Good day and thank you for standing-by and welcome to the Rush Enterprises Inc. Report First Quarter 2021 Earnings Results. At this time, all participations are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker, Mr. Rusty Rush, Chairman, CEO and President. Please go ahead.

Good morning and welcome to our first quarter 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 then our other filings with the Securities and Exchange Commission.

As indicated in our news release, in the first quarter, we achieved revenues of $1.2 billion, net income of $45.3 million or $0.79 per diluted share. We're also very proud and declared a cash dividend of $0.18 per common share. Our results were driven by the nationwide economic recovery and healthy activity for most market segments we support. Gradual increases in product and service activity and healthy demand for new Class A trucks and rising these truck value has contributed to our strong quarter, along with our continued focus on expense management, which significantly increase our net income compared to the first quarter of 2020. As we look ahead supply constraints will likely affect the availability of parts and new trucks in the next few quarters. However, we expect supply chain constraints to begin to subside late in the first third quarter and for demand for trucks and aftermarket services remain strong throughout the year. We believe our financial results will be strong in 2021. As the economic - as the economy continues to recover and businesses reopen throughout the country. In the aftermarket, our first quarter product, service and body shop revenues were $415.7 million and absorption ratio was 122.6%. Our aftermarket revenues decreased by 2.9% compared to the first quarter of 2020, but we are seeing some pockets of strain, particularly when it comes to product sales and activity from refuse construction and public sector customers. Service revenues recovering at a slower pace and parts. We continue to add technicians to our dealership network in the first quarter an anticipation of increased demand later in the year. As we look ahead, we expect supply constraints the impact products available in the industry for the next few quarters. But we are leveraging our nationwide inventory to lessen any impact…

[Operator Instructions] Your first question comes from Jamie Cook.

Hi, good morning. Hope you're well. And nice quarter. I guess a few questions Rusty. First, the margins in the first quarter on truck the 9.4%. Would that use truck pricing? Or make so if you can help me there? My second question relates to on the supply chain side, where are the shortages outside of semi? And I'm trying to balance how I think about the cadence of your sales, as you're saying the second and third quarter will be impacted by supply chain. But you're also talking about market share gains for Rush. So I'm just trying to balance those two. So I guess why don't we start there? Thank you.

No problem. Yes, you hit it on the head. From a margin perspective in the first quarter, that was the largest - highest used margin that I can ever remember that we've add, right. So decent volume and high used truck margins. I expect going forward that used truck margins will still remain high, maybe not quite that high. Supply side is probably the biggest issue, I feel we got a decent inventory. Supply of used trucks is across them. I mean, just across the whole nation is somewhat limited. So obviously, the whole supply and demand which was driven, prices up. I mean, if you go back to COVID, I mean, they're up 30% to 35% from last year, April of a year ago. So a lot we expect, as I said, those two still remain high, it might be difficult to keep the volume right there, but that's what drove the margins to be that high for sure. When you talk about things outside of semiconductor, it's just a myriad of things Jamie. One day, it can be wiring harnesses, one day, it could be clusters, dash clusters, I've heard seats, I think it's just across the board with your Tier 2 and Tier 3 suppliers. And their manufacturers are managing as best they can, but I think they getting hit with different issues with different suppliers. So, I mean, when you freeze and the stuff down, you got hurt and stuff coming out of Mexico. And even just keeping up with it, I think everybody ramping up after all that COVID has been very difficult for Tier 2 and Tier 3 suppliers, not just on the semiconductor piece of the chip base. But, it's just - from a parts perspective, when you look at our parts and…

Your next question comes from Joel Tiss.

I wonder if you can do your presentation over again. I couldn't understand you with your mask on.

Yes, that's my voice, you know.

So I wonder if you can talk a little bit about your ability to, like, structurally what you've done to change your cost structure and the ability to keep the costs below where they've been historically.

Well, you learn a lot go Joe, you learn a lot in 2020. And understand that we're trying to take some of the lessons we've learned. And take them forward with us into the future, right? Doing more with less, in the same time. We will have, if it continues to ramp at the pace, it is we will have some expensive increase, you don't sell parts and service and trucks and things without things on ways to do it, turning wrenches, making up bars, delivering bars, stopping bars, doing all the things you have to do. But we have goals internally in the company that we're going to spend less as we grow than we have in the past. We feel we've learned a lot we will be able to do that. Expenses will ramp but they're not going to ramp as steep as they have in past cycles. So we believe we can manage it that way, we learned a lot. And we put some controls in place. I'm not going to get into those things. At the same time, you still got to be able - you've still got to be able to grow where people that take care of it. So, but it's just a balancing act and we'd like to believe that we've learned a lot last year during that process and having tighter controls and making sure making more thorough decisions on investments and things that we make. Those are all a part of it. It's not just one singular thing. But it is it is aligned with only growing expenses, a certain amount, depending on growth rates then the organization.

Is there anything like maybe not concrete, maybe too strong of a word, but anything you can share with us? Maybe like peak to peak, we think, SG&A of be 100 basis points lower or anything like that that we could just sort of like ballpark think about?

Well, I hate to do that. We have it internally, but the way I would express it, I really haven't looked at it from your perspective. I explained it internally to my folks, but it wouldn't make a lot of sense to you, from an operating perspective. I haven't really extrapolated to tell you this many pips. It really - remember Joel, you got to strip those away from G&A, as it's going to do what truck sales do, okay. As always going to be a component driven by sales. So, sales go up, sales go down, axles go up, axles go down. It's the G&A piece that we're focused on. We'll spend less than regress profit that we create, but it can be - but I don't want folks looking at it in a singular court. It's not a court thing at different times of the year - at different times of the year you spend more - I will tell you, we'll spend 40% of the gross we create in Q2 probably from last year. Q2 year-over-year, I think. But Q2 year-over-year was a tough year. That was the COVID quarter, right? That was the terrible quarter of last year. But we will spend less of every gross profit dollar, and we have internal goals. But I'd rather just keep them to myself right now.

An easy one for Steve, and then I'll leave it for everyone else. Why is the share count rising? And can you give us your estimate of the tax rate for the full year?

Yes, the share count Joel, especially when you come back to 2020, it's a timing issue as much as anything. We continue to repurchase shares. However, a bulk of the shares we repurchased in 2020 happened in the first quarter when the stock dipped, we were opportunistic and bought heavier then. Since that time we've continually repurchase but not at a very high level in the end. The other big difference is the way you calculate diluted shares. At this time, last year, our stock was trading in the low to mid 20s. And now we're trading in the, whatever, upper 45 to 50. And our diluted shares outstanding when the stock price is higher, has contributed to the share count, increase that and options that were exercised last year during the last few quarters because the stock rate went up so much. So exercises of options, and the higher price drove more diluted shares. Going forward, it should flatten out because we expect to continue to repurchase shares. And there'll be some exercise option - exercise of options that'll probably offset that somewhat, but it should be landing in this 57 or so percent range and 57 million share range that you saw us post this quarter. On the tax, again, that the rate was low in Q1, it was 20%. That probably - that boosted Q1 earnings about $0.03 to $0.03 of what they will normally be throughout the rest of the year. The rest of the year or tax rate will be in the 24.5% range. Without getting into all the detail that's also related to some permanent differences between book and tax income that are discrete to the first quarter mainly, again around option investing and share best equity word vesting and stock price. But for the rest of the quarter, you need to forecast about 24.5% for the tax rate for the rest of the year, I'm sorry, each quarter.

Your next question comes from Justin Long.

Thanks and good morning. So I was wondering, Rusty, if you could give us a sense for how parts and service revenue trended on a month-to-month basis throughout the quarter, and maybe an update on April as well, just because weather clearly impacted February. So just wanted to get a better understanding of how the business was trending X weather. And then for the full year, I think you'd talked about parts and service revenue approaching 2019 levels on the last earnings call. Is that still a fair expectation?

Yes. I think that's a fair expectation. It's been ramping up starting with January, except we did have a dip in February weather related. But prior to the weather week, everything was trending up then too. So what are sort of jumped over that week, and it trended up again in March. And so far, this two-thirds of the way through April, it's trending up over March. So as I said, it's not dramatic, but it's graduates going the right direction. And we expect it to continue to. Especially as we get into these warmer weather months, as we get to these warmer weather months, where you tend to have a lot of other things that in air conditions and things like air conditioners, things like that that break. So we typically normally have a rise to seasonality just given during the summer months. So we do believe that this trend will continue and especially, with all the miles have been put on trucks out there right as a lot of miles being read and so equipments getting as they haven't been able get as much new equipment in. So there's a lot of equipment being driven and work. So I don't see any reason, why we won't continue, moving forward and get somewhere really close to that 2019 level, right? Remember, we started we were a little bit off of last year, but really flat if you just took out the weather week, but that was off the prior year. Because really cold and it really didn't take effect in the last two weeks of March last year. So in '19, we ramped up all the way through September, and then we had some - look, some fall off in the last quarter of the year. I expect it to go the other direction. And continue that way throughout the year - this year. So, we feel very good about that. We feel good about the initiatives that we've still got out there. It's not just happened for us. We believe, we have direct - this direct correlation between the investments that we made over the last four or five years, and the results that have carried us through the COVID here. And the results are leaving curious through this year and the growth that we'll see in this year and going forward. So we're excited about that. And then our folks are doing an outstanding job in the field working in managing through that right now.

Great. And what you said at the end was actually my next question on the parts and service initiatives. I know last year with the pandemic, it was probably all hands on deck, just dealing with the challenges of that. Can you just update us on where you said in terms of implementing parts and service initiatives? What inning are we in that process? And now that we're hopefully reopening the economy, across the country? Should we expect to see more of a benefit from those initiatives in 2021 and 2022?

Without getting into specific customers, I have specific customers in my mind that we've been able to capture with those initiatives, or even over the last - even during the COVID year. And I was out this week, myself. And last week, we were doing presentations with folks and myself out there. And there seemed to be thirst for some of the things that we can supply or we can give the market given the network, we've got the most expansive network out there, and what the investments that we made in these initiatives. To answer your question, we might be top after the fourth. We want to ask what anymore, we might be through the first third, but we're not into the second third of the of the baseball game. We're just getting into it. I really, really believe that. And I think the numbers will bear that out going forward. I mean, and I believe it would be the next couple of years. I think we've got an outstanding the next couple of years, given regulations that will be coming into play in the front business, and with the growth in the economy that we everybody expects to see over the next couple of years. I think we're going to be in great shape with the investments we've made moving forward. And just - I think customers are going to desire, the things that we can provide to differentiate us from other folks.

And your next question comes from Andrew Obin.

Hi, Rusty. How are you?

Very good.

Congratulations to you and the team on great quarter.

That's more about the same. And it is, thanks Andrew.

Just a question - a lot of questions have been answered. Can you just talk a little bit more about the markets? How is the pace of recoveries proceeding? And just maybe you can look at geography and tell us, which regions look stronger and which end markets look stronger? And specifically, I also would love to hear your views, historically on parts and services fracking has been a big meaningful component. It's been dead for a while. Is there any signs of life there? So sort of two part question.

Well, we said it would be a good geographically, the coasts are both doing well. California surprisingly, even though it's shut down more than other states. It's surprising how well it's done. Florida is doing outstanding Texas - West Texas is having a difficult time and I'll reference that back. I didn't go there. Still very successful. Just not to the level that we were, Oklahoma's going well. We're saying as we move up through the Midwest is coming back a little slower, but it is coming back to got who in that area around in Illinois seems to be picking up, Carlisle stores seem to be picking up also. Let me not all be in the same meeting, okay? But they are estates reopening getting back to what they're all - we're seeing it across the board. This probably the coast have been the strongest Florida California thing the Dallas has done really well in the North Texas area. So those areas may be a little better than the others, but every one - every region seems to be picking up we don't have one that's really lagging just somewhere in different innings of there's a big enough. In markets, again, we're seeing construction and refuse continues and but the over the road business is stairway. Now, that's what all was driving all these sales is the over the road market. But we're also - it's pretty broad-based construction and revenue for us has continued to do well. I will tell you that you asked what are fracking. Fracking what? It's maybe up slightly, as we see consumption going up. I realized we're going to be zero carbon one day. But for now, we're not going to get there today. So as we see that continued rise in oil…

And just another question. So I think looking back even beyond a decade. I think your systems and you're sort of focused on software and things like telematics has always been sort of part of your secret sauce operate? And sort of enable you to take advantage of the scale that you have? There's been a lot of talk about people accelerating the digital efforts, the software efforts as part of COVID. Can you just talk about, how have your systems delivered during COVID? And what lessons you've learned about sort of systems and software, and sort of driving the digital backbone of the organization going forward? Thank you.

