Rush Enterprises, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Rush Enterprise, Inc. Report Second Quarter, 2021 Earnings Results. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker for today, Rusty Rush, Chairman, CEO, and President. You may begin.

Good morning, and welcome to our second quarter 2021 earnings release conference call. On the call today are Mike McRoberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, Derek Weaver, Executive Vice President, 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 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, 2020 and in our other filings with the Securities and Exchange Commission.

As indicated in our news release, in the second quarter we achieved revenues of $1.3 billion in net income of $58 million or $1 per diluted share. We are very proud to declare a cash dividend of 19 cents for common share, which is a 5.6% increase over the last quarter. Our results were primarily due to the country's continued economic recovery, healthy activity for most market segments we support, solid demand for new and used Class 8 truck sales, and increased aftermarket activity, along with our continued adherence to managing expenses contributed to our strong quarter. As we look ahead, component supply chain issues are delaying the timing of some new truck deliveries into next year, and those constraints have been beginning to negatively impact parts and service revenues as well. Despite supply issues, we will continue to add back key personnel to meet market demand, as we believe our financial results will continue to be strong throughout the remainder of the year. In the aftermarket, our parts, service, and body shop revenues were $445.5 million, and our absorption ratio was 129.1%. Our aftermarket revenue compared to the second quarter of 2020, which is primarily as a result of the nationwide economic recovery. Our parts sales are back to pre-pandemic levels, and we experienced increased healthy activity in most market segments, particularly in leasing, refuse, over-the-road customers, and independent service centers. Service revenues are recovering at a little bit slower pace than parts, impacted not only by supply chainage, technician staffing concerns common in the industry. Looking ahead, we expect supply constraints will continue to impact parts and service revenues throughout the industry for the remainder of the year. That said, to mitigate those impacts, we are actively hiring key parts personnel and service technicians and focusing on our preventative and contract maintenance service offerings. We leveraged our parts management technologies to help us effectively adjust to market demand and through our expansive dealership network to help mitigate parts supply constraints. Finally, we are also piloting final mile route optimization to help us gain efficiency in our parts deliveries to better serve our customers. We do believe demand for aftermarket services will continue to increase through the remainder of the year as the overall economy remains healthy. Turning to truck sales, in the second quarter, we sold 2,954 new Class 8 trucks, accounting for 5% of the total Class 8 U.S. market. Our truck sales were driven by a healthy economy and strong freight rates, which led to solid activity for most market segments we support, especially vocational, construction, and over-the-road customers, and healthy stock truck sales. While demand for new trucks remained strong in the second quarter, truck sales were limited by supply constraints, which impacted manufacturers' production capabilities. ACT research forecast U.S. Class 8 retail sales to be 259,000 units in 2021, up 32.4% from 2020. We believe that component supplier constraints will likely continue to impact Class 8 truck sales through the third quarter or longer. causing downside risk to the 259,000-unit investment. Because of this, we believe our third quarter Class 8 performance will be flat compared to our second quarter results. We believe Class 8 heavy new truck sales may accelerate later this year as manufacturers are able to increase production when component parts are more readily available. Our Class 4-7 new truck sales reached 2,825 units in the second quarter, accounting for 4.5% of the U.S. market. Our results increased significantly over the second quarter of 2020, largely due to increased activity from leasing and rental and food service customers. However, some of the manufacturers we represent continue to be faced with production shutdowns due to supply constraints, negatively impacting medium-duty truck availability, which will most likely continue through the third quarter. ACT research forecasts U.S. Class 4-7 retail sales be 257,000 units in 2021, up 11% from 2020. Looking ahead, while we believe Class 4-7 production will not increase as quickly as Class 8, demand remains strong, and we have the teams and strategies in place to take advantage of every sales opportunity possible. Our used truck sales reached 2,094 units in the second quarter, up 18.4% from the same time period in 2020. used truck demand and values remain high, primarily due to protection constraints of Class 8 new trucks. Though it is becoming more challenging to maintain a healthy used truck inventory, we believe our third quarter used truck sales will be consistent with our second quarter results. In June, we announced we had signed a letter of intent with Cummins Inc. for Cummins to acquire 50% equity interest in Momentum Fuel Technologies. Our company's manufacturer of natural gas fuel systems This letter of intent reflects our shared belief in the long-term viability of natural gas fuel systems and drew on our shared history as leaders in the natural gas market and our extensive service network capabilities throughout North America. The joint venture is expected to close later this year. As always, it is important I thank our employees for their continued focus on growing our business and providing superior service to our customers. With that, I'll take your questions.

There's the number. That's Q1. That's star then 1 on your telephone. To withdraw your question, press the pound key. Again, that's star 1 to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jamie Cook with Credit Suisse. Your line is open.

Hi. Good morning and nice quarter. Thank you. I guess my first question, Rusty, I just wanted, you know, hope you could elaborate. You talked about, you know, your sales for truck being flat sequentially and that there's risk to the industry forecast out there. I'm just wondering, is this just a third quarter risk? Do we make up for it in the fourth quarter or do we get pushed to, you know, how much gets pushed to 2022? So if you could just give color on how much risk is to 2021. And then I guess my second question, you know, Obviously, demand continues to be strong. We've heard from other OEs sort of reluctance to open their order book yet for 2022 because of pricing. And so if you could just, you know, provide a little color on how you see that unfolding.

Sure. I'd be happy to, Jamie. Well, if you had asked me 90 days ago, I would have told you we would have probably been, you know, given my sources and what I saw out there, we would have been through this supply, component supply issue. you know, and the communications I've had with all the manufacturers that, you know, this thing will smooth out by the end of the third quarter. I don't see it, you know, it might smooth out somewhat towards the back part of the third quarter. You know, we're already, what, 10 days away from the end of July. So, you know, but I still think we're going to see a lot of pressure for the next, you know, four to six weeks for sure anyway. I wish I had a better gauge of it myself, but we all know about the chip issues, but You know, the issues extend beyond that. There's a lot of issues with other parts and components of supply, even coming out of Mexico and Asia. You know, I think everybody's pretty aware of all that we're dealing with. I do believe that, you know, demand is still strong. So I don't want anyone to get concerned about that. The demand is there in the marketplace. And I don't see it going away. I see it maybe getting pushed out, as you said, to the fourth and into the first quarter. You know, just because... Just because you can't deliver doesn't mean you don't build what you committed to right for people in this year because those were commitments made prior to all these issues. I see a lot of that actually moving into the first quarter of next year too. I don't think it's all going to get picked up here in the back half of the year. As far as 2022 numbers, we are just getting started on some of them. We've done a few deals, not a lot. I understand that people are after what they got caught in with this year, or are very, you know, they're a little bit hesitant on some stuff. But that's not to say that we're not working, you know, on deals currently. So, you know, I expect them to start, you know, it's really July. You know, when you think about it, normally we're really not working on the next year's deals until, started in September and October typically it's just because the backlog is so large people are worried about 2022 but I think the first half of 2022 may be a lot of ketchup for 2021 our first quarter should I say I don't want to say half first quarter so I mean I look at our backlogs okay and if you look at our backlog at the end of Q1 versus the end of Q2 now I don't know if that's reflective of the industry I don't mind solid you know we're up 25% So while you can get a little bit discouraged with the issues that we're dealing with, you're just going to ask to make it last, string it out a little bit longer, because I don't see demand going away right now. I don't see anything taking away from that demand. That's one of the reasons the last two quarters have been record used truck orders, and they're so hard to find, more difficult to find. But at the same time, our guys have done a great job of doing that, So, you know, I just think everything just gets pushed out a little further. And obviously we show, even with not anywhere close, close to record unit numbers, I think the performance of a record earnings quarter for the company with those kind of deliveries speaks to the, speaks to the involvement of the company over the last five or six years, you know, when you look at it across the board. So, you know, I hope I asked, I just don't have the exact answers. You know, I'm not, I'm not the manufacturer, and mine is going to be secondhand information. But, you know, I don't see it. You know, I see it stretching through the third quarter. You know, and hopefully in the fourth quarter, you know, we get back to some semblance of back to what projected bill rates were supposed to be because I think the numbers for production came out for June and might have been a little lower than were anticipated for North America. And I don't know what that's going to change here in July or August.

Sorry, and just one follow-up, Rusty. Obviously, the margin performance was very strong in the quarter, you know, on parts, but also sort of new and used. And I'm just wondering, on the truck side, how much of that is used? And, you know, just given low inventory of used and pricing, why wouldn't your margins be comparable in the back half of the year for truck relative to what we saw in the first half?

