Rush Enterprises, Inc. (RUSHA) Q3 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprises Inc. Reports Third Quarter 2024 Earnings Results. At this time, all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Rusty Rush, Chairman of the Board, Chief Executive Officer and President. Sir, please go ahead.

Well, good morning, and welcome to our third quarter 2024 earnings release call. With me on the call are Jason Wilder, incoming Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Haselwood, Vice President and Controller; and Michael Goldstone, Senior 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, 2023 and in our other filings with the Securities and Exchange Commission.

Thanks for joining us this morning. I'm pleased to report that we had a solid third quarter. We announced revenues of $1.9 billion and net income of $79.1 million, which comes out to $0.97 per diluted share. In the third quarter of 2024, we incurred a onetime pretax charge of $3.3 million due to Hurricane Helene-related property damage. Excluding this charge, EPS would have been $1 per share. And once again, we are happy to declare a dividend -- cash dividend of $0.18 per share for both Class A and Class B common stock. As we have experienced over recent quarters, the industry is still dealing with low freight rates and high interest rates, and these difficult operating conditions are keeping demand for Class 8 trucks on the low side. Given these headwinds, we are proud of our performance this quarter. While the over-the-road carrier segment faced some challenges, we saw good activity from Class 8 vocational and public sector customers. Medium-duty demand also held up well, helping us outperform in Class 4 through 7 sales. And despite a tough used truck market, our strategy is paying off and contributing positively to our earnings. In the aftermarket space, we saw a slight revenue improvement over the second quarter, particularly in service sales, which outpaced the market. Diving deeper into our aftermarket results, our parts service and body shop revenues reached $633 million, down slightly 1.6% from the third quarter of 2023, but up from the previous quarter. Despite the ongoing freight recession, we are finally seeing slight sequential growth in aftermarket sales through over-the-road customers, the first growth we have seen since early 2023. The refuse and public sectors continue to be strong for Class 8 aftermarket sales and our Class 4 through 7 aftermarket sales were healthy across the board. Though we expect some seasonality to adversely affect the fourth quarter, we anticipate beginning a gradual return to more normal market conditions in early 2025. Looking at truck sales, we sold 3,604 new Class 8 trucks in the third quarter, accounting for 5.3% of the total US Class 8 market and 1.6% in Canada. ACT Research forecast for 264,000 new Class 8 sales in the US and Canada in 2024, down 12.5% from last year. Continued low freight rates and high interest rates contributed to a 3.5% decline in Class 8 retail sales from last year's third quarter and economic uncertainty continues to weigh on Class 8 carriers. Despite these challenges, we are pleased with our third quarter results. Specialty markets like vocational and public sector remain bright spots for us and we expect this trend to continue into the fourth quarter. We saw a slight uptick in orders at the end of the third quarter. So we expect that our fourth quarter Class 8 truck sales will increase slightly compared to our third quarter results. However, with high inventory levels across the industry, we anticipate that pricing will remain competitive, making sales challenging through the first half of 2025. Our Class 4 through 7 new truck sales, reached 3379 units in the third quarter, accounting for 5% of the US market and 2.9% in Canada. ACT Research projects US and Canadian Class four through seven truck sales to be 273,000 units in 2024 up slightly roughly about 2.5% from last year. Demand remains strong in this medium-duty space across all segments and our efforts to diversify our customer base is paying off. On the used truck side we sold 1,829 units in the third quarter up 1.8% year-over-year. Although, used truck demand is still weak we continue to successfully execute our strategy which led to positive results in the third quarter. Depreciation rates for used trucks have stabilized and we continue to manage our inventory levels effectively to meet market demand. Lease and rental revenue was almost flat year-over-year down just 0.4%. However, we are optimistic that rental utilization rates will increase in the fourth quarter and we expect to see moderate growth in our leasing and rental revenues as we move into 2025. So far it's been a challenging year for the commercial vehicle industry, but I am incredibly proud of our team's hard work. Their dedication has helped us manage our expenses and stay on track with our sales initiatives allowing us to keep delivering value to our shareholders despite these challenging times. And I'm confident that we will finish the year in a solid financial position. I would like to extend my sincere gratitude to all our employees for their hard work this quarter. They stayed focused on our long-term goals while continuing to provide top-notch service to our customers. Before we wrap up I personally want to thank Mike McRoberts who as we announced will step down as COO on October 31. Mike has been invaluable to us and we are glad he is staying on as a special adviser and Board member. I would also like to congratulate Jason Wilder, who will step in as our new COO on December 1. And I have full confidence in Jason and expect a smooth transition. With that, I'm happy to take your questions.

Hey, Rusty, good morning.

Good morning, Mr. Obin. How are you today?

Just a question. You had constructive order commentary particularly into the quarter end. At the same time I would say I think ACT forecasts no retail to recover until second half of 2025. How do you bottom -- how do you balance sort of the commentary that you've made in the press release? It seems there are multiple references to things bottoming out with the uncertainty that we're still facing in the first half of 2025.

Well when I say -- I think I was talking bottoming out as far as our customers' business right? As far as the truckload carriers the haul for hire carriers I believe freight has been bobbling on the bottom for them right? From the -- and contraction of rates I think it's about over with. If you read some of the reports that I've read in the last couple of weeks you'll see that most carriers do believe they've been bobbling on the bottom. And that's where they're at. So I think we're getting a little bit mixed up here is the customer base and what I see for our business. And when I said -- when I talk about our business and I said we've had some uptick in order intake understand people are still thinking sometimes or I know they're not but we had two years of allocation. Well we've gotten back this year and the way it always was right? I couldn't have told you back in Q1 we were going to have this great Q3. It's just shortened windows, right? And some of that order uptick that I talked about that we had in the last six weeks let's say maybe not let's say go back two weeks but the prior six weeks we did have pretty solid order intake. But a lot of that is Q4 build okay? Not all of that's 2025 build. In fact the majority of it was going to be built in the fourth quarter. So we're in shorter lead times. But obviously I'm very pleased with the fact that we're adapting as a sales organization to what we've historically lived in where you're living in 90-day lead times right? Okay? That's really what I was reflecting. We're not living in nine-month lead times. So it was nice to see the order intake pick up and we're still trying to sort out 2025 but some of that stuff that we'll build in Q4 will roll over to be delivered in Q1. I couldn't sit here right now and tell you I've got Q1 we don't have it all sold out, right? But I am confident as we have shown in the last two quarters that we have the ability we're on top of our game. We were -- I'll be honest with you a lot of people were a little laxed coming out of allocation, but we're getting back on top of our game and making it happen just like we have for decades but if not even better. So, our customer base is bobbling on the bottom. But we're, I think, taking advantage of short lead times. It's just -- it can be a little more nerve-racking but that's because you got conditioned to allocation for a couple of years with nine-month lead times. Now you're back to more normalized 90-day lead times even less sometimes 60 to 90-day lead times. But I feel good that there is still going to be some business there. It may not be quite as -- I believe we can maintain what we're doing. How would I say that? I don't see any big uptake in orders until the back half of next year when we start thinking when our customers on the over-the-road side, we're doing real well in vocational but that's still the biggest piece of what we do. This truckload side is still a huge large piece and the small carriers are not back. The large carriers are being conservative in their outlook as they get their businesses righted, their ORs back in shape. But that will come back. But I do not expect for us -- I do expect for us to continue along the lines of where we have been performing from a volume perspective but a big uptick coming in the back half of next year as people start to think about 2027, all the new technology, the costs that are going to go along with it plus the performance that we're not sure of going out into 2027 and beyond as we meet the new EPA regulations. So anyway, that's a long rambling answer but that's how I answer it and you know that. So we're -- that's what I see. Customers -- over-the-road customers not doing great but bobbing on the bottom looking for some uptick here as we move into next year, which we hope will drive further sales in the back half of next year and into 2026. But feel solid about we can continue the performance we've given.

Yes. Thanks so much. And just a commentary for you. As I said, look, when somebody like you starts getting marginally less negative, just let's keep it there but I think you are getting more positive, but at least your press release got more positive. But what are you seeing -- I think, I always ask a question about the economy, because what are you seeing because you do touch a lot of verticals, right? You touch a lot of off-road Caterpillar today, maybe not the most exciting numbers. But what are you seeing on construction? What are you seeing in oil and gas outside of truckload industry? What does the economy look like? Are you feeling more positive, more negative into 2025? Thank you.

Sure. I think we see when it comes to vocational and you start breaking vocational businesses down. Now oil and gas has been soft, okay? Our oil and gas -- let's see, look, no one's really bought much equipment for oil and gas. Everybody is just refurbing and fixing it right, because people view it with all the BEV and everything going electric or hydro, however, it all works out oil and gas, some people think has long-term -- I don't want to call it terminal value but long-term, obviously, downside to it. So, everyone -- there's not a lot of CapEx being spent. There's a lot of maintenance being spent but that maintenance was even -- we've been off about 20%. When you look at our numbers, from a parts and service perspective. Now remember, it is not the same piece as much as a percentage of our business as it was a decade ago by any stretch. But even if it's, I don't know, 5%, 7% piece of what we do, it's all 20%. Construction though is up from a CapEx perspective, right? You're seeing the flow of money coming through from the infrastructure bill. And we've been limited a little bit on some of the vocational products by some supply shortages on the transmission side. But that I think is going to smooth itself out later into next year. That was really an issue we dealt with in the back half of this year. But demand is strong. Refuse and demand still remains strong around that sector. Municipal is pretty solid. It's varied, Andrew, but you're always waiting for those truckload guys to really get back into it. And -- but I see that happening more in the back half of next year. Private carrier purchases earlier this year were extremely strong. That's one thing when you look at our business model, that's what I try to drive to folks is we really have diversified our business model, sometimes when it comes to our customer base and our geography, which geography can have a lot to do with it depending on what's going on. I mean California is tough. We're performing out there. But given the new car laws, my order intake out there is still 50% of what it was but that stuff will smooth out. That's the good part. It's just one state for me, right? I mean I can go on and on and say you know me I can talk all day about the business because I love it. And -- but the good part is we've got a pretty very diversified customer base that we deal with. We're not just tied to big -- I don't know big 1,000 truck orders. Ours is a much more diverse customer base. So, it allows us to navigate these waters and perform the way we do. So, you said listen I was laughing at how you phrased that Andrew. There's going to be a pre-buy sometime to drive orders. But we've been able -- ACT has next year going down 10% or so, right? I mean -- but they've come up 10% from where they came into this year. So, I'm not so sure the numbers they have out they've got like 230,000 -- 234,000 from the U.S. this year and like -- I don't remember 217,000, 216,000 something like that for next year. I don't -- I will say this I see no downside to that. Now, I do see it more in the back half, but I see no downside to it. So, I feel good about the next couple of years. We're just -- we're slugging it out to a tough spot to the first half of the year but I think we were slugging it out right now. And you see the performance of the company. That's all I can tell you.

This is great. Thanks so much.

You bet.

And our next question comes from Daniel Imbro with Stephens. Your line is open.

Yes, hey, good morning guys. Thanks for taking my question.

Thank you, Dan. Good morning to you sir.

Rusty I want to start maybe on the new unit side. You mentioned obviously order uptick picking up a little bit, but inventory is still going to challenge pricing for the intermediate term. I guess how should we think about the impact of that on gross margin or gross profit per unit, however, you want to think about it kind of across both I guess new or used and then any difference between Class 8 and medium duty. Just curious how that's going to trend over the coming quarters given the inventory versus demand backdrop?

Right. No, I will say this our inventory, we've been working on it all year, okay? And it's in better shape now than it was six months ago okay or say three months ago. We had -- with the big -- with the downturn last -- late last year and everybody used to allocation, we had a bunch of small order fallout, which turned into what we would consider stock inventory. But we have been managing it inside of all the numbers, extremely I would tell you well. We've been making sure it's mark-to-market every quarter. And I feel that has helped us start to disperse some inventory. And so I feel we're heading in the right -- I feel a lot better about it than I did without getting too deep, deep into how I manage it or how we manage it. I feel better about it now than I did in April, I can promise you that. So, we got our arms around it and we've been able to drive it down. Over the last 60 days, we turned the corner and been taking inventory down. Regardless of what the overall the overall we've got 90,000 Class 8 units or so largest inventory ever across the country in the U.S., right? So, -- but I feel better about ours than that the numbers you posted for everyone else. I feel a lot better about ours. Now, we're not perfect yet but I know we're heading in the right direction. I know we shut the spigot off and having our inventories continuing day-by-day to get in better shape. And I feel decent about it as I'm saying. So, is it perfect where I want it? No. Talking about used. You said something about used. Look our used folks have done an outstanding job. Why? We used to carry -- I don't know 45% more in inventory than we currently do. So, we saw where the volumes were and we got our inventories down. I want to tell you where we would carry 2,500 units, we got our inventories under 1,500 and we're turning up. And that's the key piece of inventory in used. You got to turn used trucks. If you're not turning your used trucks in under 90 days, you're going to lose money. It's just as simple as that. Because unlike new trucks, used trucks depreciate every day. New trucks are on MSOs where used drivers are titled used vehicles and they're not like fine wine. They don't get better with age. So, you've got to make sure you keep your turns right. And I feel really -- I'm very positive very pleased with how our used truck departments have performed at least and managed our business for the year. That's been a plus for this year over last year a nice plus. Where it's not anything the size of our new it's nice to get -- we're in hand-to-hand combat sometimes right now I tell people right hand to mouth. So, you just keep slugging it out. So, when you get some from the used truck department that you didn't get last year, it makes up for some of the softness that we're having on our over-the-road business in the new side, you know. And when you get into the overall business I mean, I'm going to -- if there's one thing you haven't asked yet or anybody has asked me yet about that I'd love to talk about and that will be when we get a chance to talk about the expense management of the organization, but I'll be quiet and let you ask me.

That's like you're looking at my question list here Rusty. I was going to ask next on the cost side.

Go for it. You've got -- I've got all day. I've got all day Daniel. Go ahead.

You took out a lot of OpEx in the quarter. I guess first can you maybe just talk about where you guys are pulling costs out of the business? And secondly, I guess how do you think about the sustainability of these cost takeouts? Obviously, we're at a cyclical trough and how much can we keep out of the business as the business improves next year? Where do you see opportunities to further reduce it? How is that cost management shaping up?

Sure. Well back in -- we saw flattening out, right? And we went and I went to everybody back in April and said folks the parts and service business typically we -- and this is let's talk about parts and service strip truck sales out of it. Truck sales is what drives the S. We run this business S in one side, G&A on the other side, okay? S is typically remember just reflective of truck sales because that's where your commission is. That's your variable piece on the truck sales side. G&A is that where you really run your business, right? That's the dealership business without truck sales. Truck sales take the S piece. So the G&A piece we looked at it and said, look I don't see the seasonal uptick that we typically get in the summer. And guess what we didn't have it. We didn't get it. We have been fairly flat-lined. Yet at the same time as I've tried to tell people that's the flexibility of the business model I'm telling for years and we're way better than what we used to be at it. And that's what we call absorption. And that's got a numerator and denominator. Denominator being expense. You got gross profit from parts and service above it. If you don't see that growing, if you see it flattening then you've got to make some expense adjustments driven by what you see on the parts and service gross profit side. Now we -- as you saw we were down with up slight -- I talked about revenue being down. We're actually down a little bit in margin took a little bit of a margin hit. But at the same time go back to April we decided we had to make some adjustments and we did. I mean when you look at our G&A piece I mean we're up 4.5% sequentially to Q2 we're up 7.7% from last year's Q3. I am so proud of the organization. I can't tell you how proud I am for doing more with less. So, yes, sustainability. It is -- look our goal when we get -- start back -- if it starts to ramp back up right and you have to add some people back because remember when you're doing service and you're doing selling parts it takes people. I'm not loaning money. I'm working on equipment. But at the same time you try to keep a certain percentage of that gross profit and we historically have done that. That's what's driven our absorption number up 50 points in 20 years okay? So -- but to run it -- we still run it if you told me we would never picked up anything in gross profit in the summer months you're still dealing -- you still got inflation you still got payrolls you still got everything going up on you. Yet we remember to basically maintain a pretty flat absorption rate by working that expense number. I would expect going forward if it does start ramping up like I'm hoping it does next year. I mean right now we're working on all our budgets for next year. We're not getting way out there. We're going to try to have mid-level we hope for at least mid-level parts and service growth right now. I'm waiting the budgets will come back in and we're helping drive them to the field. So if we do go -- so if we pick up say six points or something like that in gross profit we try to keep half of it right which will drive more money to the bottom line. So sustainability is there. There's no question in my mind that if we'll be able to sustain it because it's not -- we're doing it where we're at. Now it will take a little bit more expense if gross profits and sales revenues start to go up in parts and service, but that's your goal is to keep part of it but it takes people to sell parts to work on trucks to do things. So our model is driven by what goes on, right? We have the flexibility to adapt to whatever the markets throw at us or whatever we're able to take from the market. Because remember we're going to keep trying to take share. Our goal is to continue to take share. We're going to continue to add outside parts and service salespeople where we can give them a solid book of business to go call up on as we try to take share. You know, no matter what the market is and on the service side we're going to try to continue to add techs. We didn't do that good a job this year on that piece of it. But at the same time we just finished our senior leadership conference this last weekend and -- with about 300 folks here in town. And we're going to get back. That was one of the big messages to everybody. We're going to get back because we do expect business to be a little – have some better growth next year.

