Rush Enterprises Inc 2026 Q3 Earnings Call

Please go ahead. Well, good morning, and thank you for joining us for our third quarter 2026 earnings call.

With me this morning are Steve 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'll turn it over to Steve 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 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 discussed or in our annual report on Form 10-K for the year ended December 31, 2025, and in our other filings with the Securities and Exchange Commission.

Thanks, Steve. 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, $0.65 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. Freight conditions have continued to get better following a prolonged downturn, and we're encouraged by what we're seeing as we move through the fourth quarter. The quarter also demonstrates the value of the diversified business we've 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 entry into the refrigerated transportation space.

MCT operates 17 full-service dealerships and three mobile service locations across six 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 was 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 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 business. Class 8 was particularly strong.

We sold 3,880 new Class 8 trucks in the U.S., 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 good visibility in the strong fourth quarter and first quarter of next year, although 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 emission rules and ultimately manufacturer's 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 3,265 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 2027. 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 1,913 used commercial vehicles, up 5.5% over 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 $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 a 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, and maintained a very strong financial position. During the quarter, we repurchased $10.3 million of our stock, paid $16.4 million in dividends, and ended September with $226 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 for both our customers and Rush. Finally, I want to thank our employees. Their hard work and commitment to our customers are what make these results possible, and I appreciate everything they do for Rush Enterprises. With that, I will take the questions.

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. You may remember, I am going to try to make this as short as I can. The EPA came out and gave a draft back in July about what the changes they were making to the 2027 January 1 rule. Basically, they said they were going to allow nonconformance 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 $6,700, medium around $4,400 plus FET on the heavy duty engine.