Well, sometimes it's timing of certain transactions, whether it's more, smaller transactions or larger transactions. I think margins, used margins were just barely under what they were in Q1, but they were way above historical. I'm not here to say they won't be close, but I think we sold a lot of inventory, and those are typically deals that we make really good margins on. So our inventory levels are pretty low. You're balancing between taking care of long-term fleet customers and the other. That would be the only thing that might impact margins. That would still be good. I don't know that new margins will be where they're at because of mix of business. But we'll see. I don't expect them to be terrible. Across the board in every segment, I don't care if it was heavy or medium or used. you know, or parts and services, they were extremely strong for the core. And, you know, we were pleased with that. But a lot of that, you know, it's demand driven. And, you know, supply side, demand side. But I don't see that changing. Maybe slightly, but it's not going to get super depressed or anything. I'm not saying, if I said that somewhere, I don't think I did. I'm not saying that. But I'm also, you know, there could be a slight down tick in some, you know, in some new margins just because of mix with more, you know, robust fleet customers.

Okay, thank you. Congrats on a nice quarter. Thank you, ma'am.

Thank you. Our next question comes from the line of Justin Long with Stevens. Your line is open.

Morning, gentlemen. Good morning, sir. Wanted to start with the question on parts and service. Rusty, can you give a little bit more color on how much growth you're expecting in parts and service in the back half of the year? And maybe you can talk about how much this outlook has changed as a result of the prolonged supply chain issues.

Well, you know, as I mentioned in there, we are back to pre-pandemic levels, okay, from the We're not back to summer of 19 quite because the oil field was still humming back then. But we are back to pre-pandemic levels in parts and service in the second quarter and gradually increasing. I think that while they're solid, solid, solid numbers, as you can tell, we might be able to do even a little bit better if we didn't have some supply constraints. We've probably got... percentage-wise waiting on parts by far than we typically do. It sort of slows it down, but it's not bad. It's not like it's bad or anything. You're always striving to do more, even though you have record-time numbers like we've had. That's the way we're put together around here. I do believe that we will probably continue to seize gradual, and I'm not talking about 2% jumps on a especially as we're able to continue to staff up a little back to pre-pandemic levels. While, you know, it's put a lot of stress on the organization, but we all know what the employment markets look like. And so, you know, for trying to hire inside of some of those skill sets that you're looking for has been very difficult. But the organization's done an outstanding job to get back to where we were, doing more with less. which we continue. We believe we will continue to do, by the way, but we want to do more, bring some people in and still do more than what we're doing now. And we do believe we're capable of doing that, but there are supply constraints. But don't mistake the fact that the demand is there. So, you know, we'll continue, I think, to do, you know, like the performance you saw here and continue to try to strive to make that better. You know, again, I go back to never have had those kind of unit deliveries prior and perform with the, and it's across the board, whether it's expense management, it's

And on the point of returning to pre-pandemic levels, I was under the impression that parts had recovered to pre-pandemic levels, but services had not fully recovered. Maybe you could just clarify that, and if that's true, how much room do we have to go in services to get to that full recovery?

Great question. I was looking at it as a whole. So the mix is a little different. You are correct. So The combined total is there from a monthly, daily margin perspective, but it's shifted a little bit more to parts. So the upside of that, we believe, because we believe our technologies and some of the things we're doing are allowing us to get larger parts market share. Once we're able to hire more technicians, qualified technicians, and get them into our workforce, we do believe that work will be there. Or just, again... You know, it goes back to that employment. I'm not the only person in the world. I talk to a lot of people, and, you know, everybody's read all the articles. It's just been difficult. You know, between stimulus and unemployment paychecks the last year and a half, certain job sets have been hard to fill. It's just the facts. You know, I mean, I can walk you through double the time to replace people. You know, we have all the stats and numbers. So it just... blows up the amount of people because you're going to have replacements. You're going to have a patient as part of business. And, you know, so it's been more difficult to increase that technician count. Now, we are increasing it. And I like the fact, actually, that we're increasing it at a gradual rate. We, one time back in our history a few years ago, we increased it, I think, at too fast a rate. And so our efficiencies and proficiencies weren't where they needed to be So I feel good about that. They are much better, just not quite to the overall, you know, volume that we want it to be. But we're doing a whole lot better job, I think, you know, hours built per tech, all the different stats I'm not going to get into on this call. But we feel good about that. It's just been a little, even we'd like to go a little faster than we are in bringing people back. But, again, it's tough labor.

