Rush Enterprises, Inc. (RUSHA) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Rush Enterprises Incorporated reports third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rusty Rush, CEO, President, Chairman of the Board. Please go ahead.

Well, good morning, and thank you for joining us for our third quarter 26 earnings call. With me this morning are Steven L. Keller, our chief financial officer. Jody Pollard, our chief operating officer Jay Hazelwood, our vice president and controller and Michael Goldstone, our senior vice president, general counsel, and corporate secretary. Before we get started, I will turn it over to Steven for a few forward looking statements.

Certain statements we will make today are considered forward looking statements as defined in the Private Securities Litigation Reform Act of 2000. 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 discussed or in our annual report on Form 10 k for the year ended 12/31/2025 and our other filings with the Securities and Exchange Commission.

Thanks, Steven. We had a strong third quarter. Revenue was approximately 2.1 billion up 12.4% from a year ago, and net income was $78 million and $0.65 per diluted share and up 18.2% from a year ago. We also declared a quarterly cash dividend of $0.14 per share. The biggest drivers this quarter were higher new truck deliveries, and improving aftermarket activity. Rate conditions have continued to get better following a prolonged downturn. And we are encouraged by what we are seeing as we move through the fourth quarter. The quarter also demonstrates the value of the diversified business we have built. We serve a broad range of customers across multiple parts of the commercial vehicle market, giving us different avenues for growth as conditions improve. During the quarter, we completed our 50% investment in MCT companies, giving us a meaningful into the refrigerated transportation space. MCT operates 17 full service dealerships and 3 mobile service locations across 6 states. This is a great strategic fit and another step forward providing customers with more of the products and services they need to operate their fleets. Parts, service, and collision center revenue approximately $680 million, up 5.8%. And aftermarket operations generated nearly 63% of our total gross profit. Excuse me. Our absorption ratio was 128.3%. Demand improved across our customer base. With particularly good growth in energy and wholesale. We also saw encouraging improvement among smaller local customers. We expect that momentum to continue allowing for normal seasonality Trucks we are delivering from our backlog, which should also help create additional parts and service opportunities. At the same time, we are focused on operating efficiently and capturing more of our local customers' maintenance and repair Class 8 was particularly strong. We sold 3.88 thousand new Class 8 trucks in The US, up 24.4% compared with industry growth of just over 10%. That brought our class 8 market share to 6.5%. Over the road customers drove much of that growth as improving freight rates and need to replace older equipment supported demand. Our backlog gives us a good visibility into the strong fourth quarter and first quarter of next year. but supply constraints could affect the timing of some deliveries. The bigger question right now is new order activity. Quoting and orders have slowed as customers wait for clarity around the EPA's 2027 emissions rules. And, ultimately, manufacturers' pricing. We view that largely as just a timing issue. Underlying demand remains healthy. And we expect ordering activity to improve once customers have the information they need. To make replacement decisions. Medium duty also performed well. We sold 3.27 thousand Class 4 through 7 vehicles in the U.S. up 9.6% while the overall market was essentially flat. Several large fleets that had deferred purchases earlier in the year took delivery during the quarter, and our ready to roll inventory helped to serve customers. as manufacturer capacity tightened. We remain positive about medium duty demand going into early 2020. We added inventory during the quarter to help manage possible production constraints, which should put us in a good position to respond to customers who need equipment quickly. Used truck demand was also healthy. We sold 1.91 thousand used commercial vehicles, up 5.5% over the last year. With demand particularly strong among smaller fleets. Limited new truck availability and expected increases in new vehicle prices continue to make used equipment an attractive alternative for many customers. Our leasing and rental business also had a good quarter. Revenue was up $98.2 million, up 5.3% driven by improved rental utilization along with continued growth in full service leasing and contract maintenance. We expect rental demand to remain healthy into next year. As some customers consider alternatives to buying higher priced new vehicle. Overall, I am pleased with how the business performed this quarter. We generated strong growth, gained share in both class 8 and medium duty, saw continued improvement in aftermarket demand, maintained a very strong financial position. During the fourth quarter, we repurchased $10.3 million of our stock, paid $16.4 million in dividends, and ended September with $220 million in cash and cash equivalents. Going forward, our focus remains pretty straightforward. Serve our customers well, make it easier for them to do business with Rush, and continue investing where we see attractive opportunities. that is what our total solution strategy is about. We want to support customers across the life of the vehicle. From the initial purchase through parts and service, technology, leasing, rental, and other solutions. The more effectively we do that, the more valuable those relationships become, With both our customers and Rush. Finally, I wanna thank our employees. Their hard work and commitment to our cause are what make these results possible. And I appreciate everything they do for us. With that, I will take your questions.

Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press *1 on your telephone and wait for your name to be announced. To withdraw your question, please press *1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Obin. Your line is now open.

