And good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc. fourth quarter 2024 earnings results. At this time, all participants are in 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 star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one 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, Chairman of the Board, Chief Executive Officer, and President. Please go ahead.

Well, good morning, everyone. Thanks for joining our fourth quarter and year-end 2024 conference call. I have with me today Jason Wilder, Chief Operating Officer, Steve Keller, Chief Financial Officer, Jay Hazelwood, Vice President, Controller, and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary. Now Steve Keller 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, 2023, and other filings with the Securities and Exchange Commission.

As we mentioned in our news release, we had $7.8 billion in annual revenues for 2024. And our net income was $304.2 million or $3.72 per diluted share. For the fourth quarter, our revenues were $2 billion, and our net income was $74.7 million or $0.91 per diluted share. We are also happy to announce a cash dividend of $0.18 per common share. 2024 was a challenging year for the industry, which faced persistent headwinds, including the ongoing freight recession, high interest rates, and economic uncertainty. These factors hit over-the-road carriers hard, leading to weak demand for new Class 8 trucks from that customer segment. However, our strength in public sector and vocational markets helped balance things out, and we managed to hold our ground in a tough Class 8 environment. Our Class 4 through 7 truck sales were strong across various customer segments, and we outperformed the market in medium-duty truck sales. The used truck market remains challenging, but we continue to execute well on our sales strategy, and we were able to deliver strong results. The same challenging operating conditions that impact new Class 8 truck sales also impacted the aftermarket industry. But our sales force's dedication to our strategic initiatives helped us to slightly outperform the industry. Despite the difficult operating environment that we faced in 2024, I am very proud of our financial results. Focusing on the aftermarket, our parts, service, and body shop revenues of $2.5 billion last year were down 1.8% from 2023. Our absorption ratio was 132.2% compared to 135.3% in 2023. Even though our aftermarket revenues were slightly down, we grew our market share by expanding our national account sales force, which allowed us to enhance our service to large strategic accounts. Demand was sluggish for the over-the-road, energy, and wholesale customers,…

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 star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Andrew Obin of Bank of America. Your line is now open.

Yes. Good morning. Can you hear me?

Yes. We have got you, Andrew.

Excellent. Rusty, given your commentary about second-half recovery, how should we think about earnings seasonality in 2025 versus a normal seasonal pattern? And I will just throw in, specifically, when does parts and service turn positive again? So two-part question. Thank you.

You got it. No, Andrew. It is going to be an interesting year. The first half of the year, we are still feeling any lingering effects of the freight recession. Without question here in the first quarter. We do expect that, but we are seeing signs of activity. Regardless of what the numbers showed, like in December, then their order numbers were down in January. We are seeing the last few weeks signs of activity. That so do not tell me that we are going to get better in the over-the-road business in the back half. Vocational businesses are still strong. But we believe that you are getting, I think if you check with the large over-the-road guys, they are starting to get low signal to, you know, maybe up to try to get maybe the mid-single digits on the contracts that are coming up. So that has to take hold. Right? That has to take effect. Right? And it just does not happen overnight. But it shows, you know, they have reached confidence in the over-the-road carriers. And it is the fact that, okay, we are, you know, we have for sure thought about in the back half of last year like we talked about. We talked about it prior. Well, now we started getting confidence going forward in where we are at going into, you know, going on into later into this year. And then I will talk a little more in a minute if someone would like me to about what we see when it comes to the government regulations and all with everything up in the air right now. But I do believe I will get to the parts and service here in a second. I do believe that when you ask about what the year…

I see. And just a follow-up question. As things ramp up, how should we think about, you know, SG&A was one of the sources of upside in the quarter. Do we think about SG&A control as you ramp into the next cycle? Will it look similar to the prior cycle, or, you know, are there any incremental savings as you get efficiency? And that will be it for me. Thank you.

There you go. Put the heat on me on G&A. Remember one thing. S is S. S is directly tied to selling trucks. Okay? So we run the business all with G&A. Our S is going to be, you know, that 25% range or so all the time related to the gross profit of trucks. The G&A piece is what we, you know, we manage on a daily basis. I mean, you can look back at, you know, that was a big contributor this last year. Big contributor. You know, we were down almost 5%. We have got 4.9%. Year over year. In Q4. If I am not mistaken, it was similar, I feel like 7, usually, and it was sequentially. We were supposedly flat with 3 and 4. But 3 was down, like, 0.52, if I remember right, over 2. So we did an outstanding job from my perspective in managing that G&A. As it ramps up, as you ramp up parts and service, you know, it is not like welding cash. Rolling money to someone. It does come with a G&A expense. And our goals will be to try to keep, you know, the gross profit dollars recreated on the back ends, we are going to try to keep 40% or so of that. You know, I have got a goal to keep 50 or more, but typically, it averages out if you go in the ramp-up period over a three-year cycle and we average that in that 40% range. Yeah. Because we are handling parts. We are doing this. We are doing that. We are working with whole goods. Right? So you know, it takes people to do all that work, but that is a great situation to be in. If we can stay close to that…

Thank you so much.

You bet, Jim.

Thank you. One moment for our next question. Our next question comes from the line of Daniel Imbro of Stephens. Your line is now open.

Yeah. Thanks. Good morning, everyone. This is Brady on for Daniel. Rusty, I wanted to start by asking about your different end markets. You know, you have talked about how resilient vocational has been in recent years. How did that market end the year? You know, while we talked about how Class 8 fleet sales, you know, probably likely take until the back half to recover. How are you thinking about that vocational side of the business in 2025?

Okay. Yeah. No. We believe that it will still remain strong. I mean, we have not seen, I would say we are starting to fulfill some of that, but there is still strength in vocational. You know? I mean, our construction business, I could possibly see a, I cannot believe I am saying this, a little more in the oilfield pickup, which we have not had. To help offset anything else. The refuse business is still strong. 2025. So, I mean, you know, I see vocational remaining strong. Maybe not as deep or as big a backlog right at the moment, but still strong in demand. Right. So because you had a, you know, like, you had a transmission issue for a while a year ago, that actually pushed, and we were not able to get to all of it. Now we are chewing away at that, but we still got good demand. And, you know, you never know. Like I said, it is crazy for me to think, well, with oil and gas, what the last four years, you know, that was a bad word. But, you know, you are obviously within the current administration there, you are seeing some activity around that sector too, which we have not had. So feel pretty good about it. You know? It is again, though, look. We are not backlogged with, you can, I can go just over the 60 days if you wanted? Okay. It is not like we have got these huge one-year backlogs like we had in 2023. Okay. That is not the case at all. So you know, there is no such thing as allocation. There is plenty of opportunity to build trucks out there right now. Because most factories, I do not believe, are running full tilt at the moment. I mean, they are running. They are running. Shut down the issue, things like that. But they could ramp up build if demand gave them life, which is something remember in this industry, when demand hits that over-the-road side, it happens fast. And it happens really quick. So, you know, as we get into the back half of the year, you know, I would not be surprised to see, you know, I am not going to call for allocation in 2026 yet. But I could see it getting there. A lot has to do with regulations. And things. But back to your recent question, vocational is still strong, man. And so we feel good about it.

Okay. Great. Thanks for that color. I wanted to switch gears a bit for my second question, see if we could touch on medium duty. You know, medium duty has been very strong for you guys in recent years. Could you just talk a little bit about what is driving that strength and what you are expecting from medium duty in 2025?

Sure. What drove that strength? Now listen. Put end of the year, medium duty had a big backlog. Right? They chewed away at it. It all happens. You have to go back when we had supply issues in 2022 and 2023. Because manufacturers that both built both medium and heavy chose to take componentry and put it towards heavy because they make more money on it. Well, that gave the medium duty. So you had pent-up demand. Medium duty was really stretched out. They were not running in this fast and hard. I mean, anybody who does both. Well, guess what? Once Class 8 slowed down last year, Jerome, like, chewed out the medium duty backlog. So medium duty right now is just like Class 8. I can get you one in 60 days. Okay? It is not that hard to get a medium truck at the moment. So while we expect, I mentioned in the call, I know that the ACT has medium duty at 5 something percent. Kenny is a great friend of mine. Not sold on all that right at the moment for 2025, to be honest. This is the first I am being. But I do expect, you know, we are going to have a good year. We have got some, I know in the back half, we have got some good stuff back in the fourth quarter, but that is a particular transaction. And but we still should remain, you know, I expect to be flat if you want to know the truth in medium throughout the year. That would be about where I would think our medium is. So that is wrong. You said, we have got strong results. I expect you to remain strong. Is there a lot more to give this year there? I do not think so. I do not see it right now. But you know, because we have caught up with that pent-up demand that was created by mainly not being the focus, but by Class 8 being the focus of the supply side of. The supply side has caught up. So medium duty has caught up. So but there is still, you know, there is still good demand out there. It is just you do not have these ends up big backlogs like we used to have. So I hope that sends a little color on it. So I am just personally, I am thinking it is going to be probably flat. I think, you know, both sides of it. But I do expect.

Okay. Great. Thanks for the time this morning, Rusty. I will pass it along.

You bet.

Thank you. One moment for our next question. Our next question comes from the line of Avi Jaroslawicz of UBS. Your line is now open.

Hey. Good morning.

Good morning.

It sounds like you are interested in talking about some of the policy uncertainties. So interested in unpacking some of that. So starting with the emissions regulations, and the engine changeover, you know, what are the latest cost conversations with customers looking like around the pre-buy? Are you hearing any more uncertainty or less?

Yeah. Well, I mean, you know, it is interesting. Right? Because you know, you have got to know a map, right, when you go someplace. And you are going into unknown territories, it is always good to have a map where you can go at. Well, we thought we had a very clear map. As to where things were headed, as clear as mud is anyway. As to what, you know, what was going to happen and what happened in 2024 in California. What was going to happen in 2027. Well, the new and I am not going to say I am going to speak like I am a customer. Because I am a customer. Okay? I am the middle guy. I am a customer also. So clarity, not right now. If you look back in the last, oh, back in prior to the new administration coming on, ACF or what it points you trucks, that was for our customer base. They were going to have to roll in electric, you know, BEV trucks and stuff over a time frame. That was thrown out. Okay? Right now, as of last Friday for Valentine's Day, the EPA is challenging ACT or clean truck which affects all the OEMs. Which is how they are going to have to sell this many electric and do this much, you know, all these rules and regulations. I am not going to get in all detail or got a lot of, I got three or four people on my staff that are way more diligent about it than I am. I know just enough to be dangerous. Okay? So that is up in the air. Because it got approved outside of Congress. They are saying it should have been approved in Congress. So they are taking…

Me and I appreciate shifting over to tariffs. So I know you noticed that you know, the uncertainty around that and the, you know, prospect that it could really increase the price of trucks and squeeze demand. Oh, man. So I guess two things there. One, just you help frame for us what that impact beyond the cost of a new truck? And, also, you know, with the urgency, are you doing anything differently this year in terms of managing your inventory to try to mitigate that risk?

Well, first off, about seventeen days ago, maybe eighteen. On a Saturday. I am good. Are you kidding me? Okay. We are really going to put 25% tariffs on Mexico and Canada. I understand the Chinese part. But the automotive sector. And I am not just talking trucks, there is nothing more tied to Mexico than the automotive sector. Okay? I mean, all the suppliers, all the manufacturers, everybody has got plans down there and stuff. And it is like you got to be kidding me. You know, I understand, you know, I do not understand Sentinel, but I read about it. And I understand the immigration issues, but you are messing with an economy now. Let me tell you. You are, you know, you are talking if it is manufactured down there, you are talking $30,000, $40,000 in a truck. Even the trucks that are manufactured in the US, they will have components for you. You know? If you put a 25% tariff on there, that is probably be another $10,000. Automobiles will be $6,000, $8,000 depending on who and where and what. I mean, it gets always remember that was not detail on the fine print. Right? So I am not the expert on all of that, but I got to tell you, that makes absolutely zero sense to me. I believe I have told everybody since, you know, new administration was announced back in November that, you know, it is a negotiation. I cannot believe that we would go do that. Look. Those factories, it is not like China. Are our factories. I am on the border. I have been on the border. I am more than raised in Texas. Okay? I have the old border for Peterbilt all the way from Tijuana to Brownsville. I understand.…

That makes sense. Guess moving a little bit away from the uncertainty or up towards what we are seeing today. So I know second half last year, there was a bit of discounting on new truck pricing. And so just wondering if that is something that we should be expecting here for the first half of 2025 as well.

The stuff that we are doing right now, no. I expect most of it is pretty flat. Slight, I mean, slight. Maybe increase. I do not see a lot of discounting. Maybe a one-off deal here or there, but there is not broad-based discounting going on. I mean, we had already taken margin out. Last year. Okay? Somewhere when I say that, you know, the manufacturers and through us, and we have managed to maintain a good blended margin as well. I always tell folks, remember, we also just have the data. We sell medium. We sell used. So we have done that pretty good job. I will keep it over 9% or better. Blended margin. So was new compressed a little bit? Yes. Do I see it getting compressed a whole lot more? No. I think we will be pretty, you know, we have already been, you know, a little bit compressed on it. So I do not, I would say most OEMs what we have been planning on having a pre-buy. Right? So, you know, they were trying to maintain what they felt. Maybe you can look at their margins are off some. You can look at it later in the late back half of last year. There is no question. But do not know how much more there is to take out of that. I think there will be enough demand to keep things pretty flat, to be honest with you, without getting any increases in anything. You know, I expected everything to be pretty flat.

Alright. Very helpful. That is it for me. Appreciate the time. Thank you.

You bet. Thank you, sir.

Thank you. I am showing no further questions at this time. I would now like to turn it back to Rusty Rush for closing remarks.

Okay. I guess, I look forward to talking to everybody in April. This is the shortest time between calls. I am about to talk to everybody in about two months. And thank you for your participation today.

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