Understood. And maybe one last question for Steve. Any clarity on expectations for SG&A as we get into the third and fourth quarter relative to what we saw here in the second?

Yeah, I mean, as we continue to add back and grow parts and service, hopefully in Q3, that SG&A will grow as a percentage of that. Like we said, I think we grew about The G&A piece grew about 50% sequentially compared to the increase in back-end gross profit in Q2 versus Q1. We'd expect that same to continue.

Yeah, and S was up with the high margins, even though the volume trucks were down, with high margins across the board.

Understood. I appreciate the time, and congrats on the quarter.

Thank you very much, Justin. Do you notice how well Steve's voice is? It sort of sounds like mine today, doesn't it? It does. I like it.

Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Your line is open.

Yes, good morning, gentlemen. Well, good morning, Mr. Obin. Can you just talk, you know, I think during COVID, I think, you know, the part of the story that is being maybe starting to be appreciated by the market, but it's just, you know, the structural change in how you guys are managing your costs. And it does seem that, you know, the recovery could be, you know, there's more going on in the recovery than anticipated. The supply chain constraint, right? Labor shortage, right? Can you just talk to us about how your sort of cost management and your approach to managing cost in this cycle, you know, can you remind us, you know, what the thinking is and what adjustments do you need to make near term to manage, you know, this very volatile environment that you guys are facing? Ross, Steve, you know, whoever wants to answer. Thank you.

Sure. Well, from a cost perspective, Andrew, you know, you learn a lot. I think I've told you all that a few calls back. You know, you learn a lot during the COVID years of last year. And while we know the business we're in requires people to do it, I'm not just loaning money to someone. I'm turning wrenches. I'm selling parts. I'm delivering parts. I'm stocking warehousing stuff. That's what we do. But what we did learn is that we can do a better job as the market comes back of, you know, spending a certain percentage or a less percentage maybe than we historically have. Because of some of the technologies and things we're adding also, we believe that's going to allow us, or it's showing out, like Steve said a minute ago, we spent a little more than maybe 150% of the gross profit increase sequentially from Q1 to Q2. At the same time, if I could manage close to that going forward, We've put in some other, I'm not going to get into some other, all everything we do, some of that's proprietary to us, I think. We've put in some other measurements that historically we didn't use, and we've taken that, through training, we're taking that down to different levels of our organization so that, you know, whether it's a mid-level manager, general manager, regional manager, but these people understand that we can do things Just like he's talking about, we haven't even rolled out the optimization of our delivery service. We've rolled out projects like that the last two or three years. We've rolled out all the revenue-producing projects, and I think some of these projects are allowing us to manage a little bit differently on the cost side. As I said, some of it's proprietary. It's probably not that big a deal, but I don't want to get into it on this performance and you know we look and we print we plan on continuing to perform like we are we realize this market demands been strong but at the same time market demand does not turn to net dollars without management on both sides of the coin and you know I believe that that's the case with the performance you're seeing and the performance you're going to see from the company regardless of where truck manufacturers are and getting us products That'll get straightened out, but for now, it's something we are gonna have to do with still in the near future, is that, you know, the parts problems with supply problems we're having. But we learned a lot last year, and we're gonna continue to try to utilize that learning as we go forward into these growth years.

But the thinking is that, you know, sort of the amount of cost deployed to get this extra dollar of sales is structurally lower this cycle still, right?

Yes, we believe that we don't need to spend. I've always told you we've got to spend X. But when you really looked at it over the cycle, you start one place, you get some places in cycles, and then when the cycle starts flattening out, sometimes your costs don't flatten out with it. We think we put the tools in place to manage through the cycle better from a cost perspective to stay with the revenue piece, right? Because we've seen these before. Well, sometimes you're not as good when it does flatten out on you, you know, because it's hard to keep that pitch of growth. Like, you know, you see, just like it was hard to lose that pitch of growth when COVID hit, it's just as hard as you go back up, especially more gradual now than it was earlier in the year or late last year, you know, from a gross profit perspective growth. So we believe that, yes, we will manage the cost side much better than we historically have, which will continue to lead to, you know, Better returns at the end of the day, okay?

