Good day, ladies and gentlemen, and welcome to Rush Enterprises Incorporated second quarter 2015 earnings results conference call. [Operator Instructions] I would now like to turn the conference over to Rusty Rush, Chairman, CEO and President. You may begin.

Good morning, everyone, and welcome to our second quarter 2015 earnings release conference call. On the call today are Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Derrek Weaver, Senior Vice President, General Counsel and 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 risks 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 31, 2014, and in our other filings with the Securities and Exchange Commission.

As indicated in our news release, our net income was $19.6 million or $0.48 per diluted share on gross revenues of $1.330 billion. In the aftermarket, our parts, service and body shop revenues were $353.3 million, a 6.7% increase over the second quarter of 2014. Demand continues for repair and maintenance of vehicles in operation and mobile services this quarter. Improved service from our RushCare Rapid Parts call centers and an expanding part sales organization also contributed to aftermarket revenues. Our ability to integrate and execute across all our operations with a focus on continuous improvement has contributed to our strong aftermarket performance as well. We have begun to see a negative impact on aftermarket vehicle modifications, given the significant decline in truck sales in the energy sector. We expect this trend will continue throughout the remainder of the year, and we will continue to closely monitor any further impact this segment has on our business. Turning to truck sales. Rush's Class 8 new truck deliveries outpaced the industry this quarter, up 29% over this time period last year, and accounting for 6.8% of the U.S. Class 8 market share. Deliveries to over-the-road fleets and increased new and used stock truck sales have allowed us to offset the decline in truck sales in the energy sector. Our Class 4 through 7 new truck sales accounted for 5.4% of the total U.S. market, a result of our ability to offer fast delivery of trucks and ready-to-roll equipment from our large inventory around the country. ACT Research forecast U.S. Class 8 retail sales in 2015 to reach 267,000 units, up 19.2% over 2014; and U.S. Class 4 through 7 retail sales to reach 209,700, up 4.4% over last year. Having outpaced the industry for two consecutive quarters, we expect our Class 8 truck sales may remain flat-to-down slightly in the third quarter. However, we are actively pursuing incremental business from current customers in an effort to offset declines in our energy sector new truck sales. We expect Class 4 through 7 and used truck sales to remain steady through the third quarter. In the area of growth, we launched our Momentum Fuel Technologies compressed natural gas fuel system to the industry in May, completed our rollout of regional RushCare Rapid Parts call centers and are making progress in introducing our telematics product offering. We also acquired eight full service international dealerships and an Idealease and rental operation in Georgia, expanding the Rush Truck Centers network to a 120 locations in 20 sates. Major new facility construction and renovation projects continue in California, Colorado, Ohio and Texas. Finally, I would like to welcome the employees of our newly acquired locations in Georgia, and say thank you to all our employees for their contribution to the company's performance this quarter. With that, I'll take your questions.

[Operator Instructions] Our first question comes from the line of Neil Frohnapple of Longbow Research.

This is actually Faheem on the line for Neil. Rusty, can you comment on the appetite of your customers at this point for truck purchases at this point in the cycle? Just trying to get how underlying demand is, and any initial thoughts you may have on 2016.

Well, we're obviously still trying to get a pulse on 2016. While we are obviously actively and have booked some orders for 2016, we have not really seen the full flow of our 2016 orders to come. When I look at the pulse for the remaining part of the year, is it as strong as it was six months ago, well, of course not. But is there still demand out there, yes. I think one of the most important things to realize is the fact that we have availability of product very quickly with the two OEMs we represent. There are still build slots left and we are still actively selling into the back half of this year. So I see it a little more steady. If you go back to November, December, January and February, those were some pretty outrageous months from an order intake perspective. And I think things have stabilized, but we still see demand there, and feel confident that we will be able to sell into the back half of this year and also continue to sell into 2016.

And have you seen any pick up in order cancellations from customers, that's calling concern particularly outside of energy markets?

No, we really haven't. To be honest with you, we didn't see any cancellations really in energy markets. We delivered everything that we had on order. It was just a stop in orders, right. It was a stop in the order intake side. So we felt real good about how the energy thing wound down, that we didn't had cancellations, again stuck with the trucks or things like that. None of that happened to us. So we're very pleased with that. Not pleased obviously with the stop in order intake, but that's just given where we're at in the oil and gas markets right now. So no, we have not seen really any cancellations from our perspective.

Our next question comes from the line of Brad Delco of Stephens Inc.

Steve, probably for you, could you give us what the same-store sales growth was for parts and service this quarter?

Yes. In the quarter, it was 4%.

And then, Rusty, I think in the most recent calls we've done, I think you expected mid-single digit parts and service revenue growth. Has anything changed there, because it doesn't look like you were as impacted as maybe you were fearing from the energy exposure in parts and service, any update on your outlook on that business?

Well, I mean, I think the biggest impact is I mentioned in my notes, in my comments earlier, was the fact the loss of incremental up-fitting, right, all the up-fitting that comes with that industry. So that has been probably the most significant loss. We still see from a mobile service perspective it's holding in. Again, we continue to monitor. It's not on a weekly, but a daily basis as to where we're at and have throughout this year, but it's still hanging in there and holding steady. So we feel good about that piece. I see nothing to say it's going to change right now, but we'll continue to monitor that as we go forward. The biggest impact has been the lack of truck sales and the modifications that come with that, to be honest with you. That's what we've seen is the biggest impact. And also trucks are not moving as much, the water trucks aren't moving, the sand trucks are not moving as much, so we're probably not seeing as much parts and service work on those trucks that come in and out of our shops, but that's hard to quantify, but that would just be expected.

So mid-single digit parts and service revenue growth doesn't seem to be out of the question for --

No. I mean, is 4% where I wanted to be on the same-store basis, no. I'd rather see 6% to 7%, but if you could give me the 4% right now, the rest of the year I'll probably take it, okay.

Yes.

Somewhere in that 4% to 6% range, because we did have some large deliveries. And I guess I have mentioned before, from my perspective, we lost probably -- when you look at the tentacles of the oil and gas business, you can't just look at that, you have to look at all the smaller businesses that go with it. We probably lost 1,800 units in last three quarters of the year from last year that we're not going to sell this year. Again, that's why the diversification is like I always talk about, the diversification of us and from market segment perspective and also from a geographic perspective or what we believe, we're going to continue to help us offset those losses as we go forward.

And then maybe one last one, if you don't mind. Lease and rental margins I think were about 10.4%, down a little bit. Can you just talk about maybe what put pressure on that? And then also, why do you like the business and why you think it justifies the capital that you've allocated towards it?

Well, first of all, you're exactly right on the margin. It's probably our worse margin quarter ever. To be honest with you, it was affected mainly by Texas with the downturn in the oil and gas sector. Texas represents about a-third of our leasing revenue, and we got - from a utilization perspective on the rental side, just to be honest with you, here about March or so, probably could have de-fleeted a little sooner. We have defleeted now or are in the process of finishing up de-fleeting, and we'll get those margins. So we've been rightsizing our fleet here in the Texas and Oklahoma, and not so much Oklahoma, but more Texas, and can get out variable cost under control, that was really the effect. We're actually doing much better in our Idealease side of the business. So we would expect those margins to start getting back more towards normalizing by yearend. They'll be better in the third quarter, and then they should be better in the fourth quarter, getting back to more normalized rates from the past. Why do I like the business? I enjoy the lease and rental business. I realized we don't view that -- we're not in the real rental business. Yes, we got caught a little bit here saying our rental fleet in Texas in a [one off] [ph] deal, but it's nothing we can have it overcome and can't overcome. The leasing and rental business is a major piece of what we do in being a full service organization. It's a part of everything we do, whether it comes to RushCare systems to the CVR, CVS solutions, to the leasing and rental business, to finance, to everything. We are the people to go to, when it comes to being a full service solutions provider. And that we're always going to maintain that piece, because it makes sense. And again, I'm really in the leasing business. You got to understand over 80% of what we do are long-term leases, five, six years or longer so, we match that dollar for dollar from a debt perspective and run it conservatively and run it on down.

And I guess the question is there wasn't material write-down in the quarter in terms of the inventory of the leased trucks. And I kind of also view it, is it fair to say, it's somewhat of a captive parts and service customer as….

I guess I left that piece out. Obviously, it is a captive parts and service customer for the organization, there is no question about that.

And it also provides you inventory for your used truck sales?

Well, if you can go back historically, I don't care what cycle, and since what we've been probably 19 years, there has never been a year that we lost money in gain on sales. We run it very conservatively to make the majority of our money coming out -- a lot of money coming out on gain on sales, regardless of where we're at on the truck cycle. Even whether it was 2009 we broke even, we didn't lose money. Again, if you did that on that year on the used side, you've done pretty good. We do well, very well. And when the used truck market is good, and we've done very well over the last few years, to be honest with you. And also by doing that it allows you, when you do get into moment like this, when you get caught in Texas, it allows you to go ahead and defleet without taking big write downs, you're just underutilized and that's what cause the margin deterioration.

Our next question comes from the line of Jamie Cook of Credit Suisse.

This is actually Ben Xiao on for Jamie. So my first question is actually a follow-up to the first one on 2016. I'm asking just because the street is forecasting pretty solid earnings growth and we did see a major OE come out and say, North America truck is likely at peak. So I know you don't want to guide specifically to 2016, but maybe you can talk a little bit more about the puts and takes that we should be mindful of. For example, maybe momentum spend slows down, SAP spend goes down, and you can gain share here and there. I guess, what I'm asking is if the forecast are true and retail sales are maybe 240, do you think you can improve earnings in that down market?

Well, first off, I never give EPS projections. As we hone in on 2016, I'll give you some macro numbers and you can take it from there with your business model or Jamie can. But yes, I'm in line with ACT. I don't believe that we're going out. Is 2015 a peak from actual deliveries? Yes, but whether we're at 235 or 240 that's still the second best year in years. So if we can hold in at that number, I'm very comfortable and confident that we'll have a very nice year. I'm not going to speak to whatever the analyst have us out there at next year. Am I comfortable with weakened [performers] [ph] as well as we have this year? Probably so, because we do have some things that should be kicking in next year, whether it'd be on the telematics side, whether it'd be from a -- there's many initiatives we have undertaken that people don't understand, whether it'd be on the procurement side, whether it'd be on the process side. I think some of those, if you really dive into it, look at our margins this quarter for parts and service were the best they've been in two years. And I think some of the investments we're making behind the scenes, I'm not going to guarantee that right now, but looking it, I want to see a trend go through the next few quarters. We will see our parts and service margins I hope maintain where we're at, which were the best we've had. But again, you asked me about truck sales, I believe I'm going to go with ACT’s number, I will say, maybe 230 to 240. I might even be a little lower than the 240, but again that's the second best year in years. And I think with the initiatives we have had going on, we can have a real solid year.

And then my second question maybe for Steve. I guess, how should we think about capital allocation going forward? You guys are a much different organization today with a lot of higher aftermarket exposure, for example, particularly if you can touch on like share repo, just given how your stock is traded recently. And I'll get back in queue.

Well, that's something we're strategically looking at right now. The company is still generating good free cash flow and we're looking at our share repurchase program, continuing acquisitions, and actually more strategic investments to drive backend margins, what Rusty just spoke us. So you'll hear more coming from us on that, but we are definitely interested in taking a very strategic approach at that capital allocation and specifically where the stock is where it's at now.

Our next question comes from the line of Rhem Wood of BB&T Capital Markets.

I want to touch on guidance for a second. Your third quarter Class 8 guidance flat to slightly down. You said that in the second quarter, but is up 15%. Even if it's flat-to-slightly down in the third quarter it seems, worse case, you'll still be above your annual unit targets that you gave, and I guess, how much visibility do you really have? And do you think you're being overly conservative?

No, I would definitely believe we'll be slightly down in Q3 over Q2. Sometimes there are timing issues where we're at. But we are still selling. As I said, we are still actively selling and could sell trucks and deliver them in the third quarter. So I mean, Rhem, for me to get exact on this, there's a lot of timing that goes on. When we're selling, we're selling a lot of large fleets. And sometimes a couple of hundred can fall right on the cusp for being booked in one quarter or the next quarter, right. It's all a matter of timing on those issues, right, which can make a swing, where it falls. I do believe though that we will be slightly down in Q3 on trucks deliveries. At the same time I feel good about where we're at, and I feel good we're going to close the year strong as we still have build slots available to sell, which when you look at other OEMs, they don't have as many build slots. And other OEMs in the marketplace, they don't have as many build slots to sell into. So we believe that we're out there trying to create customer demand everyday with our 300-plus sales people on the ground. We believe we would able to take advantage of that and close with like I started the yearend, and as I said, we would sell more trucks. If you go back to the fourth quarter conference call in February, I said, we'll sell more trucks this year than we did in 2014. I believe it's not going to be up as much as the market given the hits I'm taking at energy, but given the diversity of the markets we go to, we will offset a lot of…

And then on the medium-duty side, I mean you kind of agree with the ACT's forecast that it will continue to pickup slowly through 2020, I mean do you see that market continuing to gain steam?

Sure, I do believe that. I believe the medium-duty business will continue as you see dynamics change in freight, right, as things continue, as the model for freight distribution continues to change, I believe medium-duty will be consistently strong without as many bobbles in it or not as cyclical as the Class 8 business over the next few years, I totally do agree with that.

And then maybe for Steve, the interest expense was up a little bit in the second quarter. Will that come back down in the third quarter? What should we use there for good run rate?

The inventory level kind of was peaked at the beginning in the quarter. You saw it come down from Q1. It will probably settle down a little bit from Q2 levels, because inventory levels will be little bit less from this point forward, but it will be in that same ballpark, maybe little bit below what we saw in Q2.

And then just a couple of numbers. Can I get the same-store absorption ratio and then the margins for Class 8 medium-duty line use?

Same-store absorption ratio for the quarter is 119.1%, I think Steve.

Yes.

It was 119.1% compared to 120% last year. So real close to about the same.

And what'd you asked for margin by truck segment?

Yes, Class 8 medium-duty line use?

Class 8 was 6.6%, medium was 5.7%, light-duty was 5.3% and used was 10.6%.

And our next question comes from the line of John Barnes of RBC Capital Markets.

Rusty, recognizing what you see on the parts and service side, and maybe that mid-single digit growth, I mean are you having to make any changes to staffing there, anything from a cost perspective, or is that still robust enough that you actually maybe still need to add a little headcount? How do you view staffing and wages as part of that mix?

I would be honest with you. I think we're staffed about properly at the moment for the market where it's at. As long as we can maintain that mid-single digit growth, you really are not looking to downside, you really can't. It doesn't make any sense, because you're always balancing a level of service, right. You build a reputation on your quality of service, your level of service, the expectation of the customers. So yes, that's a balance between 10% and 6%, as well as I'm off or whatever I'm off 4% from a 10%, I still cannot, I don't have that leeway if I'm going to provide that level of service. I just have to suck it up and do it. Now, you start talking about going flat to down, well, that's a different story. But if you can maintain it, at least that's the way I run the business, if you can maintain it inside of those numbers, then you really do your staff to remain committed to your reputation providing a service level above and beyond anyone else.

And then going back to the conversation about just the outlook on Class 8, obviously I think a lot of the discussion has been around oil and gas. But we've seen, I guess, among the larger carriers that average age of the fleet just keeps coming down rapidly. I mean, I think [indiscernible] reported today that 1.7 years or something like that. I mean, it's about the youngest fleet I've seen. Are you anxious at all or are you nervous at all, that that's been such a driver for Class 8 demand and replacement demand as the age of equipment? Is it coming down sufficiently enough that it puts some pressure on Class 8 demand or is that still just very isolated to the larger, maybe more well-capitalized carriers, and therefore the customer base you normally sell into is still dealing with an age problem.

I'd be asleep at the wheel if I didn't say that that I am not -- do I watch that, do I monitor that. Am I pretty cognizant of where most of the major truckload guys are, yes, I am. Is that concern me? A little, but I don't believe that it is total filtered through the whole truck with the freight orders that's out there through all the mid-sized carriers down to the smaller carriers et cetera. I don't believe -- well, yes, of course that's probably one of the dampening effects, when you look at why numbers will come down next year. Numbers have to come down, given that the larger carriers have -- but I will say this we've booked some orders with larger carriers already for next year. So I am hoping that that continues. The upside to a lot of it is that that people that have not taken ages of fleet down like what numbers you're mentioning, which that is a low-low number obviously. There is still much fuel economy to be gained by new equipment. And as long as the used truck market stays somewhat stable to where they are able to trade out and get to that better performing, more efficient performing vehicle, then you should continue to see replacement. Now, but am I well monitoring that, you better believe I am. But I don't think that it’s still throughout the whole trucking industry, okay, so be it.

And then lastly, you brought up the question about used equipment, and we've seen prices. I think a couple of the carriers have already shown much larger than expected gains on sale of used equipment in the quarter. Anecdotally, it's suggesting that that market is still is very robust and there's still not enough used equipment to meet demand right now. What do you see in trend line on that side? And then, if we're going to see a decline in just Class 8 orders and that kind of thing, does that scenario begin to reverse itself? Do you start to see some normalization on used equipment prices?

From our perspective used equipment prices were pretty stable. I mean, look at the average price, but I know that our margins are about the same. Actually, we were up $2,000, $1,500 in average price of used, but a lot of times that has to do with mix and other things. But used truck prices have remained stable, which are good. When I say stable, that's not a bad term. You got to remember we've been in a pretty buoyant environment, the last three years running. So as long as it maintains, the only thing you -- look, I've been doing this a long time. What you do have to watch out for though is usually it's pretty simple equation some times. There is really two things that go into it, and that's how the economy is doing from a demand perspective, and your supply side is pretty easy to predict. Just look back in history and see what was built. So we're fixing to get in to some larger years, where there should be more supply, so it will be interesting to see if the economy -- and if the economy is good, they're not over-the-top years. We'll be able to absorb them. But if we do start to see some slowdowns, then you would probably see some negative impact to be honest with you, maybe 12 months from now, I'm hoping not, but that's you just have to watch that carefully, because the supply side is going to come up from a used perspective. It's really easy to figure out.

Our next question comes from Andrew Obin of Bank of America Merrill Lynch.

I have great news for you. Apparently Donald Trump is headed to Laredo, Texas to inspect the border.

Well, guess what, I've got plenty of folks who work in Laredo, in Cotulla. If he happens to be driving down there, which I kind of doubt, I'm sure they'll be happy to say hello to him.

A question on parts business. A, could you just go into more detail, the margin versus some of the strongest margin we've seen in a couple of years? And then could you break out for us just in terms of growth rate into pieces, if we could look just into oil and gas, core truck, and then all the initiatives that you guys are sort of putting into the business to make sure you outgrow the end-market? Any way you can sort of break out the cost to give us the better --

The last one, that's a tough one. To break it out by that, I can tell you oil and gas could remain down. I think that's an easy one. I could still hold a whole lot less parts and service into oil and gas this quarter than I did last year than I did year-over-year, I can promise you that. But let's talk about the parts business as a whole. I think I can do a better job by answering that one. The management of our parts business, we look from a strategic perspective that the parts business is one of the biggest opportunities we have going forward as an organization. If you look out there, think about the parts business as a whole, we are actually only 4% of the total parts business. We don't have the ability to capture a 100% obviously, because you've got proprietary stuff and engine stuff that we don't represent. But we have well more than the opportunity to capture, well more than half of that. So if you look at that from our perspective, at least that's the way we do it internally, we have a lot of opportunity there. We have been working very hard in the parts business. And there's no more, bigger and stronger, initiative we have over the next couple of years than to improve our penetration into that market. And it comes not just from a sales perspective. Yes, sales, when you hear me talking about our rapid parts call centers and things that we roll out to get better customer service, those kind of things are important. But it also comes from procurement, it also comes from managing your parts business, it comes from managing your core business, from managing all these different initiatives that we have…

Let me ask you in other way. Let me ask you this question in another way. In a market where your deliveries are flat and in a market where oil and gas business is stable, what should the growth rate be for this business?

If oil and gas was back --

No, no, flat. Oil and gas is flat and truck deliveries are flat.

Flat was where I am at right now, this should be where we're at right now. I would hope that we would be able to manage from a revenue perspective along the lines to that mid single-digit growth, given some of the sales initiatives we've taken on. And hopefully, continue on, that the margin -- we've picked up some margin in the last couple of quarters and continue to pick up a little bit more margin and that through some of these other initiatives. So given flat with where it is now, which is hardly anything other than servicing some stuffs, there's not a lot of part sales that are going into the oil and gas industry right now that we add though, so we could manage to that mid single-digits up and then increase margins just a little bit, I would be satisfied.

And the margin expansion as you've noted is just your internal initiatives, right?

I believe so. It's a little early. Remember I said twice, it's a little early for me to totally pinpoint it, where it came from this quarter. But I like to believe that our better management, our better internal asset management is starting to show besides just on the sales side and our better go-to-market procurement from a procurement perspective is starting to show. But let me watch it over the next couple of quarters, and I'll be able to give you a little more solid answer on that. I want to see stability. As I talk with my folks all the time, I'm not a flashing the pen one time kind of guy. I need to see it's solid. I hope to make it trend line. So let's all get out to and let's continue to execute, then I'll be happy to talk more about it as we go forward.

And our next question comes from the line of Brian Sponheimer of Gabelli & Company.

Rusty, for you on the medium side, what were the medium duty numbers on a same-store basis, looks like it was down?

Let's see, probably was. We didn't have a real good bus quarter. I can tell you that. No big bus orders this quarter.

They were down 95 units.

Down 95 units, Steve said.

If I'm thinking about that, so you're saying it's mostly bus. And how much of the medium-duty market is exposed in those energy markets as well?

Not a lot of it, to be honest with you. There is of course some, but more majority -- Class 8 gets much more exposure than the medium-duty market does to that, at least from our customer base. Actually, I think the bus was down in majority of that 95 or more. Bus was down more than that. If I look year-over-year, what was bus last year, Steve, because that's included in the medium-duty. We haven't had any super-large bus orders. This year we've got some stuff working. If you look at that, bus was 564 last year, was 183 this year. So you can obviously see this normalized medium-duty business was up. When you start talking about all four units or so, and we're only off 95, so your more traditional Class 4 through 7 customers were up 300 units.

