Thank you for waiting. My name is Janice, and I will be your conference operator today. I would like to welcome everyone to the Rush Enterprises, Inc. Report First Quarter 2025 Earnings Results. All lines have been muted to avoid background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. Rusty Rush, Chairman, CEO, and President. Please proceed.

Well, good morning, everyone, and welcome to our first quarter 2025 earnings call. With me on the call 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. Before we begin, 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, 2024, and our other filings with the Securities and Exchange Commission.

As we stated in our news release yesterday, in the first quarter, we achieved revenues of $1.85 billion and net income of $60.3 million or $0.73 per diluted share. We remain committed to returning value to our shareholders. So I'm proud to announce that our Board of Directors has again declared a cash dividend of $0.18 per common share for the quarter. The business environment in the first quarter was difficult to say the least. The industry continues to struggle with the freight recession, economic uncertainty, growing concerns around U.S. trade policies and tariffs, and the future of emissions regulations. These factors caused a slowdown in customer activity, particularly in the Class 8 over the road segment. Truck sales to Class 8 customers were weaker as we began the year. However, thanks to our continued focus on strategic initiatives and our diversified customer base, we managed to outperform the broader market in the first quarter, primarily due to strong sales to vocational and public sector customers. In the medium duty truck sales market, while the overall market was down, our unique ready to roll inventory program was particularly effective, and again, we outperformed the industry with steady Class 4 through 7 sales in the quarter. From a used truck perspective, we saw a typical seasonal pattern, slower sales in January and February, but a good pickup in March, giving us sequential growth from the fourth quarter. With respect to our aftermarket results, our parts, service, and body shop revenues were $619 million in the quarter, down 4.6% compared to last year. Our absorption ratio was 128.6% compared to 130.1% in the quarter Q1 of 2024, but still very strong. Despite tough market conditions, we experienced a slight improvement in aftermarket sales revenues compared to the fourth quarter of last year, with demand from our public sector, vocational, and medium duty leasing customers remaining steady and sales to the energy sector beginning to pick up. We also expanded our aftermarket sales force in the first quarter, which should help us provide an even higher level of service to our customers going forward, all things considered, operations in the first quarter. Looking ahead, we expect to see some improvement in aftermarket revenues in Q2. We added service technicians during the first quarter, which will allow us to decrease customer dwell time going forward. We also continue to optimize our parts delivery routes and improve our call center operations, which help us serve more customers efficiently. With respect to the second half of the year, we are actively monitoring the supply chain, and the impact that proposed tariffs may have on parts availability and pricing. We believe that we are well positioned with our parts inventory to mitigate the effects of any potential supply chain disruptions. The Class 8 new truck sales market continues to face challenges. ACT Research says that U.S. and Canadian retail truck sales totaled 57,946 in the first quarter, down 9% year-over-year. By comparison, we were down 7.8%, selling 3,222 new Class 8 trucks and accounting for 6.1% of the total U.S. market, and 1.1% of the new Class 8 market in Canada. While this was a tough quarter, I'm pleased that we outperformed the market. Looking ahead at Q2 and the back half of the year, ACT Research revised its U.S. and Canadian Class 8 sales forecast downward to 234,600 units in 2025, a 14.7% decline compared to last year. However, we do anticipate a slight improvement in Class 8 sales in the second quarter due to the timing of some fleet deliveries. At this point, there is too much market uncertainty to predict what demand will look like in the second half for our over the road customers, but we remain optimistic about demand from our vocational and public sector customers throughout 2025. In medium duty sales, the overall market declined 3.5% in the first quarter, but our performance remained stable and we sold 3,329 new Class 4 through 7 trucks, outpacing the market and increasing our market share to 5.6% of the U.S. Class 4 through 7 market, and 3.1% of the Canadian Class 5 through 7 market. ACT Research forecasts U.S. and Canadian sales of Class 4 through 7 trucks to be 254,050 in 2025, down 7.2% compared to last year. Going forward, we expect customers to be cautious, replacing vehicles rather than expanding their fleet. But our strategic approach to stocking work ready vehicles should allow us to meet customer needs when and where they need vehicles, and we expect to continue to outperform the market this year. We sold 1,769 used trucks in the first quarter, down 2.7% compared to 2021. As of now, demand remains soft and tariffs haven't yet affected used truck pricing. But we've been proactive in increasing inventories slightly, in preparation for the spring and summer selling season. And we believe our stock levels are where they need to be to meet customer needs. Our Rush Truck Leasing division delivered solid results again in the first quarter. Leasing and rental revenue increased 2.3% compared to Q1 of 2024, and totaled $90 million for the quarter. Rental revenue was down just slightly year-over-year due to lower utilization rates with full service leasing continuing to perform well as we put additional vehicles into service. I'm confident that our leasing and rental business will stay strong throughout the year. While we faced our share of challenges in the first quarter, I'm proud of how our team has navigated the uncertainty that is currently impacting the commercial vehicle industry. As I said in the news release, what remains unclear for us and for the industry as a whole is how the second half of the year is going to play out. The ongoing concerns around tariffs, their impact on the economy, and our current emission regulations may be modified, making some customers hesitant to move forward with vehicle purchasing decisions. That said, I'm confident in our position as we navigate these challenges, and I believe our dealer network, strong relationships with customers and manufacturers, and our broad product offerings will allow us to respond quickly as these policies take shape. Before I close, I want to take a moment to thank our employees. The first quarter of 2025 has been tough, but our team has shown incredible resilience. They worked tirelessly to help customers through these uncertain times, while keeping our long-term goals in sight and continuing to manage expenses. Their dedication directly contributed to our performance this quarter, and I am extremely grateful for their efforts. And with that, I'll take your questions.