Good morning. Rusty, maybe you can just--we talked about it, Rusty, Steven. Maybe we can talk about just regulatory uncertainty and how it impacts your customer behavior into 2027? Thank you.

Sure, Andrew. Well, it is a great question, Andrew. I could probably ramble on for 20 minutes talking about it, but there is no question that getting regulatory answers from the EPA, is critical. For manufacturers and customers alike. Right? And most people. You may roll out. Remember, I am a try to make this as short as I can. You know, the EPA came out and gave a draft back in July. About what the changes they were making to the 27 January 1 rule. Basically, they said they were going to allow non-conformance penalties. If you chose that, which means you could carry the old engine that we had and still sell it. But there would be a penalty. Heavy duty was around $6.7 thousand medium around $4.4 thousand plus FET on the heavy-duty engine. Or you could bring on your new tech-garb age. Which would be, you know, meet the point 35 milligrams, whatever it is, NOx. The law has been written for a while. In doing that, you could also use credits to buy that down from point 5. Okay? 2.35. Okay? So you really had different choices. They got rid of the warranties, they said, because they are supposed to be a 10-year warranty on an aftertreatment device. Or aftertreatment. Excuse me. And it was gonna go back to the regular 1 year standard. Warranty on after treatment, not 10 years. And, also, some other provisions inside that really were not quite as expensive, but some other provisions they had out there. Now that is a draft. So it was up for review, a commentary period. All the comments came back We kept hearing we are gonna get the final decree in November. Now in the last couple weeks, I am hearing that we are not going to get it in November. there is been some things that have gone on, I think, in the EPA that are going to just--they are going to delay it. And possibly, I do not know if it is for a fact but possibly, we are gonna be told just to work off a draft. We will get the final decree out in January, February, but it is gotta go in on January 1. So it is kind of you know, it is kind of up in the air. is exactly--is that really-- Is it gonna stay the same? Are they gonna make adjustments? Will they make NCPs up or down? We do not know. Okay? But, you know, you are gonna have to go off the assumptions that the draft will stay the same, I believe, unless they do come up with a final decree. That being said, all the manufacturers are taking different paths. And that is fluid also. I do know that PACCAR is all in on the MCPs. I know that Cummins is in on the NCPs through the end of September rolling in new technology. International has gone with NCPs for probably 4 months and then roll into the new technologies through the summer. Freightliner is not gonna do that. Freightliner is going with the new technology right out of the chute. Right out of the chute. Well, I am so sure I know they got new technology. Think they might have a mix. So my point to you would be that it is all different across the board. I have never seen a law. I mean, I am pretty old. Right? In fact, I am really old. I have never seen an EPA law or decree where it was not the same for everybody on 1 particular day. So it sort of, in some ways, punted the full implementation of the 1/1/2027 EPA you know, law. to where it is sort of spread out. Some will come in on January 1. Some may not do it till the following year. You do not know. NCPs there is no close on the date on it, but it would probably go up rather large amount in 1/1/2028. So I would imagine that it will allow from a customer perspective I do not believe we have had time. To truly test these engines. that is my personal belief. So I do believe it gives customers a chance to not have to roll right into this new technology. Because everybody's after treatment's a little bit different. Okay? I could talk forever. Okay? All the manufacturers are doing about it a little bit different. I think from a customer perspective, I would be, you know, leaning towards wanting to pay some in Ps. that is my personal opinion. Enroll in and test the new technology before I go all into the pool. You know? Let's dive into the shallow bin, not the deep bin. Right? Let's ease our way into it. If I am a customer, that is how I would approach it. But I am not a customer. I am just a dealer. So. But I have talked to many of them, obviously. I just came back from ATA, and that is definitely how a few of them talk. Now I am sure some will go in with the proper assurances But, you know, the manufacturers we represent are gonna ease into the pool. Would be the best way for me to tell you, you know, as I just went through. So. But it is all over the board. it is doing which--still uncertainty driven by our great government. That cannot seem to write a final decree. But I know there is a lot of legal ramifications. They have to be very careful. With the changes. They have tried to make it easier for customers. By allowing NCPs most customers would prefer that and then test. I do not believe customers have been given enough time. Like, I know they have. It with anybody's technology on the after treatment to test it. Most folks wanna run this stuff for over a year plus. Before they roll it into their fleet because we have seen throughout history that you know, new technology is not always running just right out of the gate. Right? There are adjustments that have to be made, and sometimes there can be major adjustments. I mean, I go back to something that is as simple as going to death which we did in 2010. In fact, when we went to, you know, the blue to the death like Europe SCR technology. I am gonna tell you, there was clogged particular filters all over this country. Okay. Perhaps. And stuff. Our shops were full of these kinds of things. As we rolled into that, even something that had been running for years in Europe, we had issues with implementing here in The US. So, you know, people remember those scars, so they were in my mind, prefer to roll into it. But I am done. Like I said, I could talk forever about it. And you have got my opinions on it. It may not be everybody's, but they are mine. And so that is, you know, in that from the lay of the land, which is different depending on who you are talking to. And we are waiting to hear. Oh, you know, it would be great if we could at least get a final decree. Because no 1 likes working off a draft. And then you get stuff on order and things happen and the creek comes out. You It can get a little messy in my mind if we do not get a decree out. Thank you.