You bet. There's no question, Andrew. I mean, it's there's two differently, are you talking about there's data, right? And that goes back to our SAP system that was so. Painstaking to do years ago. But with that data, we have taken that data and put it with the extrapolated that they've learned how to use it, and turn it into revenue, whether it's through our whole rush care for all the programs, and I'm not going to get into all those on the call, I'd be happy to. But that would take a little bit, while but our connectivity with customers showed well, throughout the COVID time. Without that I'm not sure we can produce, I know, we couldn't produce the results that we produce, if we didn't have the tools that we have to connect with customers outside of touch, right? During this last year, we wouldn't produce results, we have Parts Connect, Service Connect. Now all these different things that we have and other things that we have underneath the umbrella of Rush care. But I'm not going to go through all eight or nine of them here, while we're on this earnings call. But you're correct, when you say those investments are shining, and you can see the numbers. As an easy way for me to tell you is it's in the numbers. It's in the numbers of what we're doing currently. And I'm very proud of the efforts of everyone in the organization over the last decade, to be able to implement these tools, and then to take those tools and turn them into revenue, right? And that's what we've seen happen. And we're super excited about where we're going and we're working on other things you didn't do right now, other investments. That's one of the things when you're in the position we're at right now. You can look at the balance sheet or we can see the cash in the organization has in the lack of debt. We don't have that outside of leasing and leased trucks and floor plans. So the investments, we're going to continue to make the investments to stay on top of it, and try to stay on that leading edge and that leading edge of technology going forward, that hopefully will help will continue to drive revenue. Especially in the forest service side of our business.

And you do have a follow-up question from Joel Tiss.

Hi everybody. Must be on vacation today. On the last on the last call, you mentioned that you think that this cycle could be more of a three-year upturn. And I wonder if you could update us on that, and give us some reasons why you think that?

Well, first of all, I think so, because let's go back to the current regulations are going to kick and come and play in 24, right? I think you're going to see, there's going to be some scrambling around. Firstly, I think the regs are coming in too soon. I don't think that we're ready for the stringent regs and they're going to bring in I don't know how many states are tied up yet to be up to 15. If all the states tagged on that would be 30% of the market, that we have customers in those states that will be scrambling to purchase truck prior to, because from what I understand, in those states, even diesel will go up a very large, I don't have a hard time wrapping numbers anywhere between 12 and 20 plus $1,000, okay? On diesel engines to meet those restrictions, and I don't think people know yet. I think it's a little bit - I think it's a little fast. I think these regulations are being put in a little faster should be more on. 2027 like the EPA, is that right now that I'm sure that could all change? We've had a change in obviously in government, so what to see how that all goes. But that was the number one thing. They said truck sales would be there. The other part is the economy. And then part of this year, may get tempered a little bit with suppliers, right? I don't think a lot. But the economy stays growing, it's always the best driver is for truck sales is they got me. So if it stays strong, and tied in with the 24 regulations coming on, with garb, et cetera. Then I believe that work should be for the next 2.5 years. Fairly wrong credit markets and I think I'm - I don't think I'm the only one out there was projecting that. So there would be my answer for you, Joel.

Okay. And then any early things you're hearing about trade Navistar, that would like, for you to get ready? Will they be more aggressive on parts? Or will they rebrand products that will help devalue your franchise. Is anything early that you guys are picking up that you can adjust your business strategy?

No, I don't see anything right now this early. I think that sort of wait to see, I know, we're excited about it. I think the stability that it brings from a long-term perspective. The ability to get for technology, the breadth, the global view that we'll be able to scale, because they'll have from a technology perspective will be great. I don't have anything specific like parts or things like that this early there. That'll be something that'll play out, I think, as they take over, I don't see something early, I do believe that there have been I have been collaborating for a couple three years working on stuff anyway. And I think that's just only has been accelerating behind the scenes. And we're just excited about that new ownership that's coming on board and the ability and we'll give the Navistar group to continue to forge down the path that they've already been go ahead and now, but maybe even accelerate into the future.

And there are no further questions at this time.

All right. Well, thank you ladies and gentlemen, and we will speak to you in July with the second quarter results.