Rush Enterprises, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprising Report's third quarter 2024 earnings results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you would need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw the question, please press star 11 again. please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Rusty Rush, Chairman of the Board, Chief Executive Officer and President. Sir, please go ahead.

Well, good morning and welcome to our third quarter of 2024 earnings release call. With me on the call are Jason Wilder, incoming 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. 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 foreign-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2023, and in our other filings with the Securities and Exchange Commission.

Thanks for joining us this morning. I am pleased to report that we had a solid third quarter. We announced revenues of $1.9 billion and net income of $79.1 million, which comes out to $0.97 per diluted share. In the third quarter of 2024, we incurred a one-time pre-tax charge of $3.3 million due to Hurricane Helena-related property damage. Excluding this charge, EPS would have been $1 per share. And once again, we are happy to declare a cash dividend of $0.18 per share for both Class A and Class B common stock. As we have experienced over recent quarters, the industry is still dealing with low freight rates and high interest rates. And these difficult operating conditions are keeping demand for Class 8 trucks on the low side. Given these headwinds, we are proud of our performance this quarter. While the over-the-road carrier segment faced some challenges, we saw good activity from Class 8 vocational and public sector customers. Medium-duty demand also held up well, helping us outperform in Class 4 through 7 sales. And despite a tough used truck market, our strategy is paying off and contributing positively to our earnings. In the aftermarket space, we saw a slight revenue improvement over the second quarter, particularly in service sales, which outspaced the market. Diving deeper into our aftermarket results, our parts, service, and body shop revenues reached $633 million, down slightly, 1.6% from the third quarter of 2023, but up from the previous quarter. Despite the ongoing freight recession, we are finally seeing slight sequential growth and aftermarket sales through over-the-road customers, the first growth we have seen since early 2023. The refuse in public sectors continued to be strong for Class 8 aftermarket sales, and our Class 4-7 aftermarket sales were healthy across the board. Though we expect some seasonality to adversely affect the fourth quarter, we anticipate beginning a gradual return to more normal market conditions in early 2025. Looking at truck sales, we sold 3,604 new Class 8 trucks in the third quarter, accounting for 5.3% of the total U.S. Class 8 market and 1.6% in Canada. ACT research forecast for 264,000 new Class 8 sales in the U.S. and Canada in 2024, down 12.5% from last year. Continued low freight rates and high interest rates contributed to a 3.5% decline in Class 8 retail sales from last year's third quarter. and economic uncertainty continues to weigh on Class 8 carriers. Despite these challenges, we are pleased with our third quarter results. Specialty markets like vocational and public sector remain bright spots for us, and we expect this trend to continue into the fourth quarter. We saw a slight uptick in orders at the end of the third quarter, so we expect that our fourth quarter Class 8 truck sales will increase slightly compared to our third quarter results. However, with high inventory levels across the industry, we anticipate that pricing will remain competitive, making sales challenging through the first half of 2025. Our Class 4-7 new truck sales reached 3,379 units in the third quarter, accounting for 5% of the U.S. market and 2.9% in Canada. ACT research projects U.S. and Canadian Class 4-7 truck sales to be 273,000 units in 2024, up slightly, roughly about 2.5% from last year. Demand remains strong in this medium-duty space across all segments, and our efforts to diversify our customer base is paying off. On the used truck side, we sold 1,829 units in the third quarter, up 1.8% year over year. Although used truck demand is still weak, we continue to successfully execute our strategy, which led to positive results in the third quarter. Depreciation rates for used trucks have stabilized, and we continue to manage our inventory levels effectively to meet market demand. Lease and rental revenue was almost flat year over year, down just four-tenths of 1%. However, we are optimistic that rental utilization rates will increase in the fourth quarter, and we expect to see moderate growth in our leasing and rental revenues as we move into 2025. So far, it's been a challenging year for commercial vehicle industry. but I am incredibly proud of our team's hard work. Their dedication has helped us manage our expenses and stay on track with our sales initiatives, allowing us to keep delivering value to our shareholders despite these challenging times. And I am confident that we will finish the year in a solid financial position. I would like to extend my sincere gratitude to all our employees for their hard work this quarter. They stayed focused on our long-term goals while continuing to provide top-notch service to our customers. Before we wrap up, I personally want to thank Mike McRoberts, who, as we announced, will step down as COO on October 31st. Mike has been invaluable to us, and we are glad he is staying on as a special advisor and board member. I would also like to congratulate Jason Wilder, who will step in as our new COO on December 1st. I have full confidence in Jason and expect a smooth transition. With that, I'm happy to take your question.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And the first question comes from Andrew Obin with Bank of America. Your line is open.

Hey, Rusty. Good morning.

Well, good morning, Mr. Obin.

How are you today?

I'm doing great. Just a question. You know, you have constructive order commentary, particularly into the quarter end. You know, at the same time, I would say I think ACT forecasts no retails are recovered until second half of 25. How do you bottom, how do you balance sort of the commentary that you've made in the press release? Seems there are multiple references to this bottoming out with the uncertainty that we're still facing in the first half of 25.

Well, when I say – I think I was talking bottom of the mountain as far as our customer's business, right? As far as the truckload carriers, the haul-for-hire carriers, I believe, you know, freight has been bobbling on the bottom for them, right? And contraction of rates, I think it's, you know, about over with. If you read some of the reports that I've read in the last couple weeks, you'll see that most carriers do believe they've been bobbling on the bottom, you know, and that's where they're at. So I think we're getting a little bit mixed up here. It's the customer base. and what I see for our business. And when I talk about our business, and I said we've had some uptake in order intake, understand people are still thinking sometimes, or I know they're not, but we had two years of allocation. Well, we've gotten back this year in the way it always was, right? I couldn't have told you back in Q1 we were going to have this great of Q3. It's just shortened windows, right? And some of that order uptick that I talked about that we had in the last six weeks, let's say, maybe not, let's say, go back two weeks, but the prior six weeks, we did have pretty solid order intake. But a lot of that's Q4 built, okay? Not all of that's 2025 built. In fact, the majority of it was going to be built in the fourth quarter. So we're in shorter lead times, but obviously I'm very pleased with the fact that we're adapting as a sales organization to what we historically lived in, where you're living in 90-day lead times, right? Okay, that's really what I was reflecting. We're not living in nine-month lead times. So, you know, it was nice to see the order intake pick up, and we're still trying to sort out 2025, but some of that stuff that we're building Q4 will roll over to be delivered in Q1. I couldn't sit here right now and tell you I've got Q1 and we don't have it all sold out, right? But, I am confident, as we have shown in the last two quarters, that we have the ability. We're on top of our game. I'll be honest with you, a lot of people are a little lax coming out of allocation, but we're getting back on top of our game and making it happen, just like we have for decades, but if not even better. Our customer base is bobbling on the bottom, but we're, I think, taking advantage of short lead times. It can be a little more nerve-wracking sometimes, but but that's because you you got conditioned to allocation for a couple years with nine month lead times now you're back to more normalized 90 day lead times you know even less sometimes 60 to 90 day lead times but i feel good that there is still going to be some business there it may not be quite as i believe we can maintain what we're doing how would i say that i don't see any big uptake in orders until the back half of next year when we start thinking you know when our customers On the over-the-road side, we're doing real well in vocational, but, you know, it's still the biggest piece of what we do. This truck load side is still a huge, large piece, and the small carriers are not back. Large carriers are being, you know, conservative in their outlook as they get their businesses righted, their ORs back in shape. But that will come back, but I do not expect for us – I do expect for us to continue along the lines of where we have been performing. from a volume perspective, but a big uptake coming in the back half of next year is people, you know, start to think about 2027, all the new technology, the costs that are going to go along with it, plus the performance that we're not sure of going out into, you know, 2027 and beyond as we meet the new EPA regulations. So anyway, that's a long rambling answer, but that's how I answered, you know that. So we're, we, that's what I see. Customers, over-the-road customers, not doing great, but bobbling on the bottom, looking for some uptake here as we move into next year, which we hope will drive further sales in the back half of next year and into 26. But feel solid about we can continue the performance we've given.

And yeah, thanks so much. And just a commentary for you. As I said, look, when somebody like you starts getting marginally less negative, you know, just let's keep it there. But I think you are getting more positive. But at least your press release got more positive. What, what, what, what, what, what are you seeing? Uh, you know, I, I think, uh, you know, I always have question about the economy because what are you seeing? Because you do touch a lot of verticals, right? You touch a lot of off-road, you know, Caterpillar today, maybe not the most exciting numbers, but what are you seeing on construction? What are you seeing in oil and gas, uh, outside of a truckload industry? you know, what does the economy look like? Are you feeling more positive, more negative into 25? Thank you.

Sure. You know, I think, you know, we've seen when it comes to vocational, when you start breaking vocational businesses down, no, oil and gas has been solved.

Okay.

Our oil and gas, Let's see. Look, no one's really bought much equipment for oil and gas. Everybody's just refurbing and fixing it, right? Because people view it with all the, you know, the Bev and everything going electric or hydro, however it all works out, oil and gas. Some people think it has a long-term, I don't want to call it terminal value, but long-term, you know, obviously downside to it. So everyone, there's not a lot of CapEx being spent. There's a lot of maintenance being spent, but that maintenance was even, we've been off about 20%. When you look at our numbers from a parts and service perspective, now remember, it is not the same piece as much of a percentage of our business as it was a decade ago by any stretch. But even if it's, oh, I don't know, 5%, 7% piece of what we do, it's all 20%. Construction, though, is up from a CapEx perspective, right? You know, you're seeing the flow of money coming through from the infrastructure bill. And, you know, we've been limited a little bit. on some of the vocational products by some supply shortages on the transmission side. But that, I think, is going to smooth itself out later into next year. That was really an issue we dealt with in the back half of this year. But demand is strong. You know, refuse to demand still remains strong around that sector. Municipal is pretty solid. You know, it's varied, Andrew. But, you know, you're always waiting for those truckload guys to really get back into it. But, you know, I see that happening more in the back half of next year. Private carrier purchases earlier this year were extremely strong. You know, that's one thing, when you look at our business model, that's what I try to drive the folks is we really have diversified our business model. Sometimes when it comes to our customer base and our geography, which geography can have a lot to do with it, depending on what's going on. I mean, California's tough. You know, we're performing out there, but given the new car laws, You know, my order intake out there is 50% of what it was. But, you know, that stuff will smooth out. That's the good part. It's just one stake for me, right? I mean, I can go on and on and say, you know me, I can talk all day about the business because I love it. But the good part is we've got a very diversified customer base that we deal with. We're not just tied to big, you know, thousand truck orders. Ours is a much more diverse customer base. So it allows us to navigate these waters and perform the way we do. So, yeah, you said, I was laughing at how you phrased that, Andrew. You know, there's going to be a free buy sometime to dry waters. But we've been able, ACT has next year going down 10% or so, right? I mean, but they've come up 10% from where they came into this year. So I'm not so sure. The numbers they have out, they've got like $234,000 for the U.S. this year and like $217,000, $216,000, something like that for next year. I will say this. I see no downside to that. Now, I do see it more in the back half, but I see no downside to it. So, you know, I feel good about the next couple of years. We're slugging it out to a tough spot through the first half of the year, but I think we were slugging it out right now. And, you know,

You know, you see the performance of the company. That's all I can tell you. This is great. Thanks so much. You bet.

And our next question comes from Daniel Embro with Siemens. Your line is open.

Hey, good morning, guys. Thanks for taking our questions.

Thank you, Daniel. Good morning to you, sir.

Russell, I want to start maybe on the new unit side. You mentioned, obviously, the order uptick, pick it up a little bit. Inventory is still going to challenge pricing for the intermediate term, I guess. How should we think about the impact of that on gross margin or gross profit per unit, however you want to think about it, kind of across both, I guess, new or used, and then any difference between Class 8 and medium duty? Just curious how that's going to trend over the coming quarters, given the inventory versus demand backdrop.

Right. No, I will say this. Our inventory... We've been working on it all year, and it's in better shape now than it was six months ago, or say three months ago. With the downturn late last year and everybody used to allocate, we had a bunch of small order fallout, which turned into what we would consider stock inventory. But we have been managing it inside of all the numbers extremely, I would tell you, well. We've been making sure it's mark-to-market every quarter. And I feel that has helped us start to disperse of inventory. And so I feel we're headed in the right direction. I feel a lot better about it than I did without getting too deep into how I manage it or how we manage it. I feel better about it now than I did in April. I can promise you that. So we got our arms around it. And we've been able to drive it down. Over the last 60 days, we've turned the corner and been taking inventory down. Regardless of what the overall, you know, the overall, we've got 90,000 Class 8 units or so, largest inventory ever across the country in the U.S., right? So, you know, but I feel better about ours than that, the numbers you've posted for everyone else. I feel a lot better about ours. Now, we're not perfect yet, but I know we're heading in the right direction. I know we've shut the spigot off and, you know, having our inventories continuing day by day to get in better shape, and I feel decent about it, as I'm saying, so. Is it perfect where I want it? No. Talk about used. You said something about used. Look, our used folks have done an outstanding job. Why? We used to carry, oh, I don't know, 45% more in inventory than we currently do. So we saw where the volumes were, and we got our inventories down. You know, I want to tell you, we carried 2,500 units. We got our inventories under 1,500, and we're turning them. And that's the key piece in inventory and used. You've got to turn used trucks. If you're not turning your used trucks in under 90 days, you're going to lose money. It's just as simple as that. Because unlike new trucks, used trucks depreciate every day. New trucks are on MSOs or used drivers. They're titled used vehicles. And they're not like fine wine. They don't get better with age. So you've got to make sure you keep your turns right. And I feel really – I'm very positive, very pleased with how our used truck departments have performed, or at least, you know, managed our business for the year. That's been a plus for this year over last year, a nice plus. Where it's not anything the size of our new, it's nice to get, you know – We're in hand-to-hand combat sometimes right now, I tell people, right hand to mouth. So, you know, you just keep slugging it out so when you can get some from the used truck department that you didn't get last year, it makes up for some of the softness that we're having, you know, on the road business and the news side, you know. And, you know, when you get into the overall business, I mean, I'm going to – if there's one thing you haven't asked yet or anybody's asked me yet about that I'd love to talk about, and that will be when we get a chance to talk about the expense management of the organization. But I'll be quiet and let you ask me.

It's like you're looking at my question list here, Rusty. I was going to ask next on the cost. Go for it.

I've got all day. I've got all day, Daniel. Go ahead.

You took out a lot of op-eds in the quarter. I guess, first, can you maybe just talk about where you guys are pulling costs out of the business? And secondly, I guess, how do you think about the sustainability of these cost takeouts? Obviously, we're at a cyclical trough, and how much can we keep out of the business as the business improves next year? Where do you see opportunities to further reduce it? How does that cost management shape it up?