That makes sense. Maybe last one to follow-up on that. I guess how is tech availability out there? I feel like just across a lot of end markets it's difficult to find technicians difficult to hire them. You mentioned you guys haven't done as well this year as you'd like to on the technician hiring. So just curious, has that backlog gotten better at all? Or has that available labor pool gotten better at all for you guys? Just any thoughts there?

Good question. No it's always a struggle, right? It's a struggle on the entry-level technicians, right? That's where your turnover comes in. Technicians I don't want to get too deep in the weeds here but it's Level 1 through 5, five being the old experienced guy, right, this can do anything. And it's at Level 1 and 2s, if you got some secret sauce for it to help me, I'd sure appreciate it. We do a lot of things. We sort of have a lot of efforts around retention on those 1s and 2s. And it's that – I think there was a study here recently we saw – was it 40%? 40% of your Level 1 and 2s are out of the business in two years. Not – they're going to do something else right? They get – they don't want to – they think they want to be technicians but 40% of them are out of the industry. So you can see that's a hard row to hoe, right? And so – but we keep plugging away at it. And that's one of the big things is it's difficult. It hasn't changed. It is still very difficult. We work with tech schools. We work with high schools. We work with – have a whole – we have recruiters. We go at it. It's a multipronged attack and it's something I think we'll always be battling. Even though being a technician, it's nothing like it was 25 years ago with all the technology that's been put into trucks, okay? It's a whole different job and it takes a whole different skill set. But it's still sometimes a very difficult – we'll get – I have all confidence. We're not talking – we're talking to grow 150 to 200 techs a year. About five or six years ago, we tried to grow it too many about 500. We realized that wasn't going to work. That was – we couldn't support it that way. But we've really worked hard to try to level set the jobs and bring in more jobs that will be beneficial for a Level 1 and 2 because they can't go to what a Level 4 and 5 can. So you've got to make sure that you're feeding them the proper work. And I feel good about our ability to hopefully get our technicians. It's really the turnover for that Level 1, Level 2 technician. I think we're going to make some – I'm making much progress this next year in that area.

Appreciate all the color and best of luck, guys.

Thank you.

And our next question comes from Ian Zaffino with Oppenheimer. Your line is open.

Hey, guys. Thanks for taking my question. appreciate it.

You bet.

Just kind of looking at the landscape here I guess sort of with the environment is – how is the M&A environment I guess in this backdrop? Where do you see multiples? And kind of what's out there? And I know you're sitting on a great balance sheet. So any color you could kind of give there? And yes then I have a follow-up. Thanks.

Well, obviously, I never talk about M&A until I do it. There's a little out there. I'm always working a little bit. We have – we actually had a little M&A in the quarter. We added a new – small stuff, right? We had a small deal up in Nebraska. But we're – I don't have any large M&A I'm working on right now. There's a couple of other small things. There may – I don't have anything big to announce that I can tell you. And I wouldn't tell you anyway until I did it. So I don't see that there's this huge rush of people trying to get out of the industry at the moment even though, it wouldn't surprise me, as we get further into the next two years with looming 2027 EPA regulations coming on that some people don't try to get out prior to that. I'm not seeing it right now, not for those reasons. But there's not a lot of big M&A going on right now that I that we have going around. We're constantly looking. So if anybody out there wants to bring me a deal that I need in an area, I'm not, I'll be happy to look at it. So – but I mean I know it's just a roundabout question but I'm never going to tell you what I'm doing anyway, when it comes to M&A until I do it. So – but it's not – there's not a lot of big activity at the moment. But I wouldn't be surprised as we get further along down the road towards 2027 January 1 EPA that M&A activity picks up prior to that.

Okay. Thanks. And I guess I know you did that Navistar deal and that went quite well. So I kind of like to see...

Yeah. We did a lot of Navistar deal. We did one, two years ago, I guess, it's almost three, 2.5 years ago, we did. It was almost three in December of 2021. That was a big deal. We bought the second largest at that time, international dealer. And we'll continue to look -- we have more availability on that side of the house, and we'll continue to look for M&A around where it makes sense, right, if some shows up.

