136.4%. In the second quarter there was strong widespread demand for parts and service from most market segments. We continue to strategically expand our workforce and service technicians and aftermarket sales for vessels throughout our network, including new locations extending our rigs to large national fleets. We expect supply constraints will continue to impact the industry into 2023, but we believe parts and service demand will remain strong due to our network reach and scale of our inventory along with our partnerships with parts manufacturers. We are better equipped to navigate any industry parts shortages moving forward. With the continued expansion of our workforce of technicians and aftermarket professionals and by implementing our strategies in our newly acquired locations, we believe our aftermarket results will significantly outpace the market in 2022. Turning to truck sales; we sold 4,168 new Class 8 trucks, accounting for 6.4% of the total US Class 8 market and 1.7% of the Canadian market. While truck production is still constrained, Class 8 manufacturers represent we were able to increase production somewhat in the second quarter. We experienced healthy demand for most market segments, particularly over-the-road, construction, and vocational customers. Our backlog remains strong and we are proud of our Class 8 product sales results this quarter, especially given the limited number of new trucks available to sell. ACT Research forecasts US Class 8 retail sales to be 253,000 units in 2022, up 11.3% from 2021 and Canadian new Class 8 retail sales to be 29,500, up 4.9% from 2021. We believe that because of supply constraints, retail sales of Class 8 trucks have lagged demand by more than 100,000 trucks over the last couple of years. We believe due to this pent-up demand for Class 8 truck sales and the pending changes to emissions guidelines in 2024 and 2027, the commercial vehicle market will remain strong through 2026. Our Class 4 through 7 new truck sales reached 2,815 units in the second quarter, accounting for 5.1% of the US Class 4 through 7 market and 1.3% of the Canadian Class 5 through 7 market. Production capacity remained limited but we experienced healthy demand from a variety of market segments including vocational and food and beverage customers. ACT Research forecasts US Class 4 through 7 retail sales to be 230,000 units in 2022, down 7.7% from 2021. In Canada, Class 5 through 7 retail sales to be 10,250 units, are down 22.5% from 2021. Looking ahead, we expect supply constraints on Class 4 through 7 trucks to continue though some manufacturers may increase production this year. We believe our results will align with the industry in 2022. Our used truck sales reached 1,629 units in the second quarter, down 22.2% from 2021. Overall, demand softened for Class 8 on-highway used trucks due to weak spot rates and high diesel prices, putting an increased burden on owner-operators and small fleets. However, there was still strong used truck demand from medium-duty flatbed, vocational, and energy customers. Used truck values have decreased significantly, and we anticipate they will continue to soften throughout the year. We are managing our values and inventory and believe we can effectively meet the needs of the market this year. I would like to note that our lease and rental operations have grown to become a significant contributor to our company's overall profitability, with second quarter lease and rental revenues increasing 31.2% year-over-year. The growth is driven by our recent acquisitions in the fourth quarter of 2021 and second quarter of 2022, as well as strong demand due to the healthy freight environment and limited new truck production. As we look ahead, we are closely monitoring inflation, interest rates, fuel prices, and other economic factors that may impact our industry. That said, while economic growth has slowed somewhat, we believe strong demand for new trucks and aftermarket parts will continue. We've continued to focus on our strategic initiatives and diligent expense management, and we believe our financial results will remain strong. It is very important that I thank our employees for their impressive work and ongoing commitment to our company and our future. With that, I'll take your questions.

Thank you. Our first question comes from Justin Long with Stephens. You may proceed.

Thanks. Good morning and congrats on the quarter.

Thank you, Justin.

I guess to start I wanted to ask about Class 8 sales. We saw a pretty nice step up here in the second quarter versus the first quarter. Any thoughts on how that number trends sequentially headed into 3Q and 4Q?

