Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc Reports Fourth Quarter and Year-End 2021 Earnings Results. At this time all participants are in a listen-only mode. [Operator Instructions] Please be advised that this call is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Mr. Rusty Rush, Chairman, CEO, and President. You may begin.

Good morning, and welcome to our fourth quarter and year-end 2021 earnings release conference call. On the call today are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Derrek Weaver, Executive Vice President; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Vice President, General Counsel, and Corporate Secretary. Now Steve will say a few words regarding forward-looking statements.

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include 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, 2020, and in our other filings with the Securities and Exchange Commission.

As indicated in our news release, we achieved annual revenues of $5.1 billion and net income of $241.4 million or $4.17 per diluted share. In the fourth quarter, we achieved revenues of $1.3 billion, net income of $68.6 million or $1.18 per diluted share. We are proud to declare a cash dividend of $0.19 per common share. Throughout the year, healthy consumer spending and an overall strong economy led to increased demand for new commercial trucks and aftermarket services. That said, component supply chain has negatively impacted the production capability of truck manufacturers and aftermarket parts component suppliers as well as our truck and aftermarket sales in 2021. Demand for trucks and parts and service remained strong, expensive from our large fleet customers. We remain committed to our strategic initiatives and to diligently managing expenses, which contributed to our outstanding financial results this year. We grew our network of Rush Trucks substantially in 2021. In addition to adding three new locations in Arizona, California, and Illinois, we entered into our largest acquisition in company history, acquiring 17 full-service dealerships and other locations from the Summit Truck Group. In January of 2022, we closed our agreement with Compass who has acquired 50% interest in Momentum Fuel Technologies. All of these changes reflect our commitment to strengthening and enhancing not only our network but also our products and services we offer to our customers. Looking ahead, supply constraints will likely continue to impact the industry through mid-2022. But we expect healthy demand for new trucks as well as aftermarket parts and services due to the country's continued economic recovery. We believe our continued focus on after-market initiatives and expense management along with network growth will contribute to increased revenue and profitability in 2022. In the aftermarket, our annual parts, service and body…

[Operator Instructions] Please stand by wheel compile the Q&A roster. And our first question comes from Jamie Cook from Credit Suisse. Your line is now open.

Hi, good morning. Congrats on a good quarter. And Rusty, you sound great. A couple of questions one, understanding energy is a small part of your business at this point, just given the rebound in prices, can you talk about if you're seeing any sort of signs of life that could be a potential positive for 2022? And then my second question relates to what you're seeing on the pricing front on the new truck side and the market share opportunity with some of PACCAR's big product launches this year, both on medium and heavy? Thanks.

Thanks, Jamie. When it comes to oil and gas, we are seeing some pick up from a parts and from service perspective, okay? It has picked up. It is gradual though. I think the -- I was speaking to people on my board, I just have been to board meeting -- one gentleman in particular pretty knowledgeable about it and we both agreed that what we've seen best -- the actions of the country really with oil business is not different, right? There's a much more disciplined approach, but it is coming back slowly, slowly working a well over here are doing -- drilling a well here. I was actually driving to South Texas yesterday, the last couple of days to and was able to see something [indiscernible] a little bit something I hadn't seen in a long time. So that's a positive. There's no question. For me to sit here today, it's going to make this huge difference in our results. I can't say that. I don't -- I think people are going to be much more disciplined especially on their CapEx approach. We have really not seen anything that I can attribute from -- I mean, minuscule stuff, but I can attribute truck sales per se to what we've seen so far, just on the service side. That's not to say that won't come, but everybody is very disciplined. You don't have all this money being thrown at it but you typically see when it's booming, it's booming historically what we have seen for decades. I don't think that's going to be the approach. But there's no question that there could be maybe something downstream. I don't see anything outsider service right now. As far as you asked about what was that Jamie?

There are two questions for what you're seeing on the pricing front? And then I just wanted to get into like the market share opportunity for some of the new product launches.