Gotcha. And, you know, you've been very useful in the past giving us color about your key end markets. Maybe you can just sort of take us around the country, key end markets like construction, you know, oil and gas.

Right.

What are we seeing? Thank you.

You bet. Well, I would tell you construction is already, you know, very good, and we're seeing signs of it even getting better. It's been a bigger mixer market, even though it's not a huge market. We're a big part of it, a big part of it for us this year. Refuse remains, continues to remain strong. We feel real good about where we're at with that and where we are in that environment and our relationships with many municipalities, but of course the major players on the private side, or whether public companies or not, but on the private, not municipal. The over the road business, my goodness. You know, that's the biggest driver, as we all know. And, you know, it's extremely strong right now. Again, we're just getting trucks to everybody that wants them. And that's why it's going to be stretched out, in my mind, into next year, because we're not going to meet commitments that we made for demand to customers earlier this year. So that will carry on. I'm telling you, Andrew, it's across the board, really. I mean, I don't see... You know, I don't see any one sector that's that super soft. You know, oil and gas, yes. We talk about O and G. Everybody always, you know, go back seven, eight years, everybody thought we were an oil and gas company. Well, one thing we can do, we're doing better now than when we had any oil and gas business. Our parts and service business in the quarter was slightly up from a year before. But you got to remember last April, you know, they were paying you to take a barrel of oil. So it was totally depressed. You're seeing some pickup in it. I don't rule out the part that it could, but I realize now they've opened up the spigots again. It's going to be really volatile and really spacey. I don't think we'll ever see it like it was in the past. Of course, that's one of the things I'm most proud of in the organization is how we shifted from so much reliance on that. But if it does come back in some way, we're going to be right in the middle of it and gets, you know, strong. I don't ever expect it to look like it did during the fracking years or whatever. But I do expect somewhere down the line, even though I realize we're going to be a non-carbon based country or world eventually, it's not a light switch. So, you know, you're still, that's not going away in this decade. So, you know, I do think we even though we're still heavily involved in them, especially on the mobile tech side and those types of things. So, you know, I think that covers most sectors. You know, I mean, it's pretty robust around. You know, medium-duty demand remains strong. You know, that's one of the things you'll say, well, gosh, you're only 4.5% of the market. Well, if I could... OEMs that build both heavy and medium-duty trucks are going to slide toward building more heavy because they make better margin on it. And we have one medium-duty manufacturer that has been sort of out of the market for almost a year who will be getting right back into it here later this year. So those are all good things in my mind that I'm talking about. But to answer the question succinctly, I'm telling you, You know, construction probably over the road is probably higher than what they were, say, six months ago or nine months ago anticipated, while some are still staying strong, like refuse and areas like that.

You know what? I usually don't do it, but I'll ask you one more question. Talking about carbon-free future, you know, you do seem to be doing quite a bit more than people realize. You know, can you just talk about what had your interaction been with these emerging industries? players, autonomous driving, you know, electric vehicles, you know, what kind of dialogue do we have and are there any potential opportunities longer term for you to work with these new emerging players and new emerging technologies? Thank you.

Right. Well, first off, I think we're going to have the biggest opportunities with our own OEMs, okay? And they're emerging and they're investing into it. I've always said the majority of the win is going to come from the guys, the folks that have the, you know, have their feet in the ground planet and their roots down. But that doesn't mean other people won't win. And, you know, I think that's one of the strongest things we have is our distribution network and our service capabilities, which are larger than anyone else's. We don't cover the whole country, but, you know, and one of the things a lot of these startups don't have are those capabilities, right? They're all invested in technology and trying to produce products or I wouldn't say past, continues to show up on the doorstep and we will listen to whether it's, you know, whether in any of these types of new technologies that are coming on board. I mean, we, you know, we work with other people and we have that ability and our capabilities inside of not just our dealerships but inside of our outfit centers and stuff like that. We have a few of those around the country. So, you know, that's a hidden To me, that's one of the hidden nuggets of the future for growth for us. I still believe that one of the biggest tailwinds we'll have one day is market share gained by Navistar one day. They're still not where they need to be or what they historically were before MaxForce, and I expect them to get back around that or somewhere down the road. Now with the acquisition with Triton closed in July, I think the balance sheet change for that organization So I think the goals will change with that organization. And I do believe that Peterbilt will still be able to gain market share with Packard's technologies and their products. Their products have always been stellar. So that, but we will have the opportunity. We did the JV, we did with Cummins. Let me express this for a second. That was, I think that's going to, you know, I'm not saying that's something that's going to turn into a lot here in the first year or two. But I do believe, given regulations that are being driven by government, that I don't believe all these emerging technologies can take care of at the level that the politicians want. I do believe there's going to be some room for natural gas growth, and I do believe it's not going to go away long term. I don't blame them. I just don't believe that. It's like I don't believe diesel's going away for a long term, okay, especially on the truckload side. You know, batteries aren't going to work on the truckload side. They're going to be doing great. The electric is going to work great inside of certain segments, medium, 86, 7, this and that. Got it. But it's still going to be a 10-year run to get everything there. But, you know, that's why that JV we did with Cummins, I think, you know, we've established ourselves. We've been the number two player. and the fuel system business. And I do think the RNG, with its negative carbon footprint, combined with some CNG growth, I think is going to allow it to grow some mid-decade. Especially, I don't have to tell everybody with all the environmental As we transition from 120 years of internal combustion engines to all these technologies, I know I'm talking a lot, but you've been around me long enough to know I do that. I think that transition for these other technologies, yes, to your question, are going to provide quite a few opportunities for Rush to delve into other areas. Some of them, unbeknownst to me at this moment, But I know they're out there, and we are actively paying attention. I can tell you that. And because of our involvement in natural gas for the last six, seven years, regardless of how maybe it was a little bit colored red, I feel really good about the base that it gives us as an organization to evolve into this next decade with all the new technologies coming out. I'll leave it at that, because I could talk forever, as you know.

That was a great answer. Thanks so much. You bet.

Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Joel Tis with BMO. Your line is open.

Hey, guys. How's it going? Very good, Joel. How are you today? All right. Well, definitely great expense management. I think you've got to ease up on cutting Steve's pay so he can get his voice back.

Well, no, he's a little jealous of me, that's all.

Thanks, Joel.

I think I could let him do the rest of the car. He wouldn't know any difference.

I'm going to get a little philosophical today. I just wonder if you can talk a little bit about the implications of Trayton and Navistar on your parts business. Are there going to be more global opportunities, or are there going to be Latin American opportunities with Scania or MAN or just any idea that you're starting to get that could have some impact, you know, in kind of like the five-year time frame?

Well, I mean, honestly, Joe, those types of questions, it's a little bit early in the ballgame for me to truly understand. The deal just closed about three weeks ago or two weeks ago, and, you know, I really don't know a lot of those folks yet, okay? But I'm sure I will get to know them, and research and understand what other opportunities might be out there for us. I do believe the biggest and easiest one is to get market share back here in North America where it belongs. When you've got market share, that drives parts and service downstream. Not that we don't work on everything, but you will typically support more in your shops than the OEM you represent. That would be my number one thing. I don't No, I have not. As I said, it's a little early in the game for me to understand those opportunities. I haven't even personally been able to get – they were arm's length during this until getting the transaction closed. Remember, it wasn't this huge integration of people coming over and stuff like that until the transaction closed. So I think we're in the beginning stages of understanding what, if any, those opportunities might be for us from a larger scale perspective. And obviously, given who we are, we're always listening and looking for other growth opportunities. And just like I talked about a minute ago with Andrew and all this new emerging technology, we feel good about our place in the marketplace, differentiating ourselves from others to take advantage of these things. So I don't have an answer for you. It's too new. I don't know everybody. I don't really understand what those opportunities would be because I haven't had any conversations with folks yet. Okay.

And another little philosophical direction, too. Can you talk about how you're thinking about how the dealership model is going to change as we go forward? You know, this 2024 California card, you know, you're going to need to partner with charging stations or any other kind of ideas that are floating around about how the business might look in five to ten years.