It seems we will see a fairly stable situation. Manufacturers have largely reached their current capacities, although they are still facing some component supply shortages. Trucks are still being partially built and offline, which presents ongoing challenges. If I were to assess the situation, I would say production looks to be essentially flat. I don't expect significant changes in new truck deliveries over the next quarter and into Q4. It's important to remember that we are still on allocation, which means our focus is more on what we can receive rather than what we've sold. Our backlog remains strong, comparable to what it was at the end of last quarter, and we feel positive about that. As manufacturers gradually increase production, we will move forward, but I want to be cautious about making predictions right now. I believe they are managing the current supply issues reasonably well, having dealt with them for about 15 to 16 months now. Manufacturers have learned how to set realistic expectations, avoiding the pitfalls of overpromising following the challenges faced in 2021.

Got it. And you started the call and mentioned the strong and widespread demand for parts and service. Obviously, a big revenue number here in the second quarter. But could you share what the same-store organic growth rate was in parts and service and how you're thinking about that in the back half?

It was strong. We were at 18% in Q1 and a solid 19% in Q2. I may have underestimated expectations when I mentioned high single digits at the beginning of the year, but I still anticipate some solid double-digit growth rates on a same-store basis moving forward. While I doubt we'll hit 19% again, we're holding steady so far in July, maintaining the pace we set in June without any slowdown. There will be a slight seasonal dip in the winter due to our many southern stores, but that’s normal. Overall, demand remains strong, and we believe our ongoing initiatives, particularly in mobile and targeting large fleet business, will support continued double-digit growth. While I'm not predicting 19%, there's always the chance for surprises. Nonetheless, we expect good growth as we move forward.

Good to hear. I’ll leave it at that. Thanks for the time.

You bet. Thank you, Justin.

Thank you. Our next question comes from Jamie Cook with Credit Suisse. You may proceed.

Hi, good morning. Nice quarter. Rusty, my first question is regarding your remarks about strong demand for trucks through 2026, based on pent-up demand and upcoming emissions requirements. I find that statement quite bold and would like to hear your thought process behind it, especially considering current recession concerns. My second question pertains to Class 8 new truck sales; when you mentioned a flat year, was that in comparison to the first half or year-over-year? Thanks.

Well, I'll answer back in reverse order. That's sequential, Jamie.

Okay, okay. That’s what I thought.

So here’s my bold statement; you don’t often hear those, do you? Those comments are specific to the industry. I don't control the general economy. What I can share is that reflecting on the past 2.5 years since 2020, we were shut down for 1.5 months back then. We didn’t manufacture trucks when COVID hit in April and May, which resulted in lost production. In 2021, we started ramping up around March or April, but then supply constraints hit. We manufactured around 220-something trucks last year in the US, which was below the demand. Looking at this year, we're aiming for about 250. Based on my understanding of this industry, historically, manufacturers have always produced to their maximum capacity without much concern beyond that. I have engaged with large fleets, and while smaller operations are currently struggling, larger fleets haven't been able to keep up with replacement rates as desired. There's still significant pent-up demand out there. We have other factors that will affect everything, and while I can't predict those or act as an economist, everything aligns in the industry based on projections made 1.5 years ago for 2024. It's worth noting that between 2010 and 2020, we saw little governmental influence or significant emission challenges. When I look towards 2025 and 2026, I see potential comparisons to the past except with new challenges arising in 2025. Many expected that 2024 would see 170,000 US units sold, but unable to meet the demand, I believe we may see a decrease in 2024; perhaps reaching 210,000 or 215,000 instead. Those are my thoughts, and while I can be mistaken, external economic conditions could change things. However, the industry aligns generally for 2024 and 2027 considering emissions and the product we failed to produce to meet this demand. If we had the usual backlogs, we would be producing well over 280,000 to 290,000 units. Manufacturers are currently not operating at full capacity, and from my viewpoint, that’s been beneficial. Outside of the general economy—which I can’t control—I believe we’ll manage well even if we experience a soft or moderate recession. There could be some impact, but I don’t anticipate it being negative given the other factors I’ve discussed. That’s the foundation for the numbers I shared, and I believe we'll be okay. If a severe recession were to occur, it would obviously affect us, but I don’t foresee that happening.

Okay. And then just one follow-up question on G&A. G&A has been trending higher. I know there's some acquisitions that are in there as well and you've done well at expense management. Just maybe Steve, how you're thinking about that in the back half of the year? Thanks.

