Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprises Report Second Quarter 2024 Earnings Results. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session. Please be advised that today’s conference is being recorded. I would like now to turn the conference over to Rusty Rush, Chairman of the Board, Chief Executive Officer and President. Please go ahead.

Good morning. Welcome to our second quarter 2024 earnings release call. With me on the call are Mike McRoberts, 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. Now, Steve will say a few words regarding forward-looking statements.

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risk and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to those discussed in our Annual Report on Form 10-K for the year ended December 31st, 2023, and in our other filings with the Securities and Exchange Commission.

As indicated in our news release, we achieved second quarter revenues of $2 billion, and net income of $78.7 million or $0.97 per diluted share. We are proud to declare a cash dividend of $0.18 per common share, an increase of 5.9% over our prior quarterly dividend, and our 8th increase since announcing our intent to begin paying quarterly cash dividends in July of 2018. Despite the ongoing challenges we face in our industry that are highlighted in our earnings release, I am pleased with our financial results in the second quarter. Past strategic initiatives, including expanding our breadth of product offering, investing in our sales force and technicians, and diversifying our customer base to name a few, are helping produce significantly better results than we achieved during the last industry troughs in 2020 and 2016. Although low freight rates continue to negatively impact over-the-road carriers, we experienced ongoing strength in other key customer segments, including public sector and vocational, which positively impacted our Class 8 truck sales revenues and market share during the second quarter. Our Class 4 through 7 sales remain steady, and we executed well on our used truck pricing and inventory strategies. With respect to our aftermarket products and services, we did experience a decrease in demand during the second quarter. However, we believe we kept pace with the industry, from a parts sales perspective, and outperformed the industry with respect to service sales. In the aftermarket, our parts, service, and body shop revenues were $627.4 million, down 3.6%, compared to the second quarter of 2023, and our absorption ratio was 134%. As I stated in the news release, the freight recession and high interest rates are still negatively impacting over-the-road carriers. The same challenging economic conditions also led to a decrease in demand from wholesale, independent parts distributors, and energy customers. Decreases to those segments were partially offset by healthy year-over-year growth from our public sector, vocational, and medium-duty customers. Looking ahead, we do not expect market conditions or aftermarket demand to improve significantly in the third quarter. However, we are committed to leveraging the foundational tools and processes we have put in place over the last few years, through the execution of our strategic initiatives, and we are confident this will lead to increased efficiency and provide better service for our customers. We believe that these actions will allow us to improve our market share and continue to outperform the industry. Turning now to truck sales. We sold 4,128 new Class 8 trucks in the second quarter, accounting for 6.8% of the total U.S. Class 8 market and 1.7% of the Canadian market. Weak demand caused by the lingering freight recession led to an 18.6% decline in U.S. Class 8 retail sales in the second quarter of 2024 compared to the same quarter in 2023. However, strong retail sales to vocational customers and the timing of deliveries to certain other large customers helped to offset the decline in over-the-road sales and allowed us to increase our Class 8 market share. Industry forecasts indicate U.S. Class 8 retail sales are predicted to be 228,700 units in 2024, down 15.8% compared to 2023. During the second quarter, the industry experienced higher-than-normal Class 8 order cancellations and weak order intake, which we believe will cause new Class 8 truck sales to be down for the remainder of the year. We also expect truck pricing to be more competitive in the second half of the year. However, we expect vocational sales to remain strong and we believe we are well-prepared to perform in a more competitive pricing environment. Our Class 4 through 7 new truck sales reached 3,691 units in the second quarter, or 5.7% of the U.S. market and 2.4% of the Canadian market. Commercial vehicle production continued to increase and delivery times have improved, resulting in healthy activity for medium-duty customers. Our Class 4 through 7 commercial vehicle sales were broad-based across industry segments and we are pleased to outpace the market in the second quarter. Industry forecasts indicate U.S. Class 4 through 7 retail sales are projected to be 262,000 units in 2024, up 3.7% from 2023. We will closely monitor economic factors that could impact customer spending and lead to a decrease in Class 4 through 7 commercial vehicle demand. However, at this time, we anticipate our third quarter Class 4 through 7 commercial vehicle sales will be consistent with our second quarter results. We sold 1,723 used trucks in the second quarter, down 7.8% year-over-year. Used truck demand remained weak due to low freight rates, more readily available new truck alternatives, and higher interest rates. However, the rate of used truck depreciation has slowed to more manageable levels and we executed well on our used truck strategies. We are keeping inventories low and are well positioned for the second half of the year. We expect our third quarter performance to be on par with our second quarter results. Looking ahead, we will continue to monitor industry and macroeconomic conditions, looking for signs of significant freight recovery. As I previously stated, we expect retail sales of new Class 8 trucks to decrease from second quarter levels throughout the remainder of the year, and for retail sales to remain solid for new Class 4 through 7 trucks. Despite the difficult market conditions, we believe we are well-positioned to continue to outperform the industry and to increase our market share. It is also worth noting that we instituted expense reductions during the second quarter in anticipation of a softening market. These actions, combined with the diversity of our customer base and our strategic focus, will help us successfully manage this challenging market cycle. Our employees have worked particularly hard throughout this challenging quarter to achieve these positive results, so I want to acknowledge their efforts and thank them for their dedication to providing best-in-class service to our customers while staying focused on efficiency and successful execution of our strategic initiatives.