Sure. I mean, it will be integrated into the California we just had a meeting and approved we spent the last year deciding how we were going to handle California being our first grounds to really do what we need to do so we're prepared to meet the demands you know as manufacturers remember people aren't building thousands of units yet so you know you don't want to get the cart before the horse so but yes we just approved getting all our California stores you know prepared You really don't want to understand because you don't want to go out when you're this new in something and do a bunch of work and find out a year and a half later where you didn't do enough or you didn't do this right. But we think we've got our arms around it. And just a couple weeks ago approved a plan that we will roll it all out in the next year with all the charging necessities along with all the stuff to really support ESG from solar to a whole plan, not just go stick a charger someplace. So, you know, we feel good about that, and now we're exploring, we'll start working on talking about and thinking about what we do in other areas, but California, of course, will be what they always are, the leader in this space. And so, yeah, we're going forward with that, around that, and we will continue to look at other areas where attainment of certain regulations is, you know, ahead of what maybe the EPA might be. You know, there's 15 states that typically tie the card. I don't believe they will come out at the same time because they haven't gone through all the proper legislative stuff. But I am told, this is just, I sound like I know what I'm talking about here, but I'm not sure I do. But I am told the fact that they will come out, but they might be a year behind it here or there, the other 15 states. which do make up about a total of about 30% of the marketplace. I just don't know at what pace those others will. And obviously, you know, the EPA is coming out in 27, which, my gosh, it'll be 2022 in five months, right? So it's right around the corner. So all these demands will be put on. That's why when I talk about, you know, the JV I did with Cummins, I feel real good about it because I don't think going to be ready for it, whether it's the grid or, you know, it's not, unfortunately, some people outside of this industry think it's like cars, that, you know, you're just going to plug it in like a hair dryer. I mean, they've been having brownouts in California already, and it's what, how many, two, three, four percent electric cars? So, I mean, there is a lot of work to do. It's going to get there, but there's going to be this transition, and we are going to, because I always like to say, So you can rest assured that we will be on the leading edge as we transform our dealerships. I don't say transform. Transition. It's not transformation. Diesel's not going away right now. But transition our dealerships and adapt our dealerships to be able to handle whatever technologies went out in whatever market spaces or market segments. I hope that was somewhat informative.

Yeah. You remind me my wife only plugs in the hair dryer when I'm in the bathtubs. I wonder, just a last quick one. You're growing a little bit slower than the overall industry. Is that supply constraints? Is that your regional positioning? Like any color into what's going on there? And then I'm done.

Well, when you say that, I'm guessing you're talking about volumes. A lot of that, I would tell you, I think that our backlogs probably ramped up a little bit slower than others. But as I told you, my backlog is really up now. I mean, if you go back a few quarters, it's rather large at the moment. So maybe some of our customers transitioned. We transitioned a little later on the deals that we did book. And now we're caught in this supply constraint issue that we're dealing with. But I feel good about the demand. It's not going away. Talking to customers, they're still You know, they're still blowing and going. And then also, as I mentioned on the class four side, we've had one, I'm not going to get specific, we've had one OEM that I typically sold about 2,500 units that has sort of been out of the marketplace and will get back into it starting in October. So that's quite a few units. And they've been out of the marketplace for about nine months now. So they'll be back into it stronger than ever. I'm confident in that. So that's kind of hampered some of my four I mean, you might flip some of them to something else, but you don't flip them all. So, you know, that's what I would have to say. We expect to be, hopefully, I think the market share will stay flat because I don't think retail deliveries are going up in Q3 across the board, my friend. I really don't. Because retail deliveries always lack production. no inventories everybody sold their inventory right we were able to support a lot of things through inventory but inventories are extremely low right now so just some of the headwinds but again I go back to the fact I hear you we lost a little share plan on getting it back just a matter of timing here I've got the backlog to do it all right thank you very much you're welcome sir thank you

I'm sure no further questions in the queue. I would now like to turn the call back over to Rusty for closing remarks.

I'd just like to make one quick comment. Most people don't realize this, but this last quarter on June the 7th was 25 years since my father and I and our team of people went public when we were the first car or truck dealer to ever go public. It's been an amazing 25 years, and it could have been done without the support of all the personnel and people. so with that I want to thank them one more time you know from the bottom of my heart for their efforts and their future efforts too as we continue to move forward but it was I still I got a little bit sentimental on June 7th thinking about it and talking to some of the people I know in the industry but we're still the only public truck dealers but all the car guys started coming out in the fall but it was it's been a good ride and I've enjoyed it all and I plan on riding for quite a while longer I'm getting Steve's voice in tuned up now, as you can hear. So, anyway, I'm sure it will be even more closer to mine by Q3. I know Steve doesn't hope so. We report Q3 results. But thank you, everybody, very much. I appreciate your time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.