Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc. reports fourth quarter and year-end 2021 earnings results. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question- and- answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host today, Mr. Rusty Rush, Chairman and CEO and President. You may begin.
Good morning. Welcome to our fourth quarter and year-end 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 risk 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 31st, 2020, and in our other filings with the Securities and Exchange Commission.
As indicated in our news release, we achieved annual revenues of $5.1 billion and net income of $241.4 million or $4.17 per diluted share. In the fourth quarter, we achieved revenues of $1.3 billion, net income of $68.6 million or $1.18 per diluted share. We are proud to declare a cash dividend of $0.19 per common share. Throughout the year, healthy consumer spending and an overall strong economy led to an increased demand for new commercial trucks and aftermarket services. That said, supply chain issues negatively impacted the production capability of truck manufacturers and aftermarket parts component suppliers, as well as our truck and aftermarket sales in 2021. Demand for trucks and parts and service remained strong, especially from our large fleet customers.
We remain committed to our strategic initiatives and to diligently managing expenses, which contributed to our outstanding financial results this year. We grew our network of Rush Truck Centers substantially in 2021. In addition to adding three new locations in Arizona, California, and Illinois, we entered into our largest acquisition in company history, acquiring 17 full service dealerships and other locations from The Summit Truck Group. In January of 2022, we closed our agreement with Cummins, who has acquired a 50% interest in Momentum Fuel Technologies. All of these changes reflect our commitment to strengthening and enhancing not only our network, but also our products and services we offer to our customers.
Looking ahead, supply constraints will likely continue to impact the industry through mid-2022, but we expect healthy demand for new trucks as well as aftermarket parts and service due to the country's continued economic recovery. We believe our continued focus on aftermarket initiatives and expense management, along with network growth, will contribute to increased revenue and profitability in 2022. In the aftermarket, our annual parts service and body shop revenues were $1.8 billion, up 12.1%, and our annual absorption rate was 129.8%. We added approximately 150 service technicians to our workforce in 2021 and remain committed, excuse me, focused on our strategic aftermarket initiatives, including our express services, mobile service and contract maintenance.
Considering that there are fewer working days in the fourth quarter, we were particularly pleased with our fourth quarter aftermarket revenue, which was essentially flat to the third quarter. We expect supply constraints will continue through the middle of the year, but we believe the demand for aftermarket parts and services will remain strong. As we continue to add technicians to our workforce and implement our existing strategies at our new locations, we believe our 2022 results will outperform the industry. Turning to truck sales. In 2021, we sold 11,052 new Class 8 trucks, accounting for 4.9% of the total U.S. Class 8 market. The nationwide economic recovery led to strong demand for new Class 8 trucks, but limited new truck production impacted our deliveries throughout the year.
In the fourth quarter, consumer spending remained healthy, and we experienced an increase in sales as the year ended, which historically equates to positive truck sales results in the first quarter. ACT Research forecasts U.S. Class 8 retail sales to be 247,500 units in 2022, up 8.9% from 2021. While we expect we will continue to feel the effects of production capacities, demand for new truck sales remains strong. Due to our recent acquisitions and strong backlog, we believe our Class 8 truck sales will outpace the industry this year. Our Class 4-7 new truck sales reached 10,485 units in the third quarter, accounting for 4.2% of the U.S. market.
Though demand remained strong through the year due to the healthy economy, production capacity was limited as some manufacturers focused on increasing heavy-duty production more than medium-duty, and manufacturers were not able to increase production to pre-pandemic levels. ACT Research forecast Class 4-7 retail sales to be 263,700 in 2022, up 5.6% from 2021. As we look ahead, we believe demand will be healthy, but production constraints on Class 4-7 will likely continue. We expect our Class 4-7 results in 2022 will grow at a pace similar to the expected growth in the industry. Our used truck sales reached 7,527 units in 2021, up 1.7% year-over-year.