And bus is primarily through IC Bus or there are some other main --

No, no. It's IC Bus, but it's also Blue Bird. We're a Blue Bird bus dealer in state of Texas. So it's both. And on the bus business, it has not been as robust so far the first half of the year. We do have some stuff working. I was just talking to the guys here about it earlier, as I saw those numbers, and we looked at it. We do have some things working. But we had a couple large orders the last couple of years, to be honest with you in some large areas that we have not had a large order, probably large significant three-digit order from anybody this year in any of the districts that we sell through. You got to remember, we enjoy the bus business. It leverages very nicely with our truck business, especially on the IC side. So we just haven't had -- over the last couple of years, we've had a couple of very large orders, and we just haven't had any super-large orders, just the normalized district stuff.

And you spoke about pricing before in the used side, and obviously that's been a bigger issue for Navistar than anything than on the PACCAR side. Just talk directionally whether you're seeing any firming of prices on some of the EGR products and that has had ability to potentially help you sell more trucks down the road.

You bet. I talked about that before the last quarter. I haven't had any call, and nobody asked me about it, but no we've continued to see stabilization, because you got to remember before you go back to the year ago, it was bad. I mean, anything on the EGR side, it was basically we were selling 10 units a month, hit that, and what we did it outside of that was auction and it was terrible. We have worked extremely hard to -- obviously they have come up, first off, it talks about starting with the product. They, with the campaigns, and when the product is properly handled and done and campaigned properly the product will work in the market, okay. We're starting to get in to the later year model stuff, the 2012s, which were in '11, and then into the '13s, and that product was better than what was built prior to that than the earlier model products. So you add those two things together and you got a better product to begin with. Well, then you've got a excited sales force and you have to educate customers. So we have worked extremely hard to do that to where we've gone from retailing 10 a month to we're retailing 80 a month just in this last four, five months. And we've done it consistently over the last three or four months. So we believe that with that, that is going to help energize our retail sales of international Navistar product and we adjusted the cusp of that. But I do believe as we have proven and we've -- and its worked for the used buyers we have them selling to. The product is performing and executing. We're not having always disastrous stories or anything like that because we're making sure we hit all the right steps. So I feel good about what that will do for us going forward on the retail side, on the Navistar side. You got to remember the biggest growth that we have in this organization is the Navistar division. That division has more upside, you can look at it, say, well, its not performing like the Peterbilt division, but let me tell when you -- I look to a glass half; I don't look at glass when usually it's overflowing. Most people say, well, Rusty is excited, but at the same time, I look at that as opportunity and that's how we're viewing it and that's how we're approaching it and that approach on the used truck side is already paying for us. We hope that to fall over to helping us sell new trucks as we go forward. So we're very excited about that as we go forward, because obviously they still have build slots available and lots of them and we want to be a big participant in filling those build slots.

Any sense on their customer base, so there's people you just can't go back to because they've been burnt and they'll just never buy another international truck again?

Well, there are some people going to say that, you better believe there are some like that, but we believe that given through even the hard times, even as tough as it was, there are people that understand what was dealt with and saw that everyone was doing the best they could to deal with the very, very difficult problem. And so we believe we still have maintained some very large customers. Did we lose some? Of course, we did. But have we maintained some, you better believe we have through the initiatives. I can remember two years ago, when we were working 30 technicians in people shop, helping them campaign through all the problems and everything that was going. People remember that. This is a small industry. And as industry, we've built on consistent relationships and consistent service and we like to believe that what we did then have helps us continue to maintain a lot of those relationships, and at the same time we are working very hard to go out, and the product -- now, it was down to what's the new product. Well, the new products a good product, okay. There is nothing wrong with their 13-liter engine, with the after treatment and the SCR system on it right now, I can take you to couple of customers I know who says it's got a few mileages, anything in there, and as reliable as anything they have in their fleets. And obviously the Cummins ISX inside of the Navistar product, and inside of the ProStar has performed and is continuing to perform in the field, so it's just an evolving story. Everyone has always wanted to fix this with the life switch mentality or the add water and stir mentality and that doesn't work. You don't change 70,000 problems on the highway like that, but you do service it, you don't run from it. You stay with it. And you work with customers. And I do believe over time, or I guess I won't look too good for all the stores we bought. But I do believe over time that they will come out of this and it's just a blocking and tackling thing, and I am confident that over time that they will regain market share and will not -- they have their own internal initiatives, that's up to them to tell you, but they will gather some market share back over time. I can't tell you exactly at what pace, but I do believe that all the boxes are checked to allow that to happen.

Our next question comes from the line of Art Hatfield of Raymond James.

Real quick, Rusty, can you off the top of your head, I don't even know if you had this number on here. But if I look back to 2012, do you know what percentage of your Class 8 sales were to energy customers? And what that is in relationship to what it was in the first half of '15?

I don't mind trying to get that number for you. I don't want to swing at that. I don't want to swing in this man.

No, that's fine. I kind of thought, I'd put you in that [multiple speakers] put you on that.

If I remember right, it was '11 or '12 was the down year. We had one that was in '12. That was one year that I think I've got to remember back, it was one of those two years that was a down year in energy just like this year. The '13 and '14 were vague, or it was '11 or '12, I don't know which one. I think it's '12.

I can follow-up with Steve on some of that.

Steve happens to trying to get that for you though.

As I look at the second quarter, your 6.8% market share, very strong relative to kind of where your long-term history has been, but yet you're struggling on the energy side. How should we think about where you think your market share should be going forward, considering all things being equal? I know there is cycle within the different businesses.