Okay. Thanks. And then just maybe as a follow-up, can you just maybe talk to the outlook you're seeing now on the vocational truck side? I mean, Allison came out yesterday with quite good numbers on the vocational side. So you kind of wonder what you're seeing there looking forward?

Yeah. I may have touched on it a little bit ago. Yeah, I bet they had good numbers. They were sold out of 3,000 to 4,000 series transmissions back in May for the whole year. So anyway, but they're managing their sales, they have their inventory. So yes, vocational continue to be strong, as I mentioned. And it actually probably cost us some sales because we couldn't get enough transmissions this year in 2024. So that's probably pushed some of those sales into 2025. So that's a good thing. We expect that to continue. As I mentioned earlier, I expect it -- most all my vocational, I expect to continue to be strong through 2025. I'm not going to look out into 2026 on it, but we do expect to continue strong vocational sales across the board regardless of which location it's in, driven by the government spend on those bills on the infrastructure bills. And just that's what we expect. We're still seeing it, and that's a solid piece for us. We're in the refuse business strong also. So that's solid for us also. And our medium-duty vocational continues to be strong, too.

All right. Thank you very much.

You bet.

[Operator Instructions] And the next question comes from Avi Jaroslawicz with UBS. Your line is open.

Hey. Good morning. Thanks for taking the question.

Good morning, sir. Good morning.

Good morning. So yeah, just -- you noted in the press release that you're hopeful aftermarket sales are around the bottom now. Just curious what you're seeing there to have some confidence in calling this the bottom? And also, how are you thinking about the ramp back up in sales for aftermarket? Should that be more muted than normal just given the over-the-road continues to be a more challenged market?

Okay. Well, no, we've seen -- as I mentioned, it's been margins have been pretty flat. And that's why we made some adjustments back in April. That's -- you know what, sometimes flat is a good thing when you cut expense, okay? So it's not a bad -- because we didn't see -- usually we'll ramp up a little more in the summer than what we did given our geography, even though we are across 24 states, given our geography of where we're at. But I would tell you that there is -- going into Q4, as I mentioned, there is some seasonality in the press release that it's a little softer in Q4. But that's nothing more than every year, right? Because you've got fewer working days because of the holidays. So there's -- it's like you bill hours, right, in the shops, right? So you got to be there to turn wrenches with the holidays, with Thanksgiving and Christmas, leading up to New Year's, you just -- it's naturally a little bit slower for those days. You lose your air conditioning business goes down a little bit, but there's other things that pick up, but it's just seasonally a little bit softer in Q4. But that's nothing out of the norm. So a couple of points or so less than a couple of three points typically in Q4. That being said, I just believe that as this thing bottoms out from the over-the-road guys and they slowly ramp back up next year, I would hope by the time we get to summer. I don't see any big ramp up early in the year. But I do see growth in the parts and service business when we get to the seasonal part, say, next May and June, around that time line. I'm not perfect on this, but I do believe we'll see some growth in the parts of more like what we typically get. I expect a more typical summertime, late spring through fall summer including of course ramp-up in our parts and service next year. I just believe by that time, I think the spot market is going to be better. I think we'll have taken enough capacity out of the over-the-road business. Remember when you look at the numbers we're producing, thank God we got a diversified customer base, because we still -- even though the small customer was off less than what we call our unassigned accounts but the small, which is still 30% of what we do are people we really don't even know, okay, they were -- our growth was in the national big customer. That's where we managed was through that piece of our business. But the small person was off still 8%, 9% year-over-year. And remember last year, he was off 12% or so in Q3. So the combination of being off 20% going back comparing to 2022 is quite dramatic for that small customer. So the numbers we're producing are in spite of those headwinds with 30% of our customers. But I do expect the comps get easier as we're starting to see -- we won't have that big a downturn in that smaller customer base. I expect the larger customers to come on better. Sometimes they're going to -- they're either going to have to buy trucks or fix trucks one of the two. So I expect that to pick up as I said middle of the year next year. And I don't see any big downturn for us outside of normal seasonality, because of our diversification over the next couple of quarters. Hopefully that holds true. But that's just my outlook on it right now with the growth mainly pushed into the back two-thirds of next year. From a parts and service perspective, we'll continue to manage expenses the way we are and continue to as I said in spite of no shorter lead times on truck sales, I expect us to keep being able to push out quarters. We expect to deliver a few more trucks in Q4 Class 8 than we did in Q3. And while I can't tell you what Q1 looks like, I expect us to execute because I can still build you trucks in December. So it's not like I may not have the clarity that we had for a couple of years, but I've got the machine. And I believe the folks in this organization and their ability to execute no matter what the environment is.