Rusty, no. Great. I appreciate your comprehensive answer. And maybe another question is on any potential disruptions to OEM's ability to ship trucks to you given potential supply chain constraints over the next couple of quarters? How that thinking has evolved? And what do you think, given that, both shipments and orders will look like over the next couple of months? Thank you.

Sure. that is a good question. As you ramp up, like, these manufacturers have, some of these folks have had 6 to 8 increases or more throughout the year. Now as they ramp slowly up, I know. I mean, I know both my manufacturers are running, you know, at full tilt. Okay? Well, what. Which happens is you put a big strain on the supply base. You know? And it is not always just the number 1 supply base. it is not your tier 1. it is your tier 2 and tier 3 suppliers that you are asking to add people, add all these resources and ramp up for a big 6 month period, but then you cannot guarantee them which is. Class a truck market's always what it is. it is a little volatile. And so you are asking them to, you know, ramp up 80%. Well, then you cannot guarantee them ramp down, and so then they gotta you know, it is about hiring people, training people, getting going and giving them. So it does put a strain. What I am saying is it really on that tier 2, tier 3? There are some cases of tier 1. I am not gonna get specific. But it popped up here in the last couple weeks. That are going to make some of these deliveries get stretched out. And it is not 1 OEM. it is all OEMs that are affected. Okay? So do not let. I think, you know, some people make it but it is. No. it is it is the OEMs we represent. it is the ones we do not represent. So what happens is you are trying to keep the lines running good, what happens is you. You are short, what I call, tier 2, tier 3. You know? You are short this gauge. You are this lens or something. Well, you are not gonna just stop the truck and leave it on the line. You are gonna take it off to make sure everything's fine. Get it tested, and put it in the back lot till you get that piece. Then you are go put it on there. So it is just. You gotta touch the vehicle 2 or 3 times It would. So. And when that happens, it did not happen. This is nothing you need. This happens every time you have this big surgeon manufacturing and order activity. So it does cramp the supply. It does slow down the deliveries. You know? I have got numbers of what my Q4 should be, but I am not gonna guarantee it because some of it could get delayed. Into Q1. So I think that is why we feel pretty good about Q4 and Q1. Now I cannot tell you much about Q2 because I do not think anybody no OEM, has much backlog. I got--we all got a little past you know, with the new engine stuff. So, you know, so I feel. But I am--remember, we are a dealer, so we are on the tail of the dog. So we are not manufacturing. We are delivering to customers, which typically takes 30 to 90 to a hundred and 28 days depending on if it is over the highway or goes into vocational businesses, if heavy bodies and things like that. So that is why I can fairly confidently say I feel good about Q4 and Q1. Q2 to be known. But remember, we have had 6 months of backlog and it is not--and so it is going-- By the way, it is going down every day because we are not intake is not going to be super strong. But as it goes down, and as we get clarity on emissions and we get clarity on pricing, because, you know, there is inflationary pieces inside of this, besides engines, all just engines. So OEMs and customers dealers, of course, including me, but, really, they will. There. We. There will be a meeting of the minds on pricing. But when I told you about all those different technologies, Frank, on the news stuff, it is really interesting right now because every--the different technologies I am jumping out further than your question, by the way. The different technologies have different cost factors to them. And different OEMs are different positions coming out of tariffs. And stuff. It is really a pretty complex game out there right now. I know it is gonna get sorted out as backlogs decrease. We will get sorted out because there is demand out there. I know there is demand for next year. I have talked to customers. it is just this, you know, fall we are in. Of clarity on emissions and clarity on future pricing. Right? But it will get sorted out here in the next 60 days. And we will get back to normal. There could be a little bit. There could be a small blip, you know, for my back half of Q1 and something Q2. But it will get sorted out because the demand is there. The age of the fleet is up. Okay? So regardless about growth, the replacement demand is still there going into, you know, next year. Which is why I think you see, you know, ACTs out there. I do not. They are up, like, if it is 10% or something. I have it in front of me right now. But it is up 8, 10% there now. Subject to change, of course. But. You know? Because we will start the year off in my mind. With a better Q1 because that is deliveries than what we did last year. So I know I am going past your question, but, yes, back to your question. It will get stretched out due to supply, you know, constraints. They will get built. In my mind, I do not see anything that is gonna blow it all up. But you are all fighting the law, which basically means the engine has to get built prior to December 31 if you are using old technology. Or should I say, I think it goes down. Do you have to set the crank in the block? that is how it really reads. But you will build old engines into January. Okay? You do not think there is a 5% piece of the government put in their decree. I know I am getting too deep, but so we will build all engines into January. So if you look at it, there is still another what, a little less than 3 months to build the old engines. Right? So. But the supply piece to your first question, is going to be a little. Stretch it out a little bit. Right? Which I am fine with. Let's just get it all delivered. I do not look for any. anyone to not take their equipment. Okay? The demand is there. it is just a matter of getting it all built with stretches out. it is just a timing issue. On that piece of it.