The biggest variable, Artie, I'll be honest with you is on the Navistar side. The diversity inside of our -- I can't expect oil and gas to be as robust all the time, as it was last. And I mean, but that's the nature of the oil and gas business. I think 2014 and 2015 are what I've seen in my entire career, remember I was born and raised in Texas, so I've been around oil and gas business just a little while. So that is typical of the history of the oil and gas business side. Whether they can split in the middle, I don't know if they ever do. But its either robust this can be or there's nothing there. But the biggest thing we have from upside is two things, and that is I think PACCAR's, Peterbilt's continuing want to gain market share. I think Peterbilt still wants to maintain a stronger market share, they've shown that. That is the switch in their -- if you look at the customer base they sold to 12, 15 years ago, 10-15 years ago, to the customer base they sell to now is diabolically different. It's just vastly different. Now, that continued improvement, as they try to gain some market share. And then Navistar, Navistar getting back to where it should be. So I'm going to give you a number here in a second, but those are the two biggest things. Really the Navistar piece and then Peterbilt being our consistent 15% market share player and Navistar being an 18% market share player, let's say, pick a number, 17%, 18% market share, then we should be solid between 7% and 8%. We should be -- I'm not going to give you that 8 number, I've never hit it before. But if those were there and we were doing our job properly, we should be there.

I guess thinking that way then, I mean in the short run you're kind of at the low-end of where you should be, and you've got theoretical tailwinds on your side, given those two things you talked about.

I would like to think so, Artie. What happens is, well, probably you're going to see us -- our market share is going to be more difficult to maintain at a high rate in such a robust market. When you get into these -- our market share will be stronger in the troughs, and it's just because it becomes a lot easier to sell trucks for people. You got to think about it like that. We're going to do good. But also other folks, it opens up the market from my perspective. You'll see us -- and it makes it easier when everybody is buying trucks, they don't travel as far. You don't have to work this hard to get it. When it becomes hard to work, I like to believe we're a little better than everybody else.

On 4 through 7 sales in '16, I can't remember what you said about your thoughts on '16, whether or not you agree with ACT?

I'm going to agree that it's going to continue to just have a small moderate increases. I believe that with the transformation of the dynamics and how distribution is used to evolve, that as you get to these larger cities and these urban smoke, and the trucks are not going, I believe you're going to see some very steady nice growth in 4 through 7 for the next few years. I really do.

And no reason why you shouldn't kind of be pretty close to where your market share is now in that space?

No reason why we shouldn't be there will be better. I didn't get into this to go backwards.

I just thought I'd ask for clarification whatever it is. And look at the gross profit margin on new and used truck sales that hung in Q2 a little bit better than I thought. But if I go back to 2009, during the recession, it looks like the trough in that was around 6.5%. The mix of your business has changed a lot since then. Should we think about potential crop margins being below that 6.5%? And if so, I mean, it could break 6% and go much below that, if the mix really goes against you?

I'm not going to say anything is impossible, sure it's possible. I mean you've got to look at the mix of -- I don't believe it. I'm not believing it's going to do that. But is it possible? Yes. If it got to where -- you got to remember Navistar is more fleet-based truck, right. And so that has affected the mix a lot dramatically. So if we were to weigh heavily in that direction in our business, and historically that's been about 25% to 30% piece of our business, I know it's not a 50% piece or anything like that. If that was to shift that direction to the large truckload public carrier, you could see that margin come down some. I would hope that we would be able to continue to maintain what we had, and it would be incremental sales and we get to that 8% number right. Maybe I'll take in a little bit of deterioration, but at the same time the absolute dollars slow up, where you're looking for them from. So you got to balance, you have to understand where you sell your trucks into. And we try very hard to understand those market segments. So I could see it taking some hit, if that shift moved from that 25% or 30% to a 40% piece or something in what we do. Now, I don't know that, don't believe that's going to happen. I believe that as international gets the brand continues to come back. I believe that we're going to sell into those small and mid-sized carriers, which is the hardest, which is most difficult piece we're having right now, which I think is the most opportunity on the international side or the small and mid-size. We're still selling to some large carriers. We're not selling as much to the small and mid-size. So I would hope that I'll be able to raise the Navistar. That's my plan is to raise the Navistar margin overtime by diversifying the customer base.

And can you also do that and does this kind of the thought process in that regard, where you say, you're taking more market share, but you're getting a little bit of a hit on the new truck sale gross profit margin, but you're going to follow that up with parts and service and that maybe changes the return equation. How you think about that?

You know what, Artie, I like the way you think. Of course, it does. You know we sell trucks, just to service them at the end of the day. We want to be a service organization, everybody always gets caught up. And remember what I always tell you, there was the old adage in this industry was you know, the sales department sold at the first time, and then the service department sold the second time. But we want to continue to allow our service to sell to more people the first time, not just the second time. So yes, at the end of the day we're driven by service and parts on the sales side. We understand, that's why all these our initiatives we have going on, you know exactly what it is. You need a job while you're thinking right.

Just a real quick on G&A. I hope my numbers are right on this, but my calculation is, and I know I'm pretty right on this, but revenue in second quarter versus first quarter sequentially grew a little over 11%. I calculate that G&A probably grew a little over 5% in Q2 from Q1. Is that kind of the right relationship or was there something going on in Q2 that was either beneficial or detrimental to G&A?

Well, it grew I think -- if you want same-store growth it was 3.8%. It was 3.8%, same-store. At the same time, is that more than what I want? Yes. Am I pleased with it? No. Am I hopefully pleased some of the results we're going to see or are seeing with maybe some increasing, as I mentioned earlier, we've had a lot of corporate initiatives going on here. Running 50 stores and running a 120 stores is just a little bit different. And we're working very hard on the process side, we're working very hard in the asset management side and we have added expense to that side. And I hope overtime that maybe that will help expand some margins and allow us to run this thing a little better, and after that we'll make adjustments as we go.

Well, is it just a lot of blocking and tackling from kind of top end of the company standpoint, just wrapping your mind around running all those incremental stores and finding out the best way to do so?

