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spk02: Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc. Report's fourth quarter and year-end 2021 earnings results. At this time, our participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host today, Mr. Rusty Rush, Chairman and CEO and President. You may begin.
spk01: Good morning. Welcome to our fourth quarter and year-end 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.
spk05: 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 into December 31, 2020, and in our other filings with the Security and Exchange Commission.
spk01: As indicated in our news release, we achieved annual revenues of $5.1 billion and net income of $241.4 million, or $4.17 per share. In the fourth quarter, we achieved revenues of $1.3 billion and ended up with $68.6 million, or $1.18 per diluted share. We are proud to declare a cash dividend of $0.19 for a common share. Throughout the year, healthy consumer spending and an overall strong economy led to increased demand for new commercial trucks and aftermarket services. That said, component supply chain issues negatively impacted the production capability of truck manufacturers and aftermarket parts component suppliers, as well as our truck and aftermarket sales in 2021. Demand for trucks and parts and service remains strong, especially from our large fleet customers. We remain committed to our strategic initiatives and to diligently managing expenses, which contributed to our outstanding financial results this year. We grew our network of Rush Truck Centers substantially in 2021, In addition to adding three new locations in Arizona, California, and Illinois, we entered into our largest acquisition in company history, acquiring 17 full-service dealerships and other locations from the Summit Drug Group. In January of 2022, we closed our agreement with Cummins, who has acquired a 50% interest in momentum fuel technologies. All of these changes reflect our commitment to strengthening and enhancing not only our network, but also our products and services we offer to our customers. Looking ahead, supply constraints will likely continue to impact the industry through mid-2022, but we expect healthy demand for new trucks as well as aftermarket parts and services due to the country's continued economic recovery. We believe our continued focus on aftermarket initiatives and expense management, along with network growth, will contribute to increased revenue and profitability in 2022. In the aftermarket, our annual parts, service, and body shop revenues were $1.8 billion, up 12.1%, and our annual absorption rate was 129.8%. We added approximately 150 service technicians to our workforce in 2021 and remain committed, excuse me, focused on our strategic aftermarket initiatives, including our express services, mobile service, and contract maintenance. Considering that there are fewer working days in the fourth quarter We were particularly pleased with our fourth quarter aftermarket revenue, which was essentially flat to the third quarter. We expect supply constraints will continue through the middle of the year, but we believe the demand for aftermarket parts and services will remain strong. As we continue to add technicians to our workforce and implement our existing strategies at our new locations, we believe our 2022 results will outperform the industry. Turning to truck sales, in 2021, we sold 11,052 new Class A trucks, accounting for 4.9% of the total U.S. Class A market. The nationwide economic recovery led to strong demand for new Class A trucks, but limited new truck production impacted our deliveries throughout the year. In the fourth quarter, consumer spending remained healthy, and we experienced an increase in sales as the year ended. which historically equates to positive truck sales results in the first quarter. ACT Research forecasts U.S. Class A retail sales to be 247,500 units in 2022, up 8.9% from 2021. While we expect we will continue to feel the effects of production capacities, demand for new truck sales remains strong, and due to our recent acquisitions and strong backlog, We believe our Class 8 truck sales will outpace the industry this year. Our Class 4-7 new truck sales reached 10,485 units in the third quarter, accounting for 4.2% of the U.S. market. Though demand remained strong through the year due to the healthy economy, production capacity was limited, and some manufacturers focused on increasing heavy-duty production more than medium-duty, and manufacturers were not able to increase production to pre-pandemic level. ACT research for class 4-7 retail sales will be 263,700 units in 2022, up 5.6% from 2021. As we look ahead, we believe demand will be healthy, but production constraints on 4-7 will likely continue. We expect our 4-7 results in 2022 will grow at a pace similar to the expected growth in the industry. Our used truck sales reached 7,527 units in 2021, up 1.7% year-over-year. Used drug demand and values remain strong, largely due to production limitations of new Class A trucks and strong spot rates across the country. In 2022, we expect used drug demand to remain strong, though values may begin to normalize in the second half of the year. In 2021, we made significant strides in developing strong expense management processes, achieved record high profits, paid off all of our remaining real estate debt, restructured our lease and rental fleet debt to allow us to take advantage of our strong free cash flow, and paid the majority of the purchase price of our acquisitions in cash. We are proud that our approach helped us keep our balance sheet and cash position strong while we continue to return value to our shareholders through our earnings growth, quarterly dividends, and our stock repurchase plan. While expense management will remain a focus in 2022, due to normal seasonal increases in employee benefits, payroll taxes, and equity grants, we expect our general and administrative expenses to be sequentially higher in the first quarter of 2022 outstanding work in 2021 for providing superior service to our customers and remaining committed to our long-term growth goals, especially given the continuing challenges of the COVID-19 pandemic. It is important that I emphasize that our record high net income and EPS results could not have been achieved without their dedicated work and focus. With that, I'll take your questions. I understand my voice is even worse than usual today, so bear with me. I've always got a heavy voice, but I still have a little bit of laryngitis right now, but other than that, I feel great. So if you'll take over, we'll take questions now.
spk02: Thank you. As a reminder to ask a question, you will need to press star 1 on your telephone. Then press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Jamie Cook from CreditSleeve. Your line is now open.
spk00: Hi. Good morning. Congrats on a good quarter. And, Rusty, you sound great. A couple questions. You know, one... Understanding energy is a small part of your business at this point. You know, just given the rebound in prices, can you talk about if you're seeing any sort of signs of life that could be a potential positive for 2022? And then, you know, my second question relates to, you know, what you're seeing on the pricing front on the new truck side and the market share opportunity with some of PACCAR's big product launches this year, both on medium and heavy. Thanks.
spk01: You bet. Thanks, Jimmy. When it comes to oil and gas, we are seeing some pickup from a service perspective. It has picked up. It is gradual, though. I was speaking to some people on my board. I just finished a board meeting. One gentleman in particular is pretty knowledgeable about it. We both agreed that what we've seen past the The actions of the country, really, with the oil business are different, right? There is a much more disciplined approach, but it is coming back slowly, slowly working a well over here or doing a well here. I was actually driving through South Texas yesterday, the last couple of days, too, and was able to see something in the Eagle for a little bit, something I hadn't seen in a long time. so that's a positive there's no question for me to sit here and tell you it's going to make this huge difference in our results i can't say that i don't i think people are going to be much more disciplined especially on their capex approach you know we have really not seen anything uh that i can attribute uh from i mean minuscule stuff but but i can attribute truck sales per se to what we've seen so far just on the service side that's not to say that won't come but Everybody is very disciplined. You know, you don't have all this money being thrown at it that you typically see. You know, when it's booming, it's booming. Historic what we've seen for decades. I don't think that's going to be the approach. But there's no question that there could be maybe something downstream. I don't see anything outside of service right now. As far as you asked about, what was that, Jamie? You said about, you know, as far as... There are two questions for...
spk00: What you're seeing on the pricing front, and then I just wanted to get into, like, the market share opportunity for Rush with some of the new product launches.
spk01: Yeah, no question. Well, no question, manufacturers. All manufacturers are catching up to the supply chain increases, the inflationary pressure. So that is going to be passed through, no question, to the end user. You know, it took a little while during the year. As you know, all manufacturers had different surcharges and went about it differently. But really and truly... They may have gone about it a little bit differently, but everybody was trying to catch up to those price increases, especially because you had such disruption in the supply chain that that even put more costs into the supply side, just with overall normal inflationary, what we saw going on, the inflationary pressures that we had. So they are catching up, so there's no question pricing is going to go up. or is up and going to continue to go up. I think you'll see some discipline from manufacturers around getting too far out, not wanting to get caught up like they did last year when you're having to bring in surcharges and things like that. You've got customer bases wanting pricing for two or three years out, and you've got manufacturers saying, wait a minute. And if they do, there will be caveats to protect themselves. This goes across the board. for what, uh, what they saw happen to him last year, right? So, which, you know, but I do expect, you know, that we're back to more normalized margins themselves. And that's across the board.