Thank you. Our first question will come from Daniel Imbro with Stephens. Your line is now open.

Hey, good morning guys. Thanks for taking the questions.

Thank you, Daniel. Good to hear from you.

Rusty, I'll start maybe on just the demand backdrop. Obviously, fleets are slowing, spending and the freight backdrop has remained tough. Just curious how the back half pipeline looks as we head on Class 8 side into the second half? Maybe how has that tone changed as you talk to carriers? I feel like the last few months some are sounding a little more positive that we're seeing some normalization happening in the freight market. So curious if you are hearing that or how you think that would affect the back half?

You bet. No, I mean, when you think about truck sales, most of the truck – like truck sales for the third quarter, other than stock truck sales, we pretty much know what we've got coming already, right, because there is some lead time still to it. From that perspective, you asked how do I look at it. If I'm going to say something, I would say similar from a Class 8 perspective now, similar to Q1, not as many units as we sold in Q4, and the fourth quarter still to be told. I can still get you all the trucks you need in the fourth quarter if you need some, right. So obviously, we have business booked in the fourth quarter, but it's still coming together, right. That quarter is still coming together, given the reduction in lead times, with basically all Class 8 OEMs. From a customer perspective, for me yes, things have leveled off. Are they getting a lot better? No. Are they bobbling where I think they are pretty leveled, talking to customers like I do? Yeah, I think they are bouncing along. But there's slight green shoots you'll see here and there, but it takes trend lines. It doesn't take a little here, a little spot here and then you skip and then a little bit here. You really need a consistent trend line of positive news. Do I believe that's coming? You bet. Do I believe it's going to be difficult to get to that situation, get to a real positive environment in the back half of this year, with the election and everything else going on? Probably going to be tough. But the foundation is set for a rebound, for sure for next year.

Really helpful color. Then if I could follow up on the parts and service side. You mentioned revenue stepped down sequentially. I guess, can you talk about what changed since the first quarter? The macro has been tough, but I felt like demand for parts and service may be slower than we thought. Then given the stable macro, I guess how do you think that year-over-year growth shapes up or sequential growth shapes up into the back half?

Yeah, obviously I don't see any big pickup. Taking it reverse. Let me take it the way you asked it. Look, we've been fighting it off. I've talked about it for a while. We've had double-digit declines from what I call our unassigned accounts continually, and that's the small accounts, and that's still 30% of our business. Small customers out there are still struggling. What you've seen is the large customers. Read all the public trucks – they've been into it for two years, and we've fought back and fought back and had growth inside of that. Well, it's finally coming to where we had it. We went backwards a little bit. But the most important thing to understand is the diversity of our customer base. If we were tied strictly to the over-the-road business, you would see double-digit declines somewhere between 10% and 20% in our parts and service business, but you don't, because we go about it in a very strategic way because of the brands we represent and how we go-to-market. We make sure that we're doing it in a way that we're hitting every market. The diversification of our customer base is one of the most key things that we have. So that allows you to maintain when one segment is way down, still operate. We mentioned it in April, that we were going to make some adjustments. That's the good thing about the business, if you understand the absorption rates that we run now compared to where we used to, we can make adjustments. Was our absorption rate down slightly? Yeah. But we made some pretty good adjustments inside our expense base to help offset some of that reduction, and run it pretty high. If you told me a few years ago we'd be running 134% and complaining, I would have told you you're crazy. But those are the kind of things we're able to do. Now, as I look forward, I don't see any big catalyst to really push that revenue line up. I do think we can maintain where we are currently and hopefully we still have some expense things, a few expense things that are going to come in that will help to offset the lack of growth.

