RUSH ENTERPRISES INC \TX\ Q4 FY2024 earnings call

• 2024 annual revenues were $7.8 billion, net income was $304.2 million or $3.72 per diluted share. Fourth quarter revenues were $2 billion, net income was $74.7 million or $0.91 per diluted share, and a cash dividend of $0.18 per common share was announced.
• 2024 was challenging due to freight recession, high interest rates, and economic uncertainty, but strength in public sector and vocational markets helped balance out. Class 4-7 truck sales were strong, and the used truck market was challenging but executed well on sales strategy.
• In aftermarket, revenues were down slightly but market share grew by expanding national account sales force. Expect aftermarket demand to remain soft in first few months of 2025 but pick up later, and committed to expanding technician workforce in 2025.
• For truck sales, 2024 new Class 8 truck sales were down, but sales to specialty markets helped. Expect Class 8 sales to be challenging in first half 2025 but improve in second half. Class 4-7 sales expected to be up but medium-duty market may slow. Used truck market cautiously optimistic.
• Leasing and rental revenue was flat in 2024, but expected to remain strong in 2025. G&A expenses expected to be sequentially higher in Q1 2025 due to seasonal increases. Monitoring proposed tariffs that may impact vehicles and parts from Canada, Mexico, or China.

For truck sales, in 2024, Rush Enterprises sold 15,465 new Class 8 trucks, a 11.4% year-over-year decrease, representing 6.1% of the US market and 1.7% of the Canadian market. Class 4 through 7 new truck sales were up 5.1% year-over-year, with 13,935 units sold, accounting for 5.3% of the US market and 3.1% of the Canadian market. Used truck sales in 2024 were 7,110, basically flat year-over-year. For the aftermarket, parts, service, and body shop revenues were $2.5 billion in 2024, down 1.8% from 2023, with an absorption ratio of 132.2% compared to 135.3% in 2023. Leasing and rental revenue was $354.9 million in 2024, basically flat from 2023.

• Aftermarket demand is expected to remain soft in the first few months of 2025 due to freight market struggles but pick up later as the freight market improves.
• Class 8 truck sales are expected to be challenging in the first half of 2025 but improve in the second half, with pre-buys and strong vocational sales expected to help.
• Class 4 through 7 new truck sales are expected to be up in 2025 but the medium-duty market may begin to slow.
• Used truck market is cautiously optimistic with freight rates showing signs of improvement and values stabilizing.
• Leasing and rental business is expected to remain strong in 2025.
• G&A expenses are expected to be sequentially higher in the first quarter of 2025 compared to the fourth quarter of 2024 due to seasonal increases.
• Proposed tariffs on vehicles and component parts from Canada, Mexico, or China could impact demand for new commercial vehicles and parts in 2025.

• Persistent headwinds such as the ongoing freight recession, high interest rates, and economic uncertainty that impacted over-the-road carriers and new Class 8 truck sales.
• Uncertainty around emissions regulations which could affect pre-buy activity and the cost of new trucks.
• Proposed tariffs on vehicles and component parts manufactured in Canada, Mexico, or China which could significantly increase the price of new commercial vehicles or parts and lead to decreased demand.

Q: Given your commentary about second-half recovery, how should we think about earnings seasonality in 2025 versus a normal seasonal pattern? And specifically, when does parts and service turn positive again?

A: Rusty Rush said the year is going to ramp up from beginning to end, with the back half definitely stronger than the front half. Parts and service will ramp up throughout the year, with maybe a little more inflation having a positive effect on parts and service totals.

Q: As things ramp up, how should we think about SG&A control as you ramp into the next cycle? Will it look similar to the prior cycle, or are there any incremental savings as you get efficiency?

A: Rusty Rush said they did an outstanding job managing G&A in 2024, and as it ramps up, they will try to keep gross profit dollars recreated on the back ends close to a certain percentage, aiming for around 40% but typically averaging in the 40% range over a three-year cycle.

Q: You talked about how resilient vocational has been in recent years. How did that market end the year? How are you thinking about that vocational side of the business in 2025?

A: Rusty Rush said vocational market will still remain strong, with strength in construction, refuse, and possibly oilfield pickup, though there is no huge backlog like in 2023.

Q: What drove the strength in medium duty in recent years and what are you expecting from medium duty in 2025?

A: Rusty Rush said medium duty had pent-up demand due to manufacturers focusing on Class 8 in prior years, but now it's similar to Class 8 with easier availability. Expect medium duty to remain strong but possibly flat in 2025 as pent-up demand has been caught up.

Q: It sounds like you are interested in talking about some of the policy uncertainties. Starting with the emissions regulations, and the engine changeover, what are the latest cost conversations with customers looking like around the pre-buy? Are you hearing any more uncertainty or less?

A: Rusty Rush said there is uncertainty around emissions regulations, with clarity lacking, but expects diesel emissions regs to stay though warranties might be tweaked, and BEV requirements to be pushed out to give industry time to refine technology.

Q: I know you noticed that you know, the uncertainty around that and the, you know, prospect that it could really increase the price of trucks and squeeze demand. Just you help frame for us what that impact beyond the cost of a new truck? And, also, with the urgency, are you doing anything differently this year in terms of managing your inventory to try to mitigate that risk?

A: Rusty Rush said tariffs on Mexico and Canada make no sense to him, but OEMs have contingency plans, though it would be costly and cumbersome. They are monitoring the situation but have plans behind the scenes to react.

Q: I know second half last year, there was a bit of discounting on new truck pricing. And so just wondering if that is something that we should be expecting here for the first half of 2025 as well?

A: Rusty Rush said he does not see a lot of broad-based discounting, expects most things to be pretty flat, with some one-off deals, and believes there will be enough demand to keep things stable without significant further compression of margins