We implemented salary increases effective July 1st, and the figures you see only include two months of Canada consolidated in the quarter. Once we consider the third month and the salary increases from July, we expect that to add approximately $8 million to $10 million to G&A on a quarterly basis. Additionally, the remainder of the increase will correspond with the growth in back-end business aftermarket gross profits.

Okay. Thank you.

One thing Jamie, I think, when you look at that absorption rate remember that takes into account expenses at the dealership level right; the biggest expenses. So, we're managing to keep that grow the gross a whole lot more than we are on expenses, right? That really reflects the spread that you get.

Thank you.

Thank you. Our next question comes from Andrew Obin with Bank of America. You may proceed.

Hi, everybody. Hi. Good morning.

Thank you, Andrew. Good morning to you.

Just a question just a follow-up on Jamie's question. Parts and services are clearly a big beneficiary of the environment, big beneficiary of the investments that you guys have made. It seems pricing is strong. So first, if we have disinflation how sticky are the prices? And part two, you sort of outlined this regulatory environment for the next five years that I think is going to be fairly favorable. So what should we expect from your parts and services in terms of growth over the next several years? And how should we think about gross margins right? Because it's such a huge driver of your profitability. And you have outlined these big regulatory changes that's going to drive demand. But how should we think about demand for parts and services within that environment given how profitable they are?

That's a great question, Andrew. As we reduce the average age of our fleet, one might assume it would negatively impact parts and service. However, while we acknowledge that inflation has influenced our growth, I believe a significant portion of our gains is due to market share acquisition. Yes, inflation has played a role, but we have also successfully captured share simultaneously. This recent acquisition, along with the last two, enhances our market presence, particularly in large fleet business and various customer segments. Our map is our unique advantage—no one else can match our service coverage across the bottom two-thirds of the United States. We will keep striving to gain market share, which is our core objective. While competition is intense, our historical performance and growth trajectory support our capacity to expand our parts and service offerings. The fleet market will likely see a decrease in the average age of trucks, which may have some impact, but our focus will be on increasing the number of technicians and emphasizing areas we believe are vital. I can't delve into all our strategies, knowing some competitors might be listening, but we have a strong capability to leverage our map to better support customers, outperforming others. We have a track record of capturing share and will continue this moving forward. Our team is exceptional, and we are committed to providing them with the best tools and technology, including mobile and embedded technician support, which we excel in. I understand this may seem like a general response, but it is a strong reflection of what we do, and we're seeing it mirrored in our numbers. I have no reason to think this momentum will change.

And just to transition into a question about the macro environment, many on Wall Street are worried about a downturn. You mentioned it. Considering how you implement price increases and the market share you've gained this year, do you believe you can grow your parts and services business even in a mild recession? Just provide an overview of the top-line results you report to us.

I understand your question. Historically, the last time I faced growth challenges, it was due to being heavily reliant on one specific industry, which you can guess is oil and gas. The positive aspect now is that we are not as heavily weighted in that sector. While a strong recession could slow our growth rate, I can't guarantee that we wouldn't experience some setbacks, as it's typical in this business for companies to tighten their budgets. However, I do not anticipate anything as severe as what we have experienced in the past, and we're focused on gaining market share. Even in the event of a strong recession, I believe we shouldn't see more than a 5% decline. Anything beyond that would be concerning for me, especially considering our diverse customer base now. Our clientele is much more varied than it has been historically, providing us with better resilience against any downturn. We will be impacted, but I think we can remain close to flat. That's my perspective for you right now, Andrew.

So, flat or better in a mild recession and maybe down mid-single-digits and something more severe.

Yes, mild flat or better. If you get a heavier recession to whatever, we'll keep it within 5%, my friend. And then remember I got another lever to bolt on expenses at the same time. So, don't forget about the other side of the house.

To follow up, part of the reason your services are performing well is due to your systems, which provide significant visibility in your end markets in real-time. Can you share your observations regarding the economy? We are nearing the end of July, and there are discussions about a potential recession, with a general agreement that it may occur in the next six to twelve months. What trends are you noticing, possibly by geography? You mentioned key verticals and indicated some slowing. What specific areas are you seeing a slowdown in? Last time you mentioned that spot rates might be bottoming out. What is the current situation there? I would really appreciate your insights. Thank you.

Sure. I'm going to address this in reverse order. I believe spot rates peaked around $3 and are currently around $2, give or take a few cents. Clearly, they have dropped significantly. We’re in communication with truckload and LTL operators about their rates and projected trends, and they have a better grasp on it than I do. I'm aware of past rates and their impact on our used vehicle segment and small customers, which is significant and ongoing. A finance company I spoke with recently noted an increase in delinquencies among marginal customers, reflecting the influence of spot rates. Regarding trends across the country, I have to say, Andrew, we’re not observing much softening in any specific region. No area is experiencing backward movement, and our team is vigilant about this. We keep an eye on daily news and developments. While there are concerns, we’re not currently witnessing anything negative. Our customers indicate they are stable and performing well, suggesting it will be one of their most profitable years yet. Even if forecasts show only a slight downturn next year, it seems our customers will still have a strong performance. Right now, the situation in our industry appears solid. Customers may not receive the same contract rates or increases, with some mentioning stagnation and a few experiencing slight declines. Others are still seeing moderate increases. However, the overall mood isn’t one of despair. For those needing fleet replacements, I haven’t heard any signs suggesting a halt to fleet aging. Historically, the trucking industry is a leading indicator of economic conditions based on the volume of goods transported. As for improvements, I’m not observing significant positive changes. We are seeing softening, but given prior rates of 10% to 15% increases, a continued rise would have been unrealistic. Regarding truck replacements, our observations suggest that the increase in new truck production and deliveries has pressured used truck prices. The used truck market has softened as this occurs, which is expected with rising new truck deliveries. Overall, while we are attuned to the market dynamics, we recognize that there are still significant demand and activity levels at this time.

Thanks a lot Rusty. Really appreciate it.

You bet. Thank you, sir.

Thank you. Our next question comes from Matthew Brooklier with Gamco. You may proceed.

Hi. Thanks and good morning. So a question on the used truck side of things. It sounds like Class 8 over the road those used prices are sequentially down, but you had positive mix in the quarter. Are you able to maybe put some numbers or percentages around, how much the over-the-road trucks are down on a sequential basis? And then second part of the question would be, what are your expectations for the remainder of the year?

Got it. Good question. Let's discuss the peaks. The highest point was in late fourth quarter, around January. After that, we started seeing volume at the auction levels. It transitioned to retail, likely by about 20% to 25%, depending on the tax specifications. On average, we typically see around 1.5% depreciation on our trucks, but this time it could be a bit more, so let's use 1.5%. However, we observed it wrapping up to roughly 5%. This trend continued for about five months, and if we do the math, we see the changes. For trucks sold last month, I mentioned a value of 20, but now it could be closer to 25. I do expect that to eventually correct itself, but prices are still higher than what we observed just over a year ago. There’s potential for further declines, but not at the same rate. I predict a drop of around 10% for the rest of the year, though that’s just an estimate. We are increasing the production of new trucks, although not as much as we could due to demand. That means we might see an increase of 5% to 10% more production. To summarize, our current pricing is unusual compared to two years ago, especially considering the market conditions from last year into the first quarter of this year. This situation will eventually stabilize. Our margins have declined; typically, they are around 8% to 10%, but recently they were in the upper 10s. Regarding our inventory, we peaked at about 2,400 units and are currently around 2,000. I aim to reach approximately 1,800 to 1,900 units by the end of this month. We’ve been addressing this for over 60 days and feel good about our progress and direction.

Okay. I appreciate the color, Rusty.

Thank you. Our next question comes from Jim Misago with FactSet. You may proceed. If your line is on mute…

That’s a great question.

And I'm not showing any further questions at this time. I would like to turn the call back over to Rusty Rush for any further remarks.

Sure. Well, we appreciate everyone's time this morning and listening in. We look forward to talking to you again in October, hopefully with great results, again. So thank you very much. We appreciate your time and have a great next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.