No, I appreciate all that color. I have a quick follow-up. You mentioned it, obviously trough has been raised and cash flow has been a source of a positive guide throughout the story. I guess, how are you thinking about uses of cash, not only here at the trough, but as the cycle turns, I would think cash flow gets even better. I guess, what are you seeing as the most attractive uses of that capital as we think about the cash flow generation through a cycle?

Sure. Well, we tried to take a balanced approach the last few years to what we do with fee cash flow. We said that we'll give somewhere about 40% back in shareholder return, and that would be in combination obviously of dividend and share repurchase. At the same time, our number one thing is still growth, right. So M&A will always be a part of that too, which could influence some of that as we go forward. So, we would – M&A would be the biggest thing I would tell you that we would be focused on, right. Do I have a lot of it out there right now? Not necessarily. Are we looking at things? Of course we are. At the same time, I can't sit here – by the way, I wouldn't sit here and tell you we're going to do something. I would announce it to you when it's done. But growth inside the organization, when it comes to that piece, you know is there. We had a little acquisition in Nebraska this quarter, and there's some others that we're looking at, not a big one, but just singles. Sometimes folks don't understand that just because I'm not doing big M&A, like say the last big M&A deal was December 21 when we bought the second largest Navistar deal. We're always doing what I call 'bud singles'. We're opening up three, four, five stores a year. If you don't see it, they are little small, and we're buying little deals that sometimes we don't even talk about, okay. But right now, M&A would always be first and foremost to continue to expand our footprint. Remember, the best thing we have going for us is our footprint, outside of our people now. But the number one thing is our footprint. It's the differentiation that we can touch more customers, especially as customers continue to consolidate.

Great. I appreciate all the color. Best of luck!

You bet. Thank you, Dan.

The next question comes from Andrew Obin with Bank of America. Your line is open.

Hey Rust, how are you? Good morning.

I’m very good Andrew. How are you this morning?

I'm good. Just maybe you talked about outperformance and obviously it's because you have a higher vocational mix versus the industry. Can you just remind us where we are in your mix at this point?

So what was that question again, Andrew? I'm sorry. My mix is what?

Your mix, your Class 8 mix versus the industry, right, because you have more vocational rights? You have more waste. You were on the road, but less of it. Could you just remind us what the mix is like these days?

I'm going to give you – Andrew, I don't – it's not a stat that I'm going to give you, like keep track of, but I’ll always say and I usually say, somewhere around 50-50. Depending on the brand, we're a little, maybe a little bit heavier on the vocational side, on the Peterbilt side than we are on the Navistar side. But somewhere around 45% to 50% of our business is vocational, somewhere in that range. When you really look into the construction, refuse, and all those businesses, and that's on the 8 side, right, and that's one of the key pieces. Again, it's diversification to each market segment. And that's really – and I appreciate the color, the question, but the color would be somewhere in that range.

Right. And then what folks are wondering just in terms of orders, what do you think? And I think you've clearly been early, sort of sounding caution about outlook for the second half. Where are the orders trending in July, August? What are you seeing? What's your experience?

Andrew, compared to where we were in the first quarter, really it started all, it's been all year. It's been pretty down for us all year from an order intake perspective. Now, I will say that we hit a few deals along the way, but from just a demand perspective, quoting, no question it's been down. Our customers are starting to get talk about emissions, right. We're out right now talking with folks. But it's been very difficult for a lot of the truckload guys to start talking about that when you can see their earnings and the pressures they have felt inside their business. So I would tell you, orders are still going to be down in July. I would guess when they come out tomorrow. Last month, I think I was on a call. I had a pretty good view and a bunch of investors, around 15,000. And I don't know where they'll be this month. I'm really not sure, but I'm not going to say they are not going to be super outstanding. Because folks are, as I said, there’s still build available in the back part of the year, but people are still trying. The supply demand, we still need more supply from a truckload perspective. It's still the biggest market out there. We still need more supply to come out, more trucks to come out of the market and capacity from where we are at.

But for the next couple of months, do you think this 15,000 is sort of relatively flat or down from that number. Is that a fair estimate?

From my perspective, unless some big customers, three or four big customers want to place big orders that are spread. The demand is just going to be limited, and yes. I’d rather answer your question without just over-talking like I do a lot, yes. I don't expect any big uptick in orders.