Thank you very much for this comprehensive answer. Appreciate it.

You bet. Probably maybe confusing even if it is comprehensive. Thank you.

Our next question comes from the line of Brady Lierz of Stephens. Your line is now open.

Great. Thanks. Good morning, Rusty. Thanks for taking our questions. Parts and service revenue growth was really strong this quarter. Can you just talk about some of the drivers of that growth? Was that mostly kind of your larger over the road accounts? Are you also seeing strength, you know, from your smaller, unassigned accounts too? And then just any, you know, how sustainable you think this growth is into 2027?

Right. Oh, I. Well, first, I do believe it is sustainable. I do not look for it to be dramatic but it is nice to be even gradual good growth. Okay? I would tell you national account growth was there. But also smaller accounts did not decline as dramatically as they have been the last couple years. Right? They were starting to flatten out a little bit, which is nice to see. Right? That means you are starting to get to the bottom of that piece of your business because that is know, typically your more profitable piece. But from a mix perspective, the what growth we have had was more in the national account piece. And it maybe was not as strong as it had been, but it was there. Right? I could tell you at the end of the quarter, the 2 we measure things, you know, you know, in per day, you know, how much gross profit per day we produce in all our shops. And August and September, August being the best month of the year, September being the second best month of the year per day average. So that was you know, that was encouraging. Right? So we will see. You know? Remember, though, in Q4, we do have seasonality. We do have holidays. Q4 is always the toughest. Especially November and December. As we roll into it. Just because there is less working days, Right? Yeah. We have basically 3 less working days. Right? And a working day to us is worth 3 plus million dollars a day in gross profits. So we will be battling that. In Q4. We always do. Some years, it is 2. This year, it is 3. The way we look at it. You know, we strip out the holidays. So or, you know, when you put the figure of the holidays in. So that will be a seasonality battle, but that is every year. So, you know, what you are really hoping for is like you said, underlying good strong growth. Understanding seasonality, that is just happens every year. Right? But, no, that underlying growth is strong and solid. And for right now, it appears to be that way. Also, we are helped by the delivery of vehicles. a we are delivering more new vehicles, some of the work. You know, we. There are. There is work especially in our vocational businesses where we add equipment or you know, get them prepared, you know, predeliver them, add stuff, sticker them, even on over the road business. Right? there is still a little bit that goes with it. Of, you know, updating that we do to get trucks ready to go to the end user. So that is always helpful too. So, you know, it looks like is we will still maintain that with a gradually improving customer base. And, you know, more trucks to deliver, which will create, you know, more gross profit from that perspective for parts and service.

That all makes sense. Thanks for all the detail there. Maybe just lastly on used truck sales, they stepped up nicely in the third quarter. Yeah. How are you thinking about used truck sales, especially just going back to Andrew's question earlier about the regulatory uncertainty, are you seeing any tailwinds to used truck sales from that? Or just any thoughts, into 2027?

Sure. Yeah. Well, that question, we are saying, you know, use this solid. Right? Where are--we are managing our inventories well. We are actually I think because the used market's been a little better, some customers are disposing of more of their selves. And we are not taking as large a fleet freight packages as we have in the past. Now when it is bad, they always they always want you to take them. Right? When it is good, they like to sell them themselves. Not all the time, but it does. You see that trend inside of it. So we are gonna maintain solid used truck results, I believe. You know, steady as it goes, should I say. Stable. No big. You know, sometimes used is the 1 thing in the world that will bite you. But I do not see any bites on us coming in the future for the next few quarters. And I believe it will still be solid next year. Just remember, with these new truck pricing, going what is fixing to happen, you are just increasing the spread. That helps used trucks maintain value when new truck prices go up. We are still not anywhere close to back. To the percentages that we were oh, 3, 4, 5 years ago. Because the new truck prices have shot up 30, 30, 40% in the last 5 or 6 years. Used truck values have it. So percentage wise, we are still way under. If you go back historical, going to the last decade or other decades, more percentage wise, still bigger gap than ever. So I do not see any big hit in use coming right now, my friend. I expect them to stay good and strong. I am not gonna sit here and say, I know I have read where some folks, big rental companies, oh, they are gonna be up 10% next year. You know, like for like, I am not gonna say that, but I can see them up a little bit. And make this strong, you know, and good and solid in my mind. But you know, let's see. I mean, if some of these technologies did not work out, as well and it is after treatment, there is more to it than just the treatment. there is been some hardware changes inside some of these issues, but it got gum out. You had something like that happen, you could see your truck value shoot up. Okay? But I am not here to predict that or say that. So my point being they should hold it and be good. And we should have a few strong--steady as it goes. We got any issue, it is getting used trucks right now. Okay? You know, we have got buyers out there. We are buying used trucks. Besides trading for used trucks too. So if there is any issue right now, like I said, it is it is it is just getting, you know, having the right good enough inventory But we are managing it well. And there is been times in my life with it, you know, when you are you are in a different position. So I feel pretty good about where we are at.

that is all very helpful. Thanks again for the time this morning. Rusty, I will pass along.

Okay. Thank you, sir.

Thank you. Our next question from the line of Cole Couzens of Wolfe Research. Your line is now open.

Hey, guys. It sounds like outside of EPA uncertainty, you believe demand is still pretty strong. Coming out of ATA, what gives you the confidence that this order lull is temporary heading into 2027?

What gave it to me? Because people still said they had demand. Remember, they are taking a lot of trucks. Okay? it is it is an inter. Besides all the diversity in people's choices and technology, which drives different pricing from the OEMs. Besides all that, okay, they are taking a lot of trucks right now. And they know that customers know. And I am always wide open about Customers know that they do not have a backlog next year. So they are gonna push back on pricing for a bit, but they are taking all these trucks the back half of the year. We are building an extremely high rate right now. We really are. Well, those trucks have to be in service, which means they have to out service other trucks. If they are replaced. So they have to take trucks out of service, put trucks in service, and that takes a little time for them too. it is not like it is not like you know, going to the races, jumping out of 1 truck into another hard. Truck into the next 1. They do not. there is a little more to it than that. Because you gotta get the other truck ready for you know, for disposal, which means you gotta fix it up. The used truck, the new truck needs to be ready to go on the road. So that takes them a little time. I know that people said they have strong demand, but they are not going to be in a really big hurry I do not see that. I am not saying that is that is just not what I see. I talked to a lot of people, It will--right up front. I am sure that as we get closer to that time frame, Look. This industry at times, I have seen this industry. Yes. 3 or 4 weeks of real true backlog in it before. So in the just in time world, we have created over the last decades, many few decades, people can ramp up and get ready and deliver pretty quick. So I think as they roll all this in, they still have a lot to buy next year. I saw some CapEx budgets that were talked about. It just may not be smooth as you go because of these other issues. So that is what gives me the confidence. Plus, I look at the age of the fleet, and it is up higher. I talk to people that their fleet, if they want it at X, it is at X plus. You know? it is up, you know, almost a year higher than what they like. Which--that leads to higher maintenance in there that they are paying. Right? And they wanna. Unless you know, not as, you know, not as reliable. Less reliability to open your fleet is. So it is there. You know? And they are slowly. Even though we I do believe there is legs. Let's look at our. I am talking about the over the road business. I look for vocational. To be good Next year, if not better than this year. it is been steady as it goes. But the over the road is still 70% of what is going on. And while you know, we know what happened going back to last January, spot rates shot up 30, 35. At 1 time, it peaked at around 50. Up year over year, and they leveled back down in the thirties. percentage year over year. But people started rolling their contract rates. People that have more you know, dedicated stuff, it takes longer to roll it in. Because you are not. You know, it is like. You got more dedicated. Depends on who you are talking about. But we. I still believe and it is. The real the real it is caused by constraints of what drivers and things like that. It was supply side. It was not demand freight side. Driven. It was supply. I do think the economy still seems to be. I cannot believe how well the economy's weathered all this crap. The war in Iran, the fuel prices, and everything else, the economy continues to show through somehow. So I do believe still we will eventually gonna get some demand you know, to help drive it. Right now, it is been. If you remember a year ago, it was you know, the government was cracking down on, you know, noncompliant drivers and this and that. All these supply side things. So all of this has been driven by supply side. I still think there is gonna be some legs for some demand. Okay? Coming next year. Just my novice opinion. So, you know, if you add that in, Folks have not been really able to grow a lot because there is a lot of driver cost. You know, I am. Because you are seeing some of the releases. They are better than what they were. But there is still a lot of cost. Right? So there is still. They are even though they are getting better freight rates, they are spending a lot of Just. Most people are up 10% in driver's rate. Right? And plus the other cost of the equipment and things like that. So I just believe and so it was keeps pressure on the supply side, but I believe demand's coming. And people wanted vehicles. it is just a matter. We are taking a lot right now. I need to get clarity. On pricing and technology, and I am going to buy a lot of trucks. Okay? Because I need to. it is as simple as that. So I do not make it a simple answer.

No. that is super helpful, Rusty. And I guess maybe just a question on margins. You guys had strong revenue growth in both commercial vehicle and aftermarket sales. But margins are still down year over year. I am assuming there is some mix headwinds in there, but can you expand on what is driving that?

it is--I would tell you. Look. Margins this quarter from a truck perspective, were 1 tenth less than 2 in the last 3 quarters. So I to me, they were kind of flat. So I hear you. They were a hair higher. They were in the eights still. Okay? It was 8. It was 1, and it was. You know, at 1 time, was 5. Back a year ago or so. And really and truly, it is a mix. You know, we are getting more fleet business. Okay? You know, a small guy comes in always a little later. I am hoping and expecting to maybe start seeing some improvement. I think our mix is gonna get a little better as I look at it. Going into Q4. I need to see. I gotta make sure what gets delivered on time and what that. Okay? I do not see margins getting any less. Sure. And I see, you know, there is some upside to truck margins in my mind, in the next couple quarters. Okay? When it comes to aftermarket, our parts business grew better than our service business. And, you know, your service margins are well more than double what your parts margins are. Right? So we were on. I think we were only off 1-tenth quarter over quarter. over quarter. We were off 1. We were not as good as we were a year ago. that is for sure. We are, you know, a 100 bps or more where we are, you know, a percentage point off. But pretty similar to where we have been, and it is mainly a mixed perspective. With, you know, better growth in parts than we have in service. So that would be my best answer. And, again, also, on that, remember, I am doing. What I said earlier, I said my growth was in the account fleet business. Well, that is not as good a margin as a small person. Right? So, you know, again, it is it is more of a mixed thing. Not. And I for sure believe we can get it back. it is just been I will take it. Like I told somebody the other day, they said, well, gosh. You know? Why would you wanna grow. Why would I wanna grow that? Because my. If the small guys were worse, I gotta get growth somewhere, but it might come in a little bit less margin. Right? And that is really what it is about. it is a parts and service mix. And it is a customer mix kind of thing. But the. When the small guy comes back, you will see those margins get back helpful.

And just 1 quick follow-up on the supplier delays. Can you where is the actual bottleneck And is the expectation that should start to abate as we enter 2027, or you see this being like, when does this end?

Well, that all depends on demand. Okay? The bottleneck is across the board. As I said, in tier 2 and tier 3, that these OEMs have well more. A thousand plus trucks They are all really built except for 2 little parts or something. Right? And they are parked out back. So that bottleneck, it is across the board. it is not 1 particular thing. there is only 1 tier 1 thing that I have seen in the last few weeks and I think people are trying to work their way through it. I am not gonna get specific about that. So those little things will get. Once unless we get some orders, it. It will be no problem come February. Okay? So, but I do expect us to start getting you know? But that is still a ways off. Because as I said, I walked through why customers are not in a big hurry to take Q1 trucks. They are in they are in servicing all these trucks. I know people that some people, their orders 50% of what they bought this year are coming in Q4. Well, that means they are gonna end service in q. Through Q1, and they will buy and get trucks on delivery for Q2. That will happen. But that is still a ways off. Okay? And with all the uncertainties I talked about, I got time. They will tell their selves. Because I know the OEMs do not have any big backlogs next Now they better be careful. I would tell a customer that I do expect acceleration. You know? I could give you reasons why you should not. Hold off, but I cannot. You know, it is not my money to spend the stairs. But you gotta be careful because I do think when it hits, it is gonna hit hard fast and big. Right? Think when orders pick back up, they are gonna pick back up quickly. Okay? Because they will. Some people are not gonna wanna miss okay, and have what happened the back half of this year where not everybody got everything they wanted. The back half of this year. Know, especially, you know, your smaller customers. So it will happen. It just. it is just a timing thing. I have confidence it will happen. The people's needs. If someone asked me a minute ago, was there a lot of orders given out at ATA? Not that I am aware of. But I do know there was a lot of talk a lot of talk about demand that is needed. You know, demand out there. But you know, there is there is time. Their mind because they got so much coming. You are in this back half part of this year in service. So you know, I will just it could be a slight little bubble, in the--when we when we which we transitioned to new technology, but it is not gonna be a big 1. And it will not last long. I have confidence in that.

Okay. Thanks, Rusty. I will turn it back.

You bet.

Thank you. Our next question comes from the line of Avi Jaroslawicz of UBS.

Hey. Thank you. Good morning.

Good morning.

So just trying to think about what Q1 could look like Right? So it sounds like as long as the engine is produced, even for the most part, by December 31, that, it is not gonna get an NCP in 2027. So it sounds like some of the supply bottlenecks are kinda downstream of engines. So are you thinking that the OEMs are just going to stock up on as many engines as possible? And kind of what do you think the spillover into Q1 could look like?

Well, if they could, they would. But there are regulations as to how they could do that. I can remember in the old days, when they would have warehouses full. We are a little more sophisticated than 40 years ago. Okay? it is a little harder to do in the world we live in now. Used to do manufacturers stack them up big. Right? But remember, they do not operate. First, persons go like--they do not operate that way. Everything's just in time. People do not operate like they used to. They do not have warehouses and parts stuff when the manufacturers do not. So. But there is I think, a 5% carry rule it is just a matter if they can get them built. You know? I am not sure. I do not wanna speak for everybody where they are, but I expect everybody to build into January. I do not know if that is 3 weeks, 2 weeks, 4 weeks, probably 3 or 4 weeks. End of January. If they could get the engines, And I am not you know, I am not. I cannot answer that question. Because I said, the old rule, and I think it is still is this crank's gotta be laid in the engine. By December 31. Then let me totally complete it. The crank's gotta be in the block. So you know, I would imagine OEMs, some for sure. Will want to carry as many as they can legally, and that is what they will do. So, you know, that would tell you know, if you are gonna have some already online trucks And remember, just because the manufacturer builds 200 trucks a day, he is probably got a thousand trucks going through there. Right? They do not build them in 1 day or more. So you got all that going through. there is a week plus that is already in the factory, then you got a 5% carry. So that gets you know, once a month, 8% or something, you know, to 12, 8.5 percent. So that gets you close to about 3 to 4 weeks of building the jet. I would imagine that would be the goal of most of the. You have to ask them. I am sure that is their business, but that would be my guess. So you know, that gets you 3, 4 weeks of January. And then we are gonna go to whatever we are either gonna go to MCPs. And by the way, if you are a customer, are you gonna just pay an MCP? Plus whatever for your model and inflation. And that is the part that is being negotiated out right now. Okay? So you know who the NCP is. We know costs have risen. So just finding that little piece. So I. Why do not exceed especially for folks that are gonna be using NCPs. I do not see a big you know, stoppage or some big block in the road to get it done. There could be a little something, but it will just. You know, it will come to a cost factor. But it is real simple to figure out because the NCP is what the NCP is. The only problem is we are working off a draft. Okay? And you gotta hope it stays the same. So does get a little confusing there. So, again, I would. But remember, I am we are on the tail of the dog. So I expect us to have a solid Q1. But I need to wait and see what gets built and delivered in fourth quarter because of all this, you know, sub tier supply issues. Right? So I do not have clarity as to exactly how everything falls out. I feel pretty good about both quarters. You know? But I. I am just not sure. So I feel good about Q4. I feel decent good about Q1. Q2, I will have to get to, but we got time. So, as they work. Sort out all these issues, I keep repeating myself about and talking about stand them right now. But that is, you know, that is where we are at. that is truly where we are at. So I. I am not gonna try to quantify it. Because I do not know about shortages and things, if stuff gets delayed, you know, a couple weeks here or there. And it is, you know, and to what know, where it goes, what. You know, does it go in vocational? Does it go here? Does it go there? It will all be alright. Okay. Appreciate that. Yeah.

I mean, it sounds like if they can keep building, you know, another 3 to 4 weeks into January, then, that could take you know, retail sales into pretty much through February. Pretty much through for March.

That takes you pretty much through Q1. Okay? Okay and then there. Gotcha. I have got-- So I got some uncertainty. In Q2, but I have still got plenty of time Okay?

Because we gotta sort out and pricing and technology here real quick, and we will get that sorted out in next 60 days.

I am confident. Okay?

Gotcha. On the pricing side I am telling you there is gonna be demand. I believe there will be demand. I do not look for demand to go away. It will just got this. These uncertainties, man, and it will get itself sorted out. It always does. Okay. On this pricing dynamic,, so if I am understanding correctly, it sounds kind of like the OEMs kinda underlying you know, core pricing to cover costs and whatnot. Is that somewhat dependent on what the final NCP is gonna look like You know, is not there thinking of it as, a, you know, maximum price that can be absorbed for next year, and it is just a question of whether part of that goes to their margins or it is just passed through or Well, I.

From what I hear, they are. We know that we have had some inflation. More than the feds want. Right? Well, it happens in truck business, truck world too for manufacturers. They have been absorbing. You can see margins and stuff. On. You know? it is not hard to go find them. Even the whether it is. The Europeans have spun off their truck divisions. Really easy to go find what truck margins are. So I expect you know, manufacturers, I think, are not trying to be anything like gouging or anything. They are trying to recover some costs. Plus NCP. Or if you are doing new technology, who knows what it costs? Okay? Only you do. So but if you are going down the NCP route to begin with, which both of my manufacturers are, you are gonna just have to bet on the draft and then it is trying to recover the inflationary pressures you have had. Right? And cover your increased cost. And that gets you to the number you are supposed to be at, and that is where we will get to. Okay? It just takes a little time and, you know, validation of what those cost really are outside of NCP. And if everybody gets comfortable, I am not gonna get into the numbers and stuff where I really do not want to. But at the same time, it is pretty simple. You got an NCP. it is NCP. Plus recovering what your increased costs are. I do not think people are looking for big margins. Going into the year to begin with. it is not like know, you know you are gonna have demand, but you do not have it now. So you need to go build a backlog. Then you can work on it in the back half of the backlog. But right now, people did work on the back half of the backlog this year. I tell you, but that was back in June and July when they were building it. Okay? That will eventually happen again when we get the demand back for the new, you know, new technology and the new pricing and stuff. Upfront. Manufacturers will be just trying to recover, if they went down NCP, whatever the NCP is, plus their, you know, increased cost. That. Think that is what I am seeing out there. it is just that, again, customers are not in a big hurry. You try to get them in a bigger hurry, They are not. They are taking so many drugs. I have gone over and over this right now. And that is my take on it. Hell, I could be wrong, but I do not think I am. So. On where we are at. We are just in this little space right now. I expect everything to sort itself out in next 60 days is all I can tell you.

Okay. And just want to circle back on the parts and service business. So we were hearing, over the last couple of months, that, you know, some of the spike in operating costs put some pressure on demand there. Just with some strain on budgets. Does not look like that was something that showed up in your numbers in Q3. Do you think that was a factor in the quarter for your business? Or you know, we could have seen a stronger improvement had the you know, costs, the fuel and driver costs not spiked as they had or is this maybe a you know, unrestrained kind of quarter?

Yeah. I would tell you it. We feel it. We. I said. 1 of the things when I said, you know, margins are not as high as they were say, a year ago. They are in line where they were the last quarter or 2. Real close. Part of that was mix, and part of it was competitive pressures. to your comment. Right? You know, there is. People were still really tight, but especially the smaller guys that may not get all their fuel surcharges. They were having expense. or to spend more money on fuel. Right? So they are having to watch their, you know, their maintenance and their repair budget. it is a lot tighter. Same thing we have been dealing with for 3 years of the freight recession that you get all this fuel spike. And it adds more pressure into it. it is not just 1 thing. But, yes, we know all the costs are up. You can see it inside the earnings releases. Okay? So that is gonna put pressure on all expenditures. Right? And especially as you get to the end of the year and people they are not a lot of their budget, you start seeing it here in Q4 sometimes. But, you know, I am proud of the team. We went out there. As I said, we continue to grow our national account business with a little less margin. Yeah. But it is still you know, helps support the overall of what we are trying to accomplish. As I said, now this was the best you know, month we had. When you look at it the way we do, like, measuring almost by the hour, by the day, September was the second best month we had. So those were encouraging signs. Right? So I think there is still underlying opportunity out there for us. Like, I know there is. Okay? All we did was sort of bottom out. We were really flat. We really were flat over a lot. A few months. I mean, last year, end of this year, it was really flat. But we saw some increased demand in a and September. I do not really want to put a number on October yet. We got a big week here. To get it all figured out. But I. I feel good that it will be gradually sustainable Right? And at the same time, you know, we are gonna continue to look for m and a. I will tell you that right now. I am on. Well, nothing big, but lots. Maybe you put a lot of blunt singles together out there. But back to your real question, yeah, I. The. You know, the mix was 1 thing. it is there. Cost pressures put pressure on margins. Right? Because everybody's out there in the marketplace. You know, going after it. So it is a lot of things. Right? But guess what? We performed. In my mind, we performed as well as anybody in this environment that we were in. Still on the parts and service side, I am stripping the truck side all the way from parts and service side. So we have been performing and continuing to perform. We are looking to do that, and maybe next year probably get some growth tailwinds in that. Last couple years has been really difficult, but we are feeling good about the opportunity to grow our parts and service business. Sequentially better than we have the last couple of years. I am not talking about just straight up growth. I am talking good solid gradual Now we gotta find what gradual is. You know, hopefully, in the, you know, in the mid singles, would be a nice is what we would like to see next year. From a same store perspective, and I would be okay with that. In fact, it is going like that direction. I am not looking for double digit. Parts and service same store growth. I am looking for, you know, mid singles, maybe upper. We will have to see depending on the territory, which area it is in the country. But, overall, I feel good about underlying demand across the board. Going into next year. Not where we are at now, where we are where we are at in parts and service feels decent. Truck may have a little bubble. it is gonna be really not good. Be good in Q4 and Q1. And we will sort through these uncertainties. And I feel good about the whole year as a whole. But it will not be straight line. It never is a straight line. Okay. Appreciate the perspective. Thanks for the time. You got it.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Rusty Rush for closing remarks.

Well, folks, I appreciate your participation and your listening. This is the longest gap I have between calls because it will be middle of February before we call again. So in closing, I would like to wish everybody a happy Thanksgiving, a Merry Christmas, a Happy New Year, and just overall very happy holidays this year. So enjoy your families. And we will look forward to, talking to everybody in mid February. Thank you very much.

Thank you for your participation, in today's conference. This does conclude the program. You may now disconnect.