Yes. No question manufacturers -- all manufacturers are catching up to the supply chain, increase, inflationary pressure. So that is going to be passed through. No question to the end-user. It took a little while during the year. As you know, all manufacturers have different surcharges and went about it differently, but really they may have gone [better] little bit differently, but everybody was trying to catch up to those price increases and especially because you had such a disruption in the supply chain that even put more price, more cost into the supply side, I guess with overall normal inflationary what we saw going on the inflationary pressures that we had. So they are catching up. So there's no question that pricing is going to go up or is up and going to continue to go up. I think you'll see some discipline from manufacturers around getting too far out, not wanting to get caught up like they did last year when you're having to bring in surcharges and things like that. You've got a customer base wanting pricing for 2 to 3 years out, you got manufacturers that wait a minute -- and if they do, there will be caveats to protect themselves. And this goes across the board for what they saw happened to them last year, right? So -- but I do expect that they will get back to more normalized margins themselves, and that's across the board.

And then the last question, about the market share opportunity for Rush with some of the new product launches. No, there's no question. We have not just in our historical areas of responsibility that we have. But on the acquisition side, understanding the summit is in a big fleet country, I would call it. When you look at Missouri and Kansas and Arkansas, there are many over-the-road fleets probably more base there than in all the other 20 of states we're in from an over-the-road fleet perspective. The problem, Jamie, is allocation. You know it's a constraint -- the problem for us will be -- we're pretty much on the allegation. We know what we're going to sell. I think in '22. I mean it's possible that could continue into 2023, which will hamper our ability to go out and conquest other new businesses, right? I mean, we've had to deal all manufacturers and that to tell certain customers. That customer wants X, and this is all you get is Y. So that's going to put a little bit of a damper. I feel good about our allocation numbers. We were -- we got caught a little bit last year that we were pretty much back half loaded. And then we had all the supply chain constraints. So we didn't get product that we expected to get. I expect to deliver a whole lot more trucks. You look at the results we had in 2021. It's pretty outstanding. When you think that we were back half loaded and then we go and get it because [Indiscernible] good to produce. So I think we're going to there's no question we're going to change. We're going to go up. We're going to take something here. I would expect us to be ACC's up slightly 10%. I would expect us with our acquisition, again, to be somewhere up 18% to 20%, maybe, something along those lines 15 days into our deliveries, but we're limited because that's all we can get, right? So that's all you can get, it's all you can get. So that average a little bit to go out of Conquest. But I do expect our market share should go up above, obviously, with the acquisition. And I think even not being still back half loaded, but more evenly distributed from a Russia's perspective across the whole year. I do expect us to deliver more trucks for here and have a better than 4.9% of the Class 8 market with that quest. Okay. I'll let you save your voice for someone else. Thanks and hope you feel better.

I don't know if anybody else wants it.

And our next question comes from Justin Long from Stephens. Your line is now open.

Good morning, Justin.

Good morning. So I wanted to ask about the Summit acquisition. Obviously, a big deal that just closed. Any way you can help us think about the impact you're expecting from that acquisition in 2022? And maybe just after having a look under the hood, how you're thinking about the opportunity there to integrate the business and improve the business?

Yes. Let's talk about that. We'll talk about Jo -- remember, we just finished our first month of January with the acquisition. So while you do your due diligence and you do everything, but until you can do one quick test drive, and getting the car to start the engine Justin and then drive it, then you know what it has got, right? -- they've got a great group of people there. We're excited about what we've seen in the first month. At the same time, there is a transitionary period. I understand when we closed the deal on the 13th of December. Typically, historically, we switch everybody over our SAP business system, which we believe is the best out there. We believe we have more intel than anybody when it comes to that, which allows us to achieve the results we do, especially on the [indiscernible] server-side. With that said, we did not switch them. It would have been a very large undertaking that would have been very disruptive to the business. That said, we are going to switch them back to the group on March 1st and have the group on May 1st, okay? But then there's -- then you have the -- there's an acclimation period, right? They had to get acclimated to using businesses that provides a lot of deals, but could be a little complex. So that transitionary period can take people a little bit, or a little while. So those are all exciting things though. We're very pleased with what we've seen so far. We will continue to roll them into our culture. They had a great culture, but obviously, we're the purchaser. So they will roll in to be in a Russian boy, a [rush] person. But that doesn't -- [it's not a…

Understood. So you talked about truck sale expectations this year. When you think about the parts and service business, what are your expectations for growth in 2022, I guess, both organically and then once you layer in Summit.

I had told you high singles, maybe a little bit more, okay, based on some inflationary pressures from a same-store perspective. So we're looking at high teens, both on the sales side and the parts and service side with some integrated in. Okay, similar growth rates, but more opportunities over time on the barge and service end. There's no question, and I say it again, that we've got some opportunities. Like I said, you're talking about living the hood, we just crank the engine, and we haven't driven a mile yet really. We just rolled out a rolled off the driveway. So -- but those will be what I would tell you now, maybe a little bit more upside in it, but let us drive the car a little bit more and get rolling to get our stuff in there. But that's basically what I can tell you, Justin. I say we run it for January and everything is just like it's supposed to be and lots of opportunities.

Thanks and last question for me. Just looking at the first quarter, I know there are a lot of moving pieces with Summit getting layered in. I think you mentioned earlier, Rusty G&A would be up sequentially. Any way to help us think about kind of EPS from 4Q to 1Q and what you're expecting? Maybe put some numbers around that G&A increase.

Okay. When you started hitting on EPS, I'm not going to do that. Go back historically. I'm going to say, business is solid, business is great, business is good. Understand the Q1, if you look back all the time is our softest quarter, okay? We layer in more G&A. We have all the equity comp on taxes, this that [Indiscernible] in Q1 and then we level out. So when you got G&A, you got SG&A, right? I expect sales to be up. So as this will be up in my mind, okay? And G&A will be -- with summit in there, it's going to be a little murky, okay. But I do expect strong results. And you can look back at last year, I think first quarter was what, $0.79 and then roll on up from there. So I expect it will take some there and sell. The business is solid. We are on allocation and again, remember that. Remember that [Indiscernible] first quarter truck deliveries were last year, but they weren't -- they're not building any at a higher rate this year than they were in Q1 last year. So over the Steve. Yes, they were -- we were almost 3,000 units. -- okay, last year in Q1 compared to this year's fourth quarter [Indiscernible]. So we were down to 50 to 70 trucks -- from Q1 to Q4, I'm not -- I would expect -- I'm not sure we can get that same Q1 right now. We might -- we probably can do somewhere back up, but it won't be over truck deliveries, right. So because of the allocation, but I do expect the rest of the year, deliveries will -- should be better as we get into Q2, Q3 and Q4 because I don't believe we're going to have supply chain constraints. -- it will be so. There still are some I hear about them, right? There's no question, but I don't think that they will be as pronounced as what they were as bestly in Q3, remember because we are the retail delivery and a lot of drivers were lagging 60 to 90 days behind production rates as we put bodies to do this, do that and deliver vehicles. So I don't know, I'm giving a long-winded rambling answer here, but I'm trying to days we'll -- obviously, we'll -- I should say the same store, we will deliver more because of Summit. But my bet. But on a same-store basis, not -- I don't know if we'll get to [3,000 units, 2099] like we were at. But we will deliver more for sure, be with Summit in Q1. I expect it to ramp up from there as the year goes on.

Got it. I'll pass it on. Congrats on the quarter.

Thank you. [Operator Instructions] And our next question comes from Andrew Obin from Bank of America. Your line is now open.

Hey Rusty, how are you?

I'm fine.

Yes. I would say you sound almost presidential. That's how I would just start to feel.

Let's leave politics aside this morning.

So the question I have for you is, given all the inflation, right, clearly, the execution has been the differentiating factor -- your results, given all the inflationary pressures, right, when we talk to you guys, it seems that the way you run a company differently the cycle, right? It's just you're committed to no cost creep in this cycle, right, sort of keeping control over cost over the next couple of years, you've changed, I think, internal compensation metrics, you changed communication internally, right. So the question I had for you, given all the inflationary pressures that we are seeing in the market, how do you manage or how do you pivot your strategy on containing the costs while being able to grow in this environment where we're short of labor, short of components and clearly, costs are going up? Thank you.