spk00: Um, I think, you know, And then the last question, the market share opportunity for Rush with, with some of the new product launches.
spk01: No, there's no question. We got, we have, not just in our historical, uh, areas of responsibility that we have, but on the acquisition side, understanding that Summit, um, is in big fleet country, I would call it. You know, when you look at Missouri and Kansas and Arkansas, there are many over-the-road fleets, probably more based there than in all the other 20-something states we're in from an over-the-road fleet perspective. The problem, Jamie, is allocation. You know, it's a constraint. The problem for us will be we're pretty much on allocation. You know, we know what we're going to sell. I think in 22... And it's possible that could continue into 2023, which will hamper our ability to go out and conquest, you know, other new business, right? I mean, we've had to deal, all manufacturers have had to tell certain customers, you know, that customer wants X. Well, this is all you get is Y. You know, so that's going to put a little bit of a damper. I feel good about our allocation numbers. We got caught a little bit last year that we were pretty much back half loaded. And then we had all the supply chain constraints, so we didn't get product that we expected to get. I expected to deliver a whole lot more trucks. Looking at the results we had in 2021, it's pretty outstanding when you think that, you know, we were back half-loaded, and then we couldn't get it because manufacturers couldn't produce. So... You know, I think we're going to – there's no question we're going to take – we're going to go up. We're going to take some share. I would expect us to be – ACT is up slightly there, under 10%. You know, I would expect us with our acquisition, again, to be somewhere up, oh, 18% to 20% maybe, something along those lines, 15% to 18% in our deliveries. But we're limited because that's all we can get, right? So that's all you can get. That's all you can get. So that hampers you a little bit to go out and conquest. But I do expect our market share to go up above, obviously with the acquisition, and I think even not being so back half loaded but more evenly distributed from a Russia's perspective across the whole year. I do expect us to deliver more trucks for sure and have a better than a 4.9% of the Class A market without question.
spk00: Okay, I'll let you save your voice for someone else. Thanks, and hope you feel better.
spk01: I don't know if anybody else wants it. Thank you.
spk02: And our next question comes from Justin Long from Stevens. The line is now open.
spk03: Good morning, Justin. Good morning. So I wanted to ask about the Summit acquisition, obviously a big deal that just closed. Any way you can help us? think about the impact you're expecting from that acquisition in 2022. And maybe just after having a look under the hood, how you're thinking about the opportunity there to integrate the business and improve the business.
spk01: Yeah, let's talk about that. We'll talk about, you know, remember, we just finished our first month of January with the acquisition. So, you know, while you, you know, you do your due diligence and you do everything But until you, you know, you can do one quick test drive, but until you get in the car, start the engine, you know, just then drive it, then you know what you got, right? They've got a great group of people there. We're excited about what we've seen within the first month. At the same time, there is a transitionary period. Understand that when we close the deal on the 13th of December, typically, historically, We switch everybody over to our SAP business system, which we believe is the best out there. We believe we have more intel than anybody when it comes to that, which allows us to achieve the results we do, especially on the parts and service side. That said, we did not switch them. It would have been a very large undertaking that would have been very disruptive to the business. That said, we are going to switch them, half the group on March 1st and half the group on May 1st. But then there's an acclimation period, right? They have to get acclimated to using a business system that provides a lot of tools but can be a little complex. So that transitionary period can take people a little while. So those are all exciting things. We're very pleased with what we've seen so far. We will continue to roll them into our culture. They had a great culture, but obviously we're the purchasers, so They will roll into being a rush employee, a rush person. But that doesn't, you know, it's not an add water and stir that. We believe, you know, there's a lot of good upside for us, especially with all those large fleets from a national account perspective. Not necessarily selling drugs, but more around the parts and service side than anything else. We believe there's opportunities for adding a lot of technicians to their network. as we've looked at, you know, a lot of mobile service possibilities. I mean, but these things are not going to happen just day one. But there is, without a doubt, in our mind, upside to that. But that's going to, you know, that's going to roll in over year one and year two and, you know, and year three as you roll through it. But, you know, I couldn't be more pleased with the acquisition. I feel stronger now about the more medium, long-term upside. that I didn't want to make the deal against back in July, August. So, but those are timing things. But trust in, you know, look