Well, that's part of it, Artie. And it's doing a better job, right. It's doing a better job than you did when you're in '15. The end result is I want to run the 120 better in '15. Now it may take -- it's a chicken in the egg sometimes, right. And you make those decisions and you head down those paths, they are not one quarter decisions. It's not a path that just started this quarter. It's been going on for about the last 12 months. And I hope to be seeing the end of that expense side. And I hope we continue to see on the other side, coming out of the funnel on the margin side and on the net profit side. We believe we are getting our -- at the same time, we just finished rolling out all our SAP stuff. We're hoping we had to keep trainers on through the summer, et cetera, more longer than we anticipated. I mean, I don't want to get into mirror the things. I want that to come down, but I also want to do a better job of running these locations.

And just one last one on that real quick, and maybe you're in the process of figuring this out, and this is part of what you're going through. But of the G&A, do you have a breakdown of what's fixed and what's variable or are you still trying to kind of with the increase in stores wrapped to your mind about what that is and what it should be?

Well, it'd for me, I'll look at either fixed and the semi-fixed, et cetera perspective. I wouldn't call it variable. Variable means a commission. When I look at G&A, I've already stripped those out. I don't have that number to give you right now, Artie. But trust me we manage it to those numbers. I don't have that number right in front of me, right now.

Thanks for the time this morning, Rusty.

Always, Arty, like I said, remember.

I will, I will.

Just check it.

And our next question comes from the line of Jonathan Chin of Private Management Group.

I just had a couple of questions regarding the telematic. Do you have -- I don't know if you guys already disclosed these figures, how many trucks are currently using telematics? How much time you can save maybe average revenue per visit that type of stuff?

I don't have those to give to you there. You got to remember that's a pretty new initiative. We didn't start selling product until February or early-March. And we're excited about the growth potential. We're excited about the people who have been in front of it. And I really don't want to give those numbers out of what I've got out right now already. I've got a lot of prototypes out with a lot of folks. I've got quite a few that we've already sold and installed. I've put it on my own internal fleet. You've got to remember, I've got 1,700 internal vehicles, when I say that part servicing delivery trucks that are out there and mobile technician trucks that are out there that I've pull on my own. I've got a lot going on, but I really don't want to talk about where I'm at. We're very, very excited about the long-term prospective of that given our footprint, given the focus I'm going to look at on how to work on increasing that footprint and how we can do things maybe a little different. You've got everybody. Telematics is nothing more than a highway. Let's understand telematics is a word that is a highway, it's the usage of that highway and what you do and how you integrate it and how you support it. Who can support it best, right? Is it the OEM? Who can do it? We believe we're going to have the best mousetrap when it's over with. And I know I'm not giving you quantitative numbers that you're asking me about, but I'm not ready to do this. But again, I've been into it four months really. I've been putting its platform for four to five months now. And we are very excited just about where we're at. I mean, I could talk to you about it, a presentation they were telling me about elevator this morning, we got 2,500 trucks today. We're in the front of a lot of people. I'm working really hard at it. And we think we're going to have very good mousetrap at the end of the day.

I appreciate it. Look forward to hearing more about it in the future.

I would be much more informative when I have more to talk about. But trust me, we are clicking some revenue. Is it anything that's really meaningful right at the movement? No. But are the possibilities, then the excitement that I think the way we -- remember, it's all about the differentiator for us is keeping people up and running and when we can do that that allows us to go to market different than our competition. And we like to believe and we're going to focus on that, plus I've got a lot of other initiatives. We've got, as we strategically laid out some other things, as we continue to look forward to continue to make sure that people understand we are a service company first. Yes, we sell trucks, but we are a service organization first.

And maybe just ask you this slightly different way. Within your own fleet, do you have any uptime matrix relative to --?

I do, but I don't have them on top -- yes, you better believe I do, but I don't have them on top of me. It's whether, it's saving the -- it's the ideal time. I mean, it's even goes into safety, right, speeding, how I've governed all my internal vehicles back now. When you find people running 90-miles an hour down the highway all of a sudden you figure out you're going to govern back all of your pickups, right. I could give you things like that, that we have found that really sometimes it's hard to quantify, but you know if somebody has got a 75-mile an hour top end speed instead of a 90 some, so you're going to be safer, right. And I can get you better metrics on fuel consumption and things like that, but I don't have them in front of me right now, but we'd be happy to follow-up with you on that kind of stuff.

And our next question comes from the line of Kristine Kubacki of Avondale Partners.

And just a quick question on inventory levels, you mentioned earlier in the call about that, it seem like your inventory levels have peaked in the first quarter and a bottom down. It seems like you seem pretty comfortable with your inventory levels. I was just wondering if you could comment on maybe that ACT numbers and maybe they're not even accurate. But it seems like they're reporting that inventory levels at the dealer levels across all OEMs is at a level we haven't seen since 2006. Does that worry you at all? And how do you -- and I don't want to put words in your mouth in terms of your inventory levels, but it seems like you're pretty satisfied with where you've brought your inventory levels down to.

Remember when you look at inventory, you got to split it in two pieces, right. There is true inventory that's being held for looking for a customer for sales called stock inventory and then there is in process of delivery inventory. You would expect inventory levels to be at a pretty high mark right now, given how much is being produced right, because that means it's flowing through those dealer network, right, so they're in process, the delivery trucks is going to be up. If you really need to get into the part that's what we -- I don't measure, I don't look. You'll look at it as one lump number. We don't manage the one lump number, trust me. We truly understand what are stock inventories and what are in process of delivery truck. So we are comfortable with where we are at right now. I wouldn't mind if it was a little higher, that roll-in process of delivery, right. That means I'm going to get paid for them. But my true stock inventory, I'm comfortable with the levels we're at right now. As I said, that's why it's hard when you're just looking at one aggregate number unless you understand the breakout of it. So I'm not bothered by mine. I have not seen the numbers of other dealer inventory levels. I am going to suspect that the majority of the increase are just trucks that are flowing through the system. So you've got more of them flowing through, so your aggregate total is going to be higher just naturally, because the delivery is going to be higher.