That makes a lot of sense. And then I guess also, yeah, thinking about the rebound that you're talking about for Class 8 in late 2025. It sounds like you're thinking of that being more from improvement in the over-the-road market. And to what degree would you say that the pre-buying ahead of the emissions regulations would also be a factor in that?

There's no question. For sure, everybody thought you go back a year pre-buy was going to start here, back half of this year. Well, it didn't okay? Like I said, I can still build your truck in December. So it didn't happen, right? Why? Because the over-the-road guys get crushed. You can just read all the earnings reports. I mean LTL is good better, but the truckload side of it, which is a big piece of it was getting hurt. So what you're seeing is they're going to get healthier. I do believe that. Capacity has finally come out of the market. That's the hardest thing. I couldn't take any capacity out. Financial institutions were more relaxed than I've ever seen them and pulling the chain and taking capacity out but that's not my business to run. But I think you are seeing that with all the bankruptcies and things coming out because you still got to dispose of that equipment and that's being done as time goes on that's happened. So they're getting healthier. So people will start focusing on the regulations coming in 2027, right? But all it's really done is we thought it was going to start earlier a year ago, now it's not. So if you think about it what you're doing is you're compressing that demand is probably going to make the peak get higher when it does, because you're going to have less time to take care of demand, people have been having to run their businesses and manage on it and said look I'll deal with that 2027 EPA rule when I can. But right now I've got to run my business, look at my OR. As that gets better, the focus will become more on, hey, I got to get ahead of some of this 2027. They're not going to pre-buy everything, but they're going to compress and try to buy a little ahead. So they don't have to deal with the new technology and whatever it's going to cost $15,000 to $20,000 on diesel and then rolling in of BEV, electric and everything else as all these rules and regs come about. So they're going to try to pre-buy a little bit, but driven by the fact also that their business is in better shape, right? Not in the shape it's been this summer, okay? But I do believe it's going to continue to get better, as we move through next year. I believe by the middle of the year, that their business will be stabilized and they might be getting some rate. And now I can focus on, oh my gosh, we got 18 months till January 2027. I need to be thinking. I don't know exactly, how that timing is going to work out. But logic says, that's what's going to happen. As one thing settles out it gets better, then we can focus on out ahead of us. Right now, you can kind of look at -- I'm not looking down the hill. I'm looking at the tips of my skis, right? Then, we can start looking down the hill. And once we've got our skis straight and not going sideways. So if that makes any sense, that's how I see the combination of the two.

Yes. No, that does. Thanks for upacking that. And then I guess, just the last kind of question. Where are vocational volumes relative to longer-term kind of normal average? Just trying to understand, how much runway is left for that market?

I think all of 2025. I think I'm not going to look out to 2026, because that's a little far out for me. But I feel really good about our vocational business in 2025. Where is it compared to normal? Well, what's normal in the truck business? Would be my question. I don't know, but I know, what normal is? It's one thing you learn in this business. It's pretty -- truck sales can have some cyclicality. But I would tell you, 25% better than what normal is, I don't know. I mean -- but demand is strong, is the easiest way for me to say it and continues to be and we look for vocational demand to continue to be strong in 2025. I'm not going to look out into 2026 on that yet. But as we get further into 2025. I'll try to get a feel for it, because we're not trying to -- we're really not booking 2026 business right now. So it's hard for me to see. where 2026 is going to be. But we are obviously. talking about and booking some 2025 business, and both sides, whether it's over the road, or medium, or vocational. Vocational, we booked more than we have over the road, I can tell you that. So we expect it to remain strong in 2025, 2026 is going to be hard for me to look at, right now. Hope, so.

All right. Got it. Appreciate the time. Thank you.

You bet.

I show no further questions, at this time. I would now like to turn the call back over to Rusty Rush for closing remarks.

Well, I'd like to thank everyone, for their participation this morning. We won't be talking to you until February. So -- with the fourth quarter release. So happy holidays to all to you and yours and we'll talk to you again, in February. Thank you all very much.

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