Your first question comes from the line of Daniel Imbro with Stephens. Please go ahead.

Yeah. Hey. Good morning, guys. Thanks for taking the questions.

Good morning, Dan.

Rusty, obviously a lot of moving pieces out there. Maybe we'll just start on the demand backdrop.

Sure. Please.

Exactly. Can you talk about maybe how new unit sales trended through the quarter, and maybe here into April? We've seen a lot of the larger fleets lowering their CapEx orders. I know those aren't always your customers, but are your customers behaving in a similar way? Kind of what are your customers telling you about their planned expenditures for the rest of the year?

I believe our strategy is to approach the latter half of the year similarly to how we did in Q2, despite the ongoing challenges with tariffs and overall tough business conditions. You've probably noticed the earnings reports from various carriers, which play a role in our operations, even if we don't work with all of them. The fluctuation in tariffs has complicated things significantly. If you had asked me two months ago, I would have expressed the same concerns about Q2 that I have for the second half of the year. We've received some clarity for the next 60 to 90 days, but we lack visibility for the entire year, which makes planning difficult. I'm aware of some individuals and companies that have completely halted their purchasing for the latter part of the year due to these uncertainties. I'm optimistic that the situation will stabilize for Q3 and Q4, but it feels like we're operating in a "hand to mouth" manner, which we've adapted to in the past. While the OEMs we're working with don't have full backlogs heading into Q2, there are still slots available, complicating our projections for Q3. Pricing is a struggle right now due to the recent shifts in tariffs and ongoing disputes regarding emissions standards, especially with the new legislation in play. These uncertainties make it challenging to operate effectively. We may navigate through these difficulties for a while, and I'm unsure when conditions will improve. We expect to gain more clarity about emissions soon, and I know discussions are ongoing in Congress to find a more sensible solution. Until then, we might face short-term operational challenges and dynamic conditions. While I anticipate some demand, as noted by ACT, we may see declines around 15%. It's not a pessimistic outlook, but rather a reflection of the current reality. Nonetheless, we managed to deliver a solid quarter despite the obstacles, and I'm hopeful we can maintain that momentum moving forward. We can look back to 2020 during COVID to see how our organization adapted and performed even with significant lead times and allocation issues, and I expect that resilience to continue regardless of the challenges ahead.

Yeah. Well, that's a tandem out, at least you guys have the experience and done this before. Maybe for my follow-up, Rusty, if you could just expand a bit on the parts and service. Obviously, it was softer in 1Q, was that more in any one part of the business, collision, big fleets for small fleets? And then you mentioned you expected an improvement in 2Q. Did you mean a return to year-over-year growth or just sequentially higher than the first quarter?

I'm hopeful for sequential growth, but I won't guarantee year-over-year growth. As for Q1, it started off slowly. January was particularly challenging due to more store shutdown days from rough weather compared to last year. I was quite concerned in January. However, we saw an improvement in February, which continued into March. Looking at April, which just concluded, it was solid, albeit somewhat inconsistent on a daily average. Our backlog appears to be similar to where we ended March, staying consistent within a point or so. It’s been a bit rocky, but currently, miles driven are not looking good, especially for over-the-road customers, who are driving fewer miles than usual. This decline likely reduces their need for maintenance and repairs. Nonetheless, I believe we'll achieve sequential growth due to the softer performance in January and February. March improved, although it was still a bit uneven. Traditionally, May through July are stronger months for us, particularly with increased demand for air conditioning services due to our many stores in the South. While I can't commit to year-over-year growth, I can say that our expense management is solid. Year-over-year, we reduced G&A expenses by 5.5%, contributing to only a 1.5% drop in our store operating absorption number. This demonstrates that we have multiple strategies to manage expenses effectively. Overall, it's choppy, but we are adaptable. We've shown this over the past five years and will continue to navigate the current environment. I'm confident in our company, our team, and our leadership to make the right choices to outperform the market, even though we are primarily just a truck dealer. I expect us to continue our trend of outperforming as we have historically.

All super helpful color. Really appreciate it and best of luck.

You bet. Thank you.

Your next question comes from the line of Andrew Obin with Bank of America. Please go ahead.

Hey, Rusty. How are you?

I'm good, Andrew.

Okay. So just to clarify, in the second quarter, Class 8 is expected to improve sequentially, and parts and services are also anticipated to perform better, correct?

Well, Andrew, slightly.

But no, I got it. Yeah.

Slightly. Let's not get carried away here. The problem is the uncertainty. I'd tell you what it was exactly like if I knew. But if you hadn't noticed, since we had our first 100 days, every day has been different since January, and I'm not being critical there, but the timing changes on a daily basis, making it very difficult to run a business and provide forecasts. That's why I'm not going out on predictions for the second half of the year. As I mentioned earlier, I provided guidance for Q2 about 60 days ago when we gained some clarity on pricing for that quarter. However, they are re-evaluating tariffs again, so the second half of the year remains uncertain. Additionally, we have to consider what's happening in the economy. We need to take this slightly.

Okay. I really appreciate it. Can you update us on the parts and services in April? I know there were some holiday timing issues, but did things improve compared to March, or did they remain steady, or did we see a slowdown? I understand we’re getting into the details, but was there a decline in April?

The daily average was slightly below what it was in April. I believe this was mainly due to Easter week, which was not very strong for us. However, we did close the week on a better note, and I'm optimistic we can sustain that momentum. Overall, the performance was still an improvement compared to January and February, although we didn't quite reach April's average. Easter week posed some challenges, but if you had asked me about our progress a week ago, I would have been satisfied with where we ended up for the month. I know we're diving into specifics, but there are some areas across the country where I can pinpoint certain factors contributing to a bit of softness.

Okay. And then as I think just I assume that G&A is just fixed is what it is, but as I think relative to '22, right, as I think about SG&A cost, is that a good baseline for what SG&A can be or were you so bare bones during COVID that it's not applicable? And I should just assume that there has been some inflation over the past two, three years?

I don't think we can go back to that number right now. I'll need to adjust operations since costs have risen. We haven't fully returned to pre-inflation levels from the last couple of years, and inflation is still present. That's why we've managed to keep things relatively stable. A year ago, we made some cuts, and that has helped us manage our current situation, which is reflected in the 5.5% decline in Q1 compared to last year. There's potential for further adjustments, and we're monitoring the situation closely on a daily and weekly basis. Clarity will guide my decisions, and I will assess how April concludes before making any moves based on our general and administrative expenses. My approach has been very hands-on across all areas of the business. It's a challenging environment, but I'm confident in our ability to adjust as needed. While I may not have precise projections, I'm sure we can navigate the current landscape effectively. I don't anticipate doom and gloom in the latter half of the year, but I acknowledge the uncertainty due to the lack of clarity at the moment. As soon as I gather more information, I will share it.

What do you think it would take for OEs to gain more clarity on production schedules for the second half? Is it related to uncertainty about a potential recession and the treatment of their content under the new tariff rules? Do these issues go hand in hand? I know that one of our competitors has provided pricing, but that doesn’t seem to be increasing demand for trucks. What can help resolve this bottleneck?

One aspect has been addressed, but there are conditions attached. It's essential to remember that details can be critical. As you consider the situation, everything relates to our customers' businesses. We recently learned that clarifications regarding curbs will be revisited soon. This could change, similar to what happened in the automotive sector this week. The reality is that our customers' businesses have been impacted, as seen in the first quarter GDP figures and the earnings reports from public carriers, which have not been favorable. It’s important to note that this is not a slight against them; it reflects the market challenges they face. Fortunately, we've seen steady vocational and municipal business, which has helped sustain our performance. However, for improvement, we need overall business conditions to get better; we can't expect progress with a contracting GDP. People need to start driving more miles, and we also need clear guidance on tariffs. We believe we grasp the situation currently, but we just announced a reassessment last week. There's also uncertainty surrounding emissions regulations. I suspect they won't be as strict in 2021; a significant pre-buy was anticipated for 2025, but that's no longer being discussed due to the lack of definitive regulations. The House has recently passed some related measures, and the Senate will consider them. We're left needing clarity on several points—will prices increase, will extensive warranties be necessary, and what will the standards be concerning mileage? We're extending GHG3 deadlines to 2030, but there are no firm answers. Combine all these uncertainties with the tough economic climate and reduced miles driven, and I can't provide a clear forecast. I'm not trying to be pessimistic; I just feel the timeframe is limited, and I don’t believe anyone can predict the future accurately at this moment.

What is the current access to credit? Are lenders still willing to finance customers in the industry? Are they tightening credit or offering incentives? How is the liquidity in the market and what is the ability for you and your customers to access credit? Is it easy or difficult at the moment? Thank you.

Credit conditions are stable at the moment. There's not a significant number of individuals seeking subprime credit. If you have a strong balance sheet and good customers, there is still access to funding. Regarding incentives, I am unsure if you are referring to vehicles, but there isn't much happening in that area as most manufacturers are focused on pricing strategies currently. While one manufacturer recently reevaluated their approach, it highlights the complexities involved. These challenges have been ongoing since earlier this year, but I remain confident in our capabilities. Our history shows our adaptability, and I believe we will continue to sell trucks and achieve good results. We have various strategies at our disposal; we don't solely rely on trucks, parts, or services. We have multiple avenues to excel in the market, regardless of the circumstances. I cannot predict the latter half of the year right now, but I will share updates as soon as they become available if you're interested.

I'll take it. Thanks so much, Rusty.

You mention.

Your next question comes from the line of Avi Jaroslawicz of UBS. Please go ahead.

Hi. Good morning, guys.

Good morning.

So I know it's got to be hard to parse this out, but just in the hesitancy that you are seeing from customers, would you say it's more from the uncertainty to the prices or more just the uncertainty on the macro impacts that would affect their revenues or profitability?

I would say, first and foremost, it's about their business. I can't specify exact percentages, but it's both factors at play. The first requirement for instilling confidence is that your own business must be robust. Many of these reports we’ve seen have indicated challenges. It’s tough when I can’t provide pricing clarity on trucks for the upcoming months. My pricing comes with a caveat unless someone alters the tariff laws, which customers are aware of. They find it frustrating, and so do we. However, I can't say which factor outweighs the other because both are important. While that might seem like a vague response, it's the reality. Your business needs to be sound first. Let’s address growth: nobody is significantly expanding their fleet right now; most are merely replacing existing vehicles, and even that process can be slowed down. Today's products are far superior to those from 30 years ago. Plus, if you're not clocking as many miles, you can extend the usability of what you already have. As I mentioned earlier, I’m observing a reduction in the ton miles; the vehicles themselves are down, allowing me to possibly stretch their lifespan further. Ultimately, we need clearer conditions surrounding all this. For example, I can't predict what a vehicle will cost in January 2027. We know it'll be lower than previously expected, but the impact of new regulations and how they influence OEMs and engine manufacturers, especially regarding costs and warranty issues, remains uncertain. Thus, the focus is on their business first and then tariffs. I can provide quotes for 60 days, but predicting prices six months ahead is quite challenging without some uncertainty involved.

That definitely makes sense. I guess part of what I'm trying to understand is just, if the economy does end up holding up okay, what kind of demand destruction we could see just from the higher price, I don't know if you have a view on that, I'd be curious?

I believe we'll have to wait and see if the economy remains stable. I've always said that I'll adapt to whatever rules are in place, but the issue is that those rules are constantly changing, making it challenging for me and my customers. The cost has risen significantly, especially the price of trucks, which is surprising considering how much they've increased over the last few years, particularly in the last two to three years. Typically, your business should improve to manage those rising costs, but that hasn’t happened. We experienced an oversupply of trucks for a couple of years, and although we sold many trucks in 2022 and 2023, we still had a much better year in 2024 than we expected. There's been an oversupply of trucks compared to available freight, and I've never encountered a freight recession that has lasted this long. It's quite a unique situation, and unfortunately, not a positive one. I hope for stability in the overall economy and for us to continue adjusting. I'm uncertain where we stand based on the last few months as we've been trying to find a balance between supply and demand. Six months ago, we thought we were starting to see improvements, which now doesn't seem as promising. Any rate increases have been minimal, and the recent reports indicate they're not meeting the expectations we had for contracts six months ago. None of us could have predicted the upheaval caused by tariffs and their ongoing effects, particularly at the ports. We're still waiting to see the full impact from those changes. I acknowledge my concerns about our operations in California, especially with all the imports that go through the ports of Los Angeles and Long Beach. We're figuring it out, but the overall business environment remains challenging. The push to bring manufacturing back to our country from overseas due to tariffs won’t happen overnight; it takes time. There will be an interim period of difficulty, as acknowledged even by our President, and that's the reality we're facing now. We haven't completely moved past these challenges yet, and the situation continues to evolve, which makes it hard for us.

Yeah. I definitely understand that. I just want to circle back to the regulations quickly. Last quarter, you felt pretty confident that we would still see the low NOx regulations take place with or without the warranty. You still think that's the case or just no comments…

I don't want to overstep my bounds, but I anticipate that numbers will likely be lower. However, they might not be as low as previously communicated, and this is currently a matter of debate among those more senior than me. I can say with certainty that it will decrease from its current level, although it may not reach the initial figures mentioned. This issue is being discussed right now. I believe we will have clarity within about 45 days as the quarter wraps up. While I'm choosing to refrain from further speculation, I genuinely believe this will lead to positive outcomes. The previous approach wasn't effective, as the industry isn't simply prepared to transition completely to electric solutions; we lack the necessary infrastructure for that shift, which will be a lengthy process. We are dealing with over a century of investments in internal combustion technology, and to expect a complete overhaul in just five or six years is unrealistic. It's a positive development overall, although the specifics will be determined by experts. However, this situation likely won't lead to a substantial pre-buy, especially considering the challenging economic climate exacerbated by tariffs and other factors. I am not ruling out a pre-buy in '26, but we are quickly approaching January 1, '27. As time passes, the urgency increases, and we face challenges, especially with ongoing reports about customer difficulties. Despite these conditions, I require stability in my business to purchase adequately. There are obstacles, but I do expect some pre-buy activity. Nonetheless, the specifics remain unclear due to unknown regulations and tariffs. Regulations will play a significant role in this scenario. Ultimately, it's about my business's health. Reflecting on the past, when we transitioned to SCR in 2010, expectations for a prosperous '09 didn't materialize due to economic tendencies. Hopefully, we can stabilize the economy and resolve the uncertainty that has surfaced in recent months, enabling us to identify a clear investment path. All these dynamics need to be resolved to provide direction, which is crucial for someone like me managing my business. I am confident that Rush Enterprises can adapt to the current challenges and outperform our competitors.

All makes sense to me. All right. I appreciate the perspective. Best of luck.

You bet.

I will now turn the call back over to Mr. Rusty Rush, Chairman, CEO, and President for the closing remarks. Please go ahead.

Sure. Well, I appreciate everyone's attendance this morning, and I look forward to talking to you sometime in late July. Hopefully with some more certainty and clarity. Maybe I can give you a six-month window instead of a three-month window, okay. Anyway, everybody, have a great day. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.