Rush Enterprises, Inc.

Good morning. I hope everyone has been able to get through, obviously, a little new technology through the links this morning. We had a couple emails with a couple folks having trouble, but hopefully everybody will get it sorted out this morning and be able to join us for the call. So I'm going to get started. Good morning and welcome to the second quarter 2022 earnings release conference call. On the call today are Mike McRoberts, Chief Operating Officer, Steve Geller, Chief Financial Officer, Kate Hazelwood, Vice President and Comptroller, 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, 2021, and our other filings with the Securities and Exchange Commission.

As indicated in our news release, we achieved second quarter revenues of $1.8 billion and net income of $110 million, or $1.92 per diluted share. Earnings per share, excluding the one-time gain, Related to our acquisition of a controlling interest in Rust Drug Centers Canada Limited, we're $1.75 per dosage here. We are very proud of our accomplishments this quarter. Not only did we achieve record high quarterly profits, we also completed the conversion of our previously acquired summit locations to our SAB business system, acquired an additional 30% of Rust Drug Centers Canada Limited, re-purchased 38.4 million of company stock, and declared a cash dividend of 21 cents per common share, or a 10.5% increase in our dividend and our fifth increase since 2018. Our results in the second quarter were due primarily to a strong freight demand and healthy consumer spending. New truck production continues to be constrained because of component supply issues, but our Class VIII new truck sales substantially outpaced the industry. Our aftermarket results also significantly outperformed the market, There's a strong demand for parts and service throughout the quarter. Our results were also positively impacted by 19 locations acquired in the fourth quarter of 2021, as well as 15 locations in Canada, through our additional investment in Rush Truck Centers Canada Limited, whose operating results are now consolidated in our financials. In the aftermarket, our parts, service, and body shop revenues were $598.3 million, up 34.3%, and our absorption ratio was 136.4%. In the second quarter, there was strong widespread demand for parts and service from most market segments. We continue to strategically expand our workforce of service technicians and aftermarket sales professionals throughout our network, including our new locations, extending our reach to large national fleets. We expect supply constraints will continue to impact the industry into 2023, but we believe parts and service demand will remain strong. Due to our network reach and scale of our inventory, along with our partnerships with parts manufacturers, we are better equipped to navigate any industry parts shortages moving forward. With the continued expansion of our workforce of technicians and aftermarket professionals, and by implementing our strategies at our newly acquired locations, we believe our aftermarket results will significantly outpace the market in 2022. Turning to truck sales, we sold 4,168 new Class A trucks. accounting for 6.4% of the total U.S. Class 8 market and 1.7% of the Canada market. While new truck production is still constrained, the Class 8 manufacturers we represent were able to increase production somewhat in the second quarter. We experienced healthy demand from most market segments, particularly over-the-road construction and vocational customers. Our backlog remains strong, and we are proud of our Class 8 truck sales results this quarter, especially given of new trucks available to sell. ACT research forecasts U.S. Class 8 retail sales to be 253,000 units in 2022, up 11.3% from 2021, and Canada U Class 8 retail sales to be 29,500, or up 4.9% from 2021. We believe that because of supply constraints, retail sales of Class 8 trucks have lagged demand by as many as over 100,000 trucks the last couple years. We believe because of this pent-up demand for Class 8 truck sales and the pending changes to emissions guidelines in 2024 and 2027 that the commercial vehicle market will remain strong through 2026. Our Class 4-7 new truck sales reached 2,815 units in the second quarter, accounting for 5.1% of the U.S. Class 4-7 market and 1.3% of the Canada Class 5-7 market. Production capacity remained limited, but we experienced healthy demand from a variety of market segments, including vocational and food and beverage customers. ACT Research forecast U.S. Class 4-7 retail sales to be 230,000 units in 2022, down 7.7% from 2021. And Canada Class 5-7 retail sales to be 10,250 units, or down 22.5% from 2021. Looking ahead, we expect supply constraints on Class 4-7 trucks to continue, though some manufacturers may increase production this year. We believe our results will align with the industry in 2022. Our used truck sales reached 1,629 units in the second quarter, down 22.2% over 2021. Overall demand softened for Class 8 on-highway used trucks due to weak spot rates and high diesel prices. putting an increased burden on owner-operators and small fleets. However, there was still strong abuse of demand for medium-duty flatbed and vocational energy customers. Used drug values have decreased significantly, and we anticipate they will continue to soften through the year. We are managing our values and inventory and believe we can effectively meet the needs of the market this year. I would like to note that our lease and rental operations have grown to become a significant contributor to our company's overall profitability, with second quarter lease and rental revenues increasing 31.2% year-over-year. The growth is driven by our recent acquisitions in the fourth quarter of 2021 and second quarter of 2022, as well as strong demand due to healthy freight environment and limited new truck production. As we look ahead, we are closely monitoring inflation, interest rates, fuel prices, and other economic factors which may impact our industry. That said, while economic growth has slowed somewhat, we believe strong demand for new trucks and aftermarket parts will continue. We have continued to focus on our strategic initiatives and diligent expense management, and we believe our financial results will remain strong. It is very important that I thank our employees for their impressive work and their ongoing commitment to our company and our future. With that, I'll take your questions.