Sure. Well, I have Back in, you know, we saw flattening out, right? And, you know, we went and I went to everybody back in April and said, folks, you know, the parts and service business, typically we, and this is, let's talk about parts and service. Split truck sales out of it. Truck sales is what drives the S. We run this business S in one side, G and A on the other side, okay? S is typically, remember, just reflective of truck sales because that's where your commission is. That's your variable piece on the truck sales side. G&A is that where you really run your business, right? That's the dealership business without drug sales. Drug sales take the S piece. So the G&A piece, we looked at it and said, look, I don't see the seasonal uptick that we typically get in the summer. And guess what? We didn't have it. We didn't get it. We have been fairly flatlined. Yet at the same time is I've tried to tell people that's the flexibility of the business model. I can tell them for years and we're way better than what we used to be at it. And that's, you know, what we call absorption. And that's a numerator and a denominator. Denominator being expense. You got gross profit from parts and service above it. If you don't see that growing, if you see it flattening, then you've got to make some expense adjustments driven by what you see on the parts and service gross profit side. Now, We, as you saw, we were down the slide. I talked about revenue being down. We're actually down a little bit in margin, took a little bit of a margin hit. But at the same time, go back to April, we decided we had to make some adjustments. And we did. I mean, when you look at our G&A piece, I mean, we're all 4.5% sequentially to Q2. We're all 7.7% from last year's Q3. I am so proud of the organization. I can't tell you how proud I am for doing more with less. So you ask sustainability. it is look our goal when we start back if it starts to ramp back up right and you have to add some people back because remember when you're doing service and you're doing selling parts it takes people i'm not loaning money i'm working on equipment but at the same time you try to keep a certain percentage of that gross profit and we historically have done that that's what's driven our absorption number up 50 points in 20 years okay so But, you know, to run it, we still run it. If you'd have told me, we would never have picked up anything in gross profit in the summer months. You're still dealing, you know, you still got inflation, you still got payrolls, you still got everything going up on you. Yet we remember to basically maintain a pretty flat absorption rate by working that expense number. I would expect going forward, if it does start ramping up, like I'm hoping it does next year, You know, I mean, right now we're working on all our budgets for next year. We're not getting way out there. We're going to try to have mid-level. We hope for at least mid-level parts of the service growth right now. I'm waiting on budgets to come back in, and we're helping drive them to the field. So if we do go, so if we pick up, say, six points or something like that in gross profit, we try to keep half of it, right, which will drive more money to the bottom line. So sustainability is there. There's no question in my mind. that we'll be able to sustain it because we're doing it where we're at. Now, it will take a little bit more expense if gross profits and sales revenues start to go up in parts of service, but that's your goal is to keep part of it, but it takes people to sell parts, to work on trucks, to do things. Our model is driven by what goes on. We have the flexibility to adapt to whatever the markets throw at us or whatever we're able to take from the market. Remember, we're going to keep trying to take shares. Our goal is to continue to take share. We're going to continue to add outside parts and service salespeople where we can give them a solid book of business to go call upon as we try to take share. No matter what the market is, and on the service side, we're going to try to continue to add techs. We didn't do that good a job this year on that piece of it, but at the same time, we just finished our senior leadership conference this last weekend for about 300 folks here in town. And, you know, we're going to get back. That was one of the big messages to everybody. We're going to get back because we do expect business to be a little, you know, have some better growth next year.

That makes sense. Maybe the last one, just follow up on that. I guess, how is tech availability out there? I feel like just across a lot of bad markets, it's difficult to find technicians, difficult to hire them. You mentioned you guys haven't done as well this year as you'd like to on the technician hiring. So just curious, Has that backlog gotten better at all, or has that available labor pool gotten better at all for you guys? Just any thoughts there?

Good question. No, it's always a struggle, right? It's a struggle on the entry-level technicians, right? That's where your turnover comes in. Technicians, I don't want to get too deep in the weeds here, but, you know, it's level one through five, five being the old experienced guy, right, who can do anything. And it's that level one and twos. If you've got some secret sauce for it to help me, I'd sure appreciate it. We do a lot of things. We sort of have a lot of efforts around, you know, retention on those ones and twos. I think there was a study here recently. We saw, was it 40%? 40% of your level one and twos are out of the business in two years. They're going to do something else. They think they want to be technicians, but 40% of them are out of the industry. So you can see that's a hard road to hoe, right? But we keep plugging away at it. That's one of the big things. It's difficult. It hasn't changed, and it's still very difficult. We work with tech schools. We work with high schools. We have recruiters. We go at it. It's a multi-pronged attack, and it's something I think we'll always be battling. even though being a technician is nothing like it was 25 years ago with all the technology that's been put into trucks, okay? It's a whole different job, and it takes a whole different skill set. But it's still, you know, sometimes a very difficult – I have all confidence. We're trying to grow 150 to 200 techs a year. About five or six years ago, we tried to grow it too many, about 500. We realized that wasn't going to work. We couldn't support it that way. But we've really worked hard to try to level set the jobs and bring in more jobs that will be beneficial for a level one and two because they can't go to what a level four and five can. So you've got to make sure that you're feeding them, you know, the proper work. And, you know, I feel good about our ability to hopefully get our, you know, technicians really the turnover for that level one and level two technician. I think we're going to make some progress this next year in that area.

Okay. Appreciate all the color and best of luck, guys.

Thank you.

And our next question comes from Ian Zafino with Oppenheimer. Your line is open.

Hey, guys. Thanks for taking my question. Appreciate it. You bet. Just kind of looking at the landscape here, I guess sort of with the environment is – you know, how's the M&A environment, I guess, in this backdrop? You know, where do you see multiples and, you know, kind of what's out there? And I know you're sitting on a great balance sheet, so any color you could kind of give there and, yeah, I have a follow-up. Thanks.

Well, obviously, I never talk about M&A until I do it. There's a little out there, you know. I'm always working a little bit. We have We actually had a little M&A in the quarter. We had a small start. We had a small deal up in Nebraska. But I don't have any large M&A I'm working on right now. There's a couple other small things. I don't have anything big to announce that I can tell you, and I wouldn't tell you anyway until I did it. So I don't see that there's this huge rush of people trying to get out of the industry. at the moment, even though it wouldn't surprise me as we get further into the next two years with looming 27 EPA regulations going on that some people don't try to get out prior to that. I'm not seeing it right now, not for those reasons, but there's not a lot of big M&A going on right now that we have going around. We're constantly looking So if anybody out there wants to bring me a meal that I need in an area I'm not, I'll be happy to look at it. So, but I mean, I know it's just a roundabout question, but I'm never going to tell you what I'm doing anyway when it comes to M&A until I do it. So, but if it's not, there's not a lot of big activity at the moment. But I wouldn't be surprised as we get further along down the road towards 27 January 1 EPA that M&A activity picks up prior to that.

Okay, thanks. I guess I know you did that Navistar deal, and that went quite well.

We did a lot of Navistar deals. We did one two years ago, or I guess it was almost three, two and a half years ago we did. It was December of 21. That was a big deal. We bought the second largest at that time, international dealer. We'll continue to look. We have more availability on that side of the house, and we'll continue to look. for M&A around where it makes sense, right, if something shows up.

Okay. Okay, thanks. And then just maybe as a follow-up, can you just maybe talk about the outlook you're seeing now on the vocational truck side? I mean, Allison came out yesterday with quite good numbers on the vocational side. So, you know, kind of wonder what you're seeing there looking forward. Thanks.

Yeah, I mean, Ted started a little bit ago. Yeah, I bet they had good numbers. They were sold out at 3,000 or 4,000 series transmissions back in May for the whole year. So anyway, but they're managing their sales. They have their own choice. So yes, vocational is continuing to be strong, as I mentioned. And it actually probably cost us some sales because we couldn't get enough transmissions this year at 24. So that probably pushed some of those sales into 25. So that's a good thing. We expect that to continue. As I mentioned earlier, I expected, most all my vocational, I expect to continue to be strong through 2025. I'm not going to look out into 26 on it, but we do expect to continue strong vocational sales across the board, regardless of which vocation it's in, you know, driven by the, you know, government spend on those bills, on the infrastructure bills. And, you know, it That's what we expect. We're still seeing it, and that's a solid piece for us. We're in the refuse business strong also, so that's solid for us also. And our medium duty vocational continues to be strong too.

All right, great. Thank you very much.

You bet.

As a reminder to ask a question, please press star 1-1 on your telephone. And the next question comes from Abhi. R.O. Silowitz with UBS. Your line is open.

Hey, good morning. Good morning, sir. Good morning. Good morning. So, yeah, just noted in the press release that your hopeful aftermarket sales are around the bottom now. Just curious what you're seeing there to have some confidence in calling this the bottom. And also, how are you thinking about the ramp back up in sales for aftermarket? Should that be more

muted than normal uh just given the over the road continues to be a more challenged market okay well no i you know we we've seen the last mission it's been perhaps markets have been pretty flat and that's why we made some adjustments back in april that's you know what sometimes flat's a good thing when you cut expense Okay. So it's not a bad, you know, because we didn't see, usually we'll ramp up a little more in the summer than what we did given, you know, given our geography, even though we are across 24 states, given our geography of where we're at. But I would tell you that there is, you know, going into Q4, as I mentioned, there is some seasonality in the press release that it's a little softer in Q4, but that's nothing more than every year, right? Because you've got fewer working days because of the holidays. So there's, you know, it's like, it's like, you know, if you bill hours right in the shops, right. So you gotta be, you gotta be there to turn the wrenches. Well, you know, with, with the holidays, with Thanksgiving and Christmas, you know, literally up to new year's, you just, you know, it's naturally a little bit slower for those days. You know, you lose, then, you know, your air conditioning business goes down a little bit, but there's other things you pick up, but it's just seemingly a little bit softer in Q4, but that's nothing out of the norm. So. you know, a couple points or so less, and they'll cover three points typically in Q4. That being said, I just believe that as this thing bottoms out from the over-the-road guys and they slowly ramp back up next year, I would hope by the time we get to summer, I don't see any big ramp up early in the year, but I do see growth in the parts and service business When we get to the seasonal part, say next May and June, around that timeline, I'm not perfect on this, but I do believe we'll see some growth in the parts. It's more like what we typically get. I expect a more typical summertime, late spring through fall, summer included, of course, ramp up in our parts and service next year. I just believe by that time, I think the spot market is going to be better. I think we'll have taken enough capacity out of the over-the-road business. Remember, when you look at the numbers we're producing, thank God we've got a diversified customer base because we still, even though the small customer was off less than what we call our unassigned accounts, but the small, which is still 30% of what we do, are people we really don't even know. Okay? Our growth was in the national, you know, the big customers. That's where we managed was through that piece of our business. But the small person was off still 8%, 9% year over year. And remember last year, he was off 12% or so in Q3. So the combination of being off 20%, going back, comparing it to 22%, is quite dramatic for that small customer. So the numbers we're producing are in spite of those headwinds with 30% of our customers. But I do expect, you know, The comps get easier as we're starting to see. We won't have that big a downturn in that smaller customer base. I expect the larger customers to come on better sometime. They're either going to have to buy trucks or fix trucks, one of the two. So I expect that to pick up, as I said, middle of the year, next year. And I don't see any big downturn for us outside of normal seasonality because of our diversification over the next couple quarters. Hopefully that holds true, but that's just my outlook on it right now with the growth mainly pushed into the back two-thirds of next year. From a parts and service perspective, we'll continue to manage expenses the way we are and continue to, as I said, in spite of no shorter lead times on truck sales, I expect us to keep being able to push out quarters. We expect to deliver a few more trucks in Q4 Class 8 than we did in Q3. And while I can't tell you what Q1 looks like, I expect us to execute because I can still build you trucks in December, okay? So it's not like, you know, I may not have the clarity that we had for a couple years, but I've got the machine. And I believe, you know, the folks in this organization and their ability to execute no matter what the environment is.

That makes a lot of sense. And then I guess also, yeah, thinking about the rebound that you're talking about for Class 8 and late 25s, It sounds like you're thinking of that being more from improvement in the over-the-road market. And to what degree would you say that the pre-buying ahead of the emissions regulations would also be a factor in that?

There's no question. For sure. You know, everybody thought you go back a year. You know, pre-buy was going to start here, back half of this year. Well, it didn't, okay? Like I said, I could still build you a truck in December. So it didn't happen, right? Why? Because the over-the-road guy was getting crushed. You can just read all the earnings reports. I mean, LTO is good, better, but the truckload side of it, which is a big piece of it, was getting hurt. So what you're seeing is they're going to get healthier. I do believe that. Capacity has finally come out of the market. That's the hardest thing. I just couldn't take any capacity out. financial institutions were more lax than I've ever seen them and, you know, pulling the chain and taking capacity out, but that's not my business to run. And, but I think you are seeing that with all the bankruptcies and things coming out, but you still got to dispose of that equipment and that's being done as time goes on that's happened. So they're getting healthier. So people will start focusing on the regulations coming in, you know, 20 and 27. Right. So, but all it's really done is, is we thought it was going to start earlier a year ago. Now it's not. So if you think about it, what you're doing is you're compressing that demand. It's probably going to make the peak get higher when it does because you're going to have less time to take care of demand. People have been having to run their businesses and manage on it. Say, look, I'll deal with that 27 EPA rule when I can, but right now I've got to run my business. Look at my OR. As that gets better, the focus will become bigger. more on, hey, I got to get ahead of some of this 27. They're not going to pre-buy everything, but they're going to compress and try to buy a little ahead so they don't have to deal with the new technology and whatever it's going to cost, $15,000 to $20,000 on diesel and then rolling in a Bev electric and Everything else is all these rules and regs come about. So they're going to try to pre-buy a little bit, but driven by the fact also that their business is in better shape, right? Not in the shape it's been this summer, okay? But I do believe it's going to continue to get better as we move through it next year. I believe by the middle of the year that their business will be stabilized and they might be getting some rate. And now I can focus on, oh my gosh, we've got 18 months to, you know, Until January 27, I need to be thinking. I don't know exactly how that timing is going to work out, but logic says that's what's going to happen. As one thing settles out and gets better, then we can focus on out ahead of us. Right now, I'm not looking down the hill. I'm looking at the tips of my skis, right? Then we can start looking down the hill. Once we've got our skis straight and not going sideways on this. If that makes any sense, that's how I see the combination of the two.

Yeah, no, that does. Thanks for unpacking that. And then I guess just a last kind of question. Where are vocational volumes relative to longer-term kind of normal average? Just trying to understand how much runway is left of that market.

I think all of 25. I think I'm not going to look after 26 because that's a little far out for me. But I feel really good about our vocational business in 2025. Where is it compared to normal? Well, what's normal in the truck business would be my question. I don't know, but I know what normal is. It's one thing you learn in this business. It's pretty, truck sales could have some cyclicality. But I would tell you, what, 25% better than what normal is? I don't know. I mean, you know, but demand strong is the easiest way for me to say it and continues to be. And we look for vocational demand. to continue to be strong in 2025. I'm not going to look out into 26 on that yet. But, you know, as we get further into 25, I'll try to get a feel for it because we're not trying to, we're really not booking 26 business right now. So it's hard for me to see where 26 is going to be. But we are obviously talking about and booking some 2025 business. You know, and both sides, whether it's over the road or media or vocational. Vocational, we've booked more than we have over the road, I can tell you that. So we expect it to remain strong in 25, 26 is going to be hard for me to look at right now.

Hope so. All right. Got it. Appreciate the time. Thank you.

You bet.

I show no further questions at this time. I would now like to turn the call back over to Rusty Rush for closing remarks.

Well, I'd like to thank everyone for their participation this morning. We won't be talking to you until February with four-quarter release. So happy holidays to all, to you and yours, and we'll talk to you again in February. Thank you all very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.