Just a question on macro. I always ask you, because you have very good systems. Lots of uncertainty about the economy. I think the PMIs just came out. It indicates sort of a step-down in industrial activity. What are you seeing? You have coast-to-coast presence. What are you seeing about the economy? Are you more optimistic about the economy today versus a month ago? Or are you more pessimistic? Would love to take – to get your take, because you tend to be very smart about it. Thank you.

Oh Andrew, just pounding on me today, aren’t you? Good question. I just see a lot of uncertainty. To be honest with you, I mean, I see more uncertainty in my mind about the economy. I know it sounds like a broad no answer, but truly I do believe that. I just think this election and all the stuff that's going on outside of everything else has got people a little bit paralyzed in some areas. As I look around, obviously, the truckload side is still not in good shape. The LTL side has been in good shape. We were off a little bit in energy this last quarter from a parts and service perspective, more than I would have anticipated. I think the economy looked a little hot earlier. I think it's going to be a tougher back half. But I do expect it to pick up after that. I do expect, no matter what anybody else says, I do expect it to. My problem is sometimes I get caught up in my industrial glasses, right. I have to take my macro glasses on, and sometimes maybe I'm not the best at that. I can take a stab at it, but I don't look for any – I'm not looking for a recession, if that's what you're asking right now. But I'm just looking for sort of bobbling along right now until we get through November and into 2025. And then I'm going to feel especially from an industry perspective, I’ll feel pretty good about it, because we will have a pretty strong performance and we will have taken out capacity from the marketplace, and that's always a good thing. It would be a platform to set up pretty well for my industry. But I just look at this back half it can be a little slow if you ask me, and I'm not going to – I'm not an economist, so I'm not going to get out past that much.

Yes, is it fair to say that your vocational business is fairly stable? Is that a fair statement?

Yes. Our vocational business is fairly stable, which is a pretty solid indicator. I will say that a lot of the medium-duty demand has been met. I wouldn't look for continued growth in medium-duty big orders in this back half. I think that will slow down a little bit from where it has been, but it's not troughing terribly like we said, our Q3 but I'm not sold out in Q4 there. So where we have been pretty sold out for a couple plus years running in medium-duty, we're not going to be – I'm not a year out when I look at it anymore, but that doesn’t mean it's terrible. Look, reality is, you are not supposed to be sold out a year ahead. Let's get back to the real world. And I think that's one of the things I'm most proud of, is how we manage inside these types of situations, and it's showing in the numbers that we're producing and it will continue to show. As you know, I'm pretty conservative, judging by where we end up plus where we are sometimes. In the back of my head, I probably thought I always bet on us, probably ought to bet more on us, because these people that work with me and beside me every day, all 8,000 of them, they prove they execute extremely well. And just as we have this year and the prior few years, I just – sometimes I wish everybody understood the diversification of the company. And I hope this year proves it to anyone, that if this is the trough middle year of a five-year run, we're in pretty good shape. We're in pretty good shape is all I can tell you. I think the numbers are going to play out, so we’re – yes, we're going to sell less trucks, but we're going to do a good job of managing through it, given the diversification of our earnings stream and what we do and how we go-to-market and expense stuff. Look, we're down G&A, because remember, I never talk about SG&A, I talk about G&A. Q1 to Q2, we're down 4.7% in G&A. That's outstanding, okay. That is truly outstanding. And so I'm very proud of our people for doing more with less, and we will continue to execute that way. When the market does pick back up, which I believe to get real fast, we'll get to those numbers I've been talking about the last three or four years in 2025 and 2026. We will execute. You've got that commitment from me.

Well sir, thank you so much.

You bet.

The next question comes from an analyst at UBS. Your line is open.

Hey, good morning, guys. Thanks for taking my questions.

Hey, good morning.

So, I just wanted to dig into vocational a little bit more. Just kind of want to understand, how much do you think that continued strong demand there has to do with that area of the market, just a healthier market overall fundamentally versus there maybe just having been more leftover pent-up demand after the past couple of years of tighter supply, kind of similar to what we saw with medium duty?