You bet. Great question Andrew. I don't think that admin is more friend of mine recently, okay. I can't run from inflation. I can't one from wage pressure. And we are gifting that like everybody else, it is real, okay? But if you're getting it and you'll be getting it on the revenue side, right? So it's just a -- back to what we talked about. If you had told me six months ago when we were communicating, and I looked at how I was going to manage G&A, I probably had to raise G&A more G&A is going to go up next year. I can't run and hide from it. At the same time, I can manage the spread, okay? And what I get from a revenue perspective, and what my G&A embraces are, right? This should go hand in hand, except my job is to manage the things we talked about, Andrew, is to manage that expense piece around by getting it on the revenue side, but to keep that percentage difference. And that's what we're -- we're going to have to do. I can't run from higher fuel costs. I can't run from higher labor costs. We're affected like everybody else. At the same time, it becomes [spread again]. And it's not allowing to make ensure you're getting it on the other side, too. And then keeping that spread where it needs to be. It's just diligence. It's -- you're going to spend some money, but again, set how much do you spend. And that's what it's about. -- right? How much is that revenue or how much of that gross profit really we're talking about that you create. You bet, how much do you keep. I can't change where I'm at. I can't change the world…

Thank you, and the other question I have, when we do our channel checks, there is a debate about the impact of higher interest rates and the expectation of high-interest rates on the underlying economy. You've been around for a while. You touched a lot of industries, a lot of geographies. First, can you just tell us what you're seeing in the broader economy? And second, could you share your thoughts with us based on the conversations you've had with customers about the potential impact of higher interest rates on just underlying economy, not the truck cycle, but just the underlying economy, as I said, because clearly, you now touch very, very broad swath of the economy.

You bet. Well, right now, it's all been motor clocked but has not got into there, but everybody is as concerned about [that] rate increases. But business is still extremely strong, okay? And the balance sheets of a lot of these companies are in pretty good shape. Where we have an effect will be on the smaller folks the medium to small guys that don't have a stronger balance sheet or that's typically how it works. They're the last in, first out. When you got a swing when it blows up like that, the smaller and medium-sized guys or the last in, first out, and some of the stuff. I haven't really seen affect anybody's decision process yet. But if you were only -- [Indiscernible] 63 years old, going to be 64 in April been doing out of this. I am like basically, you can't run from it. And higher rates will start to squeeze off some of those other -- some of those smaller folks because they can't lever off their balance sheet because they don't have it. And they rely on leveraging themselves up. Obviously, that will affect their abilities to grow and obviously make money going forward if you're leveraged. So I don't look for this to be any different. People talk about it. I haven't seen anything slow down decisions right now, but you would anticipate given historical that day will come, but I haven't seen anybody -- remember, I'm not in touch with every customer. We are a big company. But I haven't heard anyone speaking of slowing down based upon rates. And I'm talking about these people want, but those people I talk to the larger have big balance sheets okay. So when I haven't heard it from the field yet, you would anticipate that to come from the real rate increases get in there, which there trickling in, obviously now. But that's going to -- a couple of points is not going to blow it up. So we take more than that to slow it down [Indiscernible] but it will start to slow those others down, but it goes up several points at the end, it's borrowing at the end. But again...

Yes, so thinking about broader economy, what you're sort of seeing from your customers in Florida, Texas, Southern California, you think sort of the initial reaction to interest rates should be muted other than, as you said, sort of small and medium truck fleets. Is that how I should be thinking about it?

I think so, Andrew. That's just my opinion. But a few years at it, because business is still so strong. Now if it starts slowing people's business, it's naturally going to affect growth. And that will slow down people's purchases without question. But for now, there's a little room in there, I think, to pay a little bit more interest. And a lot of people got some strong balance sheets that they're not levered up. It's going to be that small, medium guys levered a little more than [Indiscernible] but margins are so good even with the inflationary and everybody is getting pretty good. You can see the over the road still, when you look at all the rates that people are getting, which is driving inflation. But right now, it's -- I don't see it having much effect at the moment, but I it could have an effect. If we start going up substantially, a quarter-point here, a quarter point there is not going to slow I don't think. It will be just the overall economy at the moment just because the demand is so strong as still, after all the money we put in the economy in the last couple of years is still out there, you still got demand.

Yes, Rusty, in my 25 years, you are one of the smartest, sharpest guys I have met and despite sounding presidential, I would take your advice over 45 or 46. So thanks.

Thank you, Andrew. I don't know if I deserved it, but I appreciate the kind words.

And I'm showing no further questions. I would now like to turn the call back over to Rusty Rush for closing remarks.

We appreciate you taking the time this morning to listen to our fourth-quarter results, year-end results. We look forward to talking to you sooner as we'll be speaking to you about the middle of April with our first-quarter results. And hopefully, you'll be [Indiscernible]. Thank you very much. We'll see you then.

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