I guess, and maybe I'm making this too simple. I mean, obviously I'd love to see the statistics, which we know what those two buckets are. But it looks like production across the industry is running 31,000 units a month, but retail sales is running below that, and I'm talking North America. And so it suggest that inventory levels are going up across --

I would suggest that you better believe you're right on with those numbers. That's not indicative of ours. So I'll be honest with you, our inventory levels, I don't believe are rising at the moment. I mean, when you say, they're within a 5% variance. So I don't look at that as rising. If they were up 25% or 30%, I might say it was. But they're going to ebb and flow within 5 points either way. So we're inside of that range right now, as an inventory, from our true stock inventory, my true stock inventory.

Sounds like you're in a much better situation than maybe some others though. I appreciate it, thank you very much for the time.

Yes, some people might get little low results.

And our next question comes from the line of Joel Tiss of BMO Capital Markets.

Hey guys, this is Richard Carlson in for Joel. Thanks for squeezing me in real quick. So most of the questions have been answered and Joel definitely told me, if there are a lot of good questions, just sneak in and add some bad one. So just want to make sure that we're on the same page for the energy exposure, I think you've said in the past, 20% to 25% impact. Just from that so we understand you guys have a lot of offsets in the works. But just so we're in the same page from where we're starting from, is that still the right level?

Remember that's from an EPS perspective.

So it's from that $2 from last year sort of it essentially [multiple speakers].

So when you start the year you look at it as say $1.50. There's say $1.50, $1.60, say $1.50, $1.55 that would be your baseline. What we grow over that is we're making up for oil and gas loss with other initiatives we have. Correct.

And then you said that 1,800 unit decline for the final three quarters of the year. Was 2Q and you're in line with the expectations? And what's kind of left for the back half, I mean you've got to be delivering a lot.

Q2 was probably the smaller in the three quarters. So I'll be honest, so let's say it was 500, 600, 700, go like that. And remember, this isn't the exact science here, because this is not just three customers we're talking about, it's a long list of customers that get touched, like I've talked about before. So the guy that builds the roads, the guy that holds the metal to build the building, it's down over year. And we've worked very hard scientifically, exact as we can, but it's a little bit unscientific too, at the same time trying to understand the pinnacles. So these are just -- I'm a very open book with every, and these are what we've done, the studies we've done, the time we spent as to how we manage, find the right-size and manage our business. That's what we saw. And so I would say, look at it like a 500, 600, 700 type of answer to you, and that's going to be 500 to 650 in Q3. So more in Q3 and Q4 to offset than it was say in Q2. So that has somewhat to do with me saying, deliveries will be down from Q2 in Q3. But I am still confident in my annual number that I gave you at the first of the year that we will be up over last year, just a different kind of year.

And then the modifications that go on with those, does that hit the new and used commercial vehicle segment or is it parts and services?

It hits both. It depends on how it's been at. I don't mean that to be vague with you or anywhere else, it depends on how the customer wants to pay when it's done, there is timing issues. So it goes in both columns, I'll be honest with you, and is a bi-customer prospective, now that's dispatch and look how it's done.

And the absorption look really good. And I guess down year-over-year technically, but one of the best numbers you've had historically. So can we look out despite with some of the energy headwinds, and think that absorption can still in that the high 1-teens level.

I would say, if you balance the next two quarters, you better believe it. I would hope that over the next two quarters that we can definitely manage to that, blend in, getting exact to 1% here or 1% there sometimes. There are some variables that go into each quarter. But over the next six months, yes, I will be comfortable and confident. And at the same time, very, very proud of my organization to being able to maintain that with the headwinds that we traded like. But that has to go back again to the diversification of our geography and diversification, and really the focus of our people to help try to offset this throughout the organization and the energy related.

And then just last one, just following up on Navistar, I think you mentioned earlier that there is about $1,500 bump in used rig prices this year that you guys saw, and is some of that mix from Navistar. Are they starting to finally get a little bit of a bump in the market for what those trucks are worth, especially as you mentioned some of the 2012s you're selling, and so some of the older ones are the ones that are least wanted on by the market are kind of disappearing?

Yes, there is somewhat is that in there, but $1,500 was the overall average of what we had. That was everything. I don't have it bucketed for you international [multiple speakers]. Instead of wholesaling the auction, yes, I'm getting more for my international products than I was a year ago just this mix. And yes, I don't have that number for you, but the answer is, yes.

I was just trying to figure out that gap between the book values and the market values are starting to, if maybe also with the market acceptance, you saw a big number come out yesterday that there they sold, so it seems like there is some market acceptance going on. Just wondering if it's time to trickle down through the use equipment market as well?

We believe it is. Remember, earlier I walk through all the reasons as to why we're able to get value. Of course, we're creating a more valuable product and we're focusing on it, and we're going out and we have to go out and sell it. People are not going to show up on the yard to just go and buy an EGR product. You have to go prove it to people. And we have taken initiatives with test trucks et cetera, et cetera doing a lot of different things to get to where we're at right now. So we hope that that can in the future bodes well for our new truck sales that we're continuing, because remember, everyday that goes buy, the good thing is there was an endpoint when the engines were created. So everyday that goes by, they'd appreciate a little bit on the balance sheet everyday that goes by. So that gap continues to narrow between absolute street value and book value. And as that continues to narrow, the opportunity should continue to increase for new truck sales.

I'm showing no further questions at this time. I'd like to hand the call back over to Rusty Rush for any closing remarks. End of Q&A

No closing remarks. We look forward to speaking to everyone in October with our third quarter earnings release. I appreciate everyone's time and thank you all very much.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day everyone.