at, I just say look at our historical results and watch what we do. But we've got a great group of people to work with, great territories that just fit, like I said before, like a piece of the puzzle. And around, right in the middle of all our networks, and it just strengthens our approach to customers, right? You know, I'm all about differentiating ourselves from everybody else. And our map is our biggest differentiator outside of our people. So we're excited about that. You know, I mean, as I said, you know, the numbers, you know, they're going to obviously be up. You know, you're talking parts of service and sales. And I'm going to tell you, adding them in, new hires, you know, high teams, you know, things like that may be a little better. But again, we're on allocations. from a truck sales perspective. So you're just limited in that way. But the big upside for me in that acquisition is our opportunities in parts and service. You know, they've got decent, they've got good facilities. What we bought, I mean, I believe we can grow the technician base 50% in a year or so. Okay? I honestly do. So, you know, bring mobile. They don't have mobile. They don't do some of those other things again. And then put in some of our You know, the initiatives that we have, whether it's Service Connect or Parts Connect or all the different names of the things that we do, express services, things like that, there's a lot of upside. But it's not an add, water, and stir. Allow us to operate it. It will be a creative, don't you worry. But we've just got to get it done.
spk03: Understood. So you talked about truck sale expectations this year. When you think about the parts and service business, What are your expectations for growth in 2022, I guess both organically and then once you layer in Summit?
spk01: I had told you, you know, high singles, maybe a little bit more, okay, based upon some inflationary pressures from a, you know, same-store perspective. So we're looking at high teens, you know, both on the truck sales side and the parts and services side with Summit integrated in. Okay, similar growth rates, but more opportunities over time on the parts and service side. There's no question, I say it again, that we've got some opportunities. Like I said, you talk about lifting the hood up. We just cranked the engine, and we haven't driven a mile yet, really. We just rolled out of the parking and rolled off the driveway. But those would be what I would tell you now. Maybe a little bit more upside in it. But, you know, let us drive the car a little bit more and get rolling and get our stuff in there. But, you know, that's basically what I can tell you. Justin, as I said, we run it for January, and everything's just like it's supposed to be and lots of opportunities.
spk03: Thanks. And last question for me, just looking at the first quarter, I know there are a lot of moving pieces with Summit getting layered in. I think you mentioned earlier Rusty, G&A would be up sequentially. Any way to help us think about kind of EPS from 4Q to 1Q and what you're expecting? Maybe put some numbers around that G&A increase.
spk01: Okay. Well, you started hitting on EPS, and you know I'm not going to do that. Go back historically. I'm going to tell you, business is solid. Business is great. Business is good. Understand that Q1, if you look back all the time, is our softest quarter. Okay? We layer in more G&A. We have all the equity, comp costs, taxes, this, that, and the other. It just all hits you in Q1, and then we level out. So, you know, from a, you know, you've got G&A, you've got SG&A, right? I expect sales to be up, so S's will be up. in my mind, okay, and GNA will be about, you know, with Summit in there, it's going to be a little murky, okay, but I do expect strong results, and, you know, you can look back at last year, and I think first quarter was like 79 cents, and then rolled on up from there, so I expected, you know, Some of the end business is solid. We are on allocation again. Remember that. So I don't remember what first quarter truck deliveries were last year. But, you know, they're not building at a higher rate this year than they were in Q1 last year. So, you know, what were they, Steve? Yeah, they were way, you know, back when we were almost 3,000 units, okay, last year in Q1. compared to this year's fourth quarter, it performs at 25, I guess. So, you know, we were down 450, 470 trucks. You know, from Q1 to Q4, I'm not, I would expect, I'm not sure we can get to that same Q1 right now. We might. We probably can be somewhere back up, but it won't be over truck deliveries, right? So, because of the allocation, but I do expect the rest of the year Deliveries should be better once we get into Q2, Q3, and Q4, because I don't believe we're going to have supply chain constraints. There'll be some. There still are some. I hear about them, right? There's no question. But I don't think that they'll be as pronounced as what they were, especially in Q3. Remember, because we are the retail delivery, and a lot of times we're lagging 60 to 90 days behind production rates. vehicles. So I know I'm giving a long-winded, rambling answer here, but I'm trying to say it's, you know, we'll obviously, I should say the same story, we will deliver more because of Summit. My bad. But on a same-store basis, I don't know if we're going to get to 3,000 units or 2,990 like we were last year. But, you know, we'll deliver more for sure, but with Summit and, you know, MQ-1. I expect it to ramp up from there as the year goes on.
spk03: Got it. Thanks. I'll pass it on. Congrats on the quarter. You bet. Thank you.
spk02: Thank you. And that is star one, if you would like to ask a question. And our next question comes from Andrew Obin from Bank of America. Your line is now open.
spk04: Hey, Rusty. How are you?
spk01: I'm fine. Was that your Andy Obin?
spk04: Yeah, no, I would say you sound almost presidential. That's how I would describe it.
spk01: Oh, no, Andrew. What number of presidents are we going with, Andrew? Well, you know. Never mind. Let's leave politics aside this morning.
spk04: So the question I have for you is, you know, given all the inflation, right, clearly the execution has been the differentiating factor for your results. Given all the inflationary pressures, right, when we talk to you guys, it seems that the way you're running company differently this cycle, right, you know, it's just you're committed to no cost creep in this cycle, right, sort of keeping control over costs over the next couple of years. You've changed, I think, internal compensation metrics. You changed communication internally, right? So the question I have for you, given all the inflationary pressures that we are seeing in the market, how do you manage or how do you pivot your strategy on containing the costs while being able to grow in this environment where we're short of labor, short of components, and clearly costs are going up? Thank you.
spk01: You've got a great question, Andrew. Don't think that hasn't been at the forefront of my mind recently, okay? I can't run from inflation. I can't run from wage pressure, you know, and we are getting that like everybody else. It is real, okay? But if you're getting it, you should be getting it on the revenue side, right? So it's just a matter of back to what we talked about. If you had told me six months ago when we were communicating, you know, and I looked at how I was going to manage G&A, I probably had to raise G&A. What G&A is going to go up next year? I can't run and hide from it. At the same time, I can manage the spread, okay, and what I get from a revenue perspective. and what my DNA increases are, right? They should go hand in hand, except my job is to manage what the things we talked about, Andrew, is to manage that expense piece around, but I'm getting it on the revenue side, but to keep that percentage difference, you know, and that's what we're about, what we're going to have to do. I can't run from higher fuel costs. I can't run from higher labor costs. We're affected like everybody else. At the same time, it becomes a spread of the game, and It's not allowing, you're making sure you're getting it on the other side too, and then keeping that spread where it needs to be. It's just diligence. You're going to spend some money, but again, it's that how much do you spend, and that's what it's about. How much of that revenue or how much of that gross profit, really what we're talking about, that you create, that you spend, how much do you keep? I can't change where I'm at. I can't change the world I'm in. But I can manage that spread, and that's what we're focused on is managing that spread. As long as we're getting it over here on this side, if I'm getting it here, I'm going to be getting it over here on the sales side. I've said it three times already. It's that spread and that management of it, and we believe some of the tools that we put in place, some of the disciplines that our folks have learned. I mean, there's nothing greater than that. That's a terrible way to say it. But nothing... But there's a better teacher than dealing with the original onset of COVID and the business blowing back up and managing through it. You learned the things you had to do, and now you're not going to give them away. And I believe we're capable of doing that. We've communicated that. Proof of the pudding's in the eating, so I guess we'll see here over the next year or two, right? I'm looking around the room at a few folks that, you know, it's their responsibility. This is ultimately mine. but the buy-in on our ability to keep that spread where it needs to be regardless of what cost. I can't control inflation, but I can't control the spread. That's all I can do.
spk04: Thank you. And the other question I have, you know, when we do our channel checks, there is this debate about the impact of higher interest rates and the expectation of higher interest rates on the underlying economy. You know, you've been around for a while. You know, you touch a lot of industries, a lot of geographies. First, can you just tell us what you are seeing in the broader economy? And second, could you share your thoughts with us based on the conversations you've had with customers about the potential impact of higher interest rates on just underlying economy, not the truck cycle, but just the underlying economy, as I said, because, you know, clearly you now touch very, very broad swaths of the economy. Thank you. Sure.
spk01: You bet. Well, right now, It's all been more talk and has not trickled down. But it has not got into there. But everybody is concerned about that rate increases. But business is still extremely strong. And the balance sheets of a lot of these companies are in pretty good shape. Where it will have an effect will be on the smaller folks, the medium to small guys. that don't have as strong of balance sheets. That's typically how it works. You know, they're the last in and first out. You know, when you've got a swing, when it blows up like that, you know, the smaller and medium-sized guys are the last in and first out. And some of this stuff, I haven't really seen it affect anybody's decision processes yet. But if you were only, you know, common sense, at 63 years old, I'll be 64 in April, been through enough of this. Again, you can't run from it. Higher rates will start to squeeze off some of those smaller folks because they can't lever off their balance sheet because they don't have it. They rely on leveraging their sales up. Obviously, that will affect their abilities to grow and obviously make money going forward if you're leveraged. this to be any different. People talk about it. I haven't seen anything slow down decisions right now. But you would anticipate, given historical, that day will come. But I haven't seen anybody, you know, and remember, I'm not in touch with every customer. We've got a big company. But I haven't heard anyone speaking of slowing down based upon rates. And I'm talking about, but these people have one, probably the most people I've talked to The larger have big balance sheets, okay? But I haven't heard it from the field yet. But you would anticipate that to come when the real rate increases get in there, which they're trickling in, obviously, now. But a couple points is not going to blow it up. It's going to take more than that to slow it down. But it will start to slow those others down if it goes up three or four points. That's a borrowing at the end.
spk04: So thinking about broader economy, what you're sort of seeing from your customers in Florida, Texas, Southern California, do you think sort of the initial reaction to interest rates should be muted other than, as you said, sort of small and medium truck fleets? Is that how I should be thinking about it?
spk01: I think so. That's just my opinion. But, you know, got a few years at it. But, you know, because business is still so strong. Now, if it starts slowing people's business, it's naturally going to, you know, affect growth. And that'll slow down people's purchases without question. But for now, you know, there's a little room in there, I think, to pay a little bit more interest. And a lot of people got some strong balance sheets that, you know, they're not levered up. It'll be that small-medium guy who's levered a little more that'll feel it first. But margins are so good, you know, even with inflation and everything, everybody's getting pretty good. You can see You know, the over-the-road still, I mean, look at all the rates that people are getting, which is driving inflation. But right now it's, you know, I don't see it having much effect at the moment, but it could have an effect, you know, if we start going up substantial. A quarter point here, a quarter point there is not going to slow, I don't think, you know, just the overall economy at the moment, just because the demand is so strong still. You know, after all the money we put in the economy the last couple of years. is still out there. He's still got the man.
spk04: Now, Rusty, in my 25 years, you're one of the smartest, sharpest guys I've met, and despite sounding presidential, I would take your advice over 45 or 46, so thanks.
spk01: Thank you, Andrew. I don't know if they're deserved, but I appreciate the kind words.
spk02: And thank you. And I'm showing no further questions. I would now like to turn the call back over to Rusty Rush for closing remarks.
spk01: Well, folks, we appreciate you taking the time this morning to listen to our fourth quarter results, year-end results. We look forward to talking to you sooner as we'll be speaking to you about the middle of April with our first quarter results. And hopefully you'll be as well. Thank you very much. We'll see you then. Bye-bye.
spk02: This concludes today's conference call. Thank you for participating. You may now disconnect.
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