Well, I don't think that really – it's not from leftover demand. We were taking care of Class 8 demand regardless, balancing it through the last few years. I think it has to do with more of the money the government has been throwing at it. And I think some of these customers got a little bit behind, coming out of COVID, and they are still catching up with where they got a little bit behind in the age of their fleets, not necessarily because – well it was balanced across the board, but they didn't take the hits in their business that the over-the-road business did, right. So those guys have had to slow down somewhat this year. I do believe this will continue. I feel good about next year. I'm not going to get out and talk about two- and three-year runs. But I do believe our vocational business will continue to be good. We had some issues. We could have done more vocational business this year, except there's been a lack of – we had a component issue with transmissions or we would have sold more this year than what we have. So you've got to believe that that business will carry over into 2025, what business didn't get booked. I can't quantify it exactly for you, but that business will get carried over to 25%, because that demand is still there, given what's going on. So I feel really good about where it's going to continue to be strong – excuse me, into 2025. And then sometime in 2025, we're going to pick up in the over-the-road business. The LTL business will still be good with our LTL customers, but the small customer, he’s been taken out of the market, he'll show back up by the end of 2025, you watch. And I think the over-the-road business will pick up somewhere in 2025, as I said, with maybe orders coming in late this year. I could be wrong, it could roll into next year, just depending on – but if this is the bottom, I do believe people are going to start thinking about how they get ready for January 1 of 2027 and how they position their fleets from an age perspective going into all of that.

Okay. Got it. I appreciate that. And then just in terms of your comments about the more competitive truck pricing in the second half, any way you can kind of dimensionalize that in terms of like year-over-year price changes, and just to what extent does it vary by OEM? I'm assuming that we're really just talking about just your over-the-road Class 8, but also curious if you think that should stick kind of as we go into 2025, and it's really more of like a market share battle over pricing or really just temporary and keeping things moving throughout some inventory here in a weak second half?

Well, when I say it's going to be more competitive, it will be more competitive. Understand though, the current quarter business is already booked, okay. Well, it’s not like we're booking Q3 business really right. Now we’re in the middle, we're one month through a three-month quarter. So that's – there's not much I can do to move that. I think, when you talk about pricing, we have – when you look at our inventories, I'm very comfortable that we have our inventories mark-to-market. We do that every quarter and have done that for 27 years. I don't come out and talk about it when you look at what truly are inventories. We're very prudent about making sure we understand where the market is and the demand and that we're – and that's not just used, that's new also across those. I feel good that we're – when I say we're, like I’m going to be competitively set up to do what we should do with our inventories. When I talk about – it's going to be more competitive, but not crazy competitive, if that makes any sense. People, I think the OEMs are going to show decent discipline. They are going to show decent discipline because this is just a moment in time. That doesn't mean there won't be some more competitiveness, and that's really what I was trying to say. But not crazy over-competitive, it's like I saw going way back to 2009 or sometime like that when it was a 92,000 Class 8 truck market. So, because understanding that all you are doing is you are setting yourself up now when the market picks up to have to – because I think the majority of all these cost increases have been required. Remember when inflation drove it all up, so OEMs had to catch up and they have done that and they don't want to get back in that situation again. Will they be more competitive in certain situations or certain deals? Probably as needed, because they still do need some fourth quarter build. Okay. At the same time, they'll manage build rates down. I guarantee you, build rates are coming down finally. That was one of the things that got out of whack. We've got way too much inventory across the whole country right now. You can go look at it. It's out of line. It’ll get to almost an all-time high, but they'll have to slow down. I know OEMs are slowing down build rates. And by the way, I'm not getting specific to any OEMs. I'm just talking broadly here. But I know build rates are going to come down, they have to.

All right. That's very helpful. Thanks for the time.

You bet. Thank you for the call.

I show no further questions at this time. I would now like to turn the call back over to Rusty for closing remarks.

Yes, first off, I just want to thank our employees one more time. I know I've mentioned them a couple of times on this call, but I can't mention them enough. Their persistence and their execution of our strategies, in spite of the challenges we faced, has been commendable. I reduced some expenses, and we will continue along those lines so that we can do the right thing and produce the kind of results we're producing right now. So I would just like to thank them one more time for their efforts during this last quarter. It was tough. But we're dialed in right now, and we're going to execute, try to stay pretty flat in the back, like I said in parts and service. Work on our expenses a little bit with where we're at, because remember, I did this during the quarter. We did it during the quarter, so it'll be a little, hopefully a little bit more reduction that took place in the back half of the quarter. We're not looking to do any more. But just the fact that it was rolled into this last quarter, and we still continue to produce these outstanding results. I look forward to continuing to do that for our shareholders and for the company. So, thank you all very much, and we'll talk to you again in October, I guess. So, appreciate it. Thank you.

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