Used truck demand and values remain strong, largely due to production limitations of new Class 8 trucks and strong spot rates across the country. In 2022, we expect used truck demand to remain strong, though values may begin to normalize in the second half of the year. In 2021, we made significant strides in developing strong expense management processes, achieved record high profits, paid off all of our remaining real estate debt, restructured our lease and rental fleet debt to allow us to take advantage of our strong free cash flow, and paid the majority of the purchase price of our acquisitions in cash. We are proud that our approach helped us keep our balance sheet and cash positions strong, while we continue to return value to our shareholders through our earnings growth, quarterly dividends, and our stock repurchase plan.
Well, while expense management will remain a focus in 2022, but due to normal seasonal increases in employee benefits, payroll taxes, and equity grants, we expect our general and administrative expenses to be sequentially higher in the first quarter of 2022 compared to the fourth quarter of 2021. As always, I want to thank our employees for their outstanding work in 2021, for providing superior service to our customers, and remaining committed to our long-term growth goals, especially given the continuing challenges of the COVID-19 pandemic. It is important that I emphasize that our record high net income and EPS results could not have been achieved without their dedicated work and focus. With that, I'll take your questions. Also, understand my voice is even worse than usual today, so bear with me.
I always got a heavy voice, but I have a little bit of laryngitis right now, but other than that, I feel great. If you'll take over, we'll take questions now.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Jamie Cook from Credit Suisse. Your line is now open.
Hi. Good morning. Congrats on a good quarter. Rusty, you sound great. Couple questions. You know, one, understanding energy's a small part of your business. At this point, you know, just given the rebound in prices, can you talk about if you're seeing any sort of signs of life that could be a potential positive for 2022? Then, you know, my second question relates to, you know, what you're seeing on the pricing front, on the new truck side and the market share opportunity, with some of PACCAR's big product launches this year, both on medium and heavy. Thanks.
You bet. Thanks, Jamie. When it comes to oil and gas, we are seeing some pickup from a parts and really from a service perspective, okay? It has picked up. It is gradual, though. I think I was speaking to some people on my board. I just finished a board meeting that are, you know, pretty. One gentleman in particular is pretty knowledgeable about it. We both agreed that, you know, what we've seen past the actions of the country, really with the oil business are different, right? There's a much more disciplined approach, but it is coming back slowly working a well over here or drilling a well here.
I was actually driving through South Texas yesterday, the last couple of days, too, and was able to see something in the Eagle Ford a little bit, something I hadn't seen in a long time. That's a positive. There's no question. For me to sit here and tell you it's gonna make this huge difference in our results, I can't say that. I think people are gonna be much more disciplined, especially on their CapEx approach. You know, we have really not seen anything that I can attribute from, you know, I mean, minuscule stuff, but that I can attribute truck sales per se to what we've seen so far, just on the service side. That's not to say that won't come, but everybody is very disciplined.
You know, you don't have all this money being thrown at it that you typically see, you know, in the boom. When it's booming, it's booming, historically, what we've seen for decades. I don't think that's going to be the approach. There's no question that there could be maybe something downstream. I don't see anything outside of service right now. As far as you asked about, what was that, Jamie? You said about, you know, as far as
There are two questions. For what you're seeing on the pricing front, and then I just wanted to get into, like, the market share opportunity for Rush with some of the new product launches.
No question manufacturers, all manufacturers are catching up to the supply chain increases, the inflationary pressure. That is going to be passed through, no question, to the end user. You know, it took a little while during the year. As you know, all manufacturers had different surcharges and went about it differently. Really and truly, they may have gone about it a little bit differently, but everybody, you know, was trying to catch up to those price increases, and especially because you know, you had such disruption in the supply chain that even put more price, you know, more costs, into the supply side, just with overall normal inflationary, what we saw going on, the inflationary pressures that we had.
They are catching up, so there's no question pricing is gonna go up or is up and gonna continue to go up. I think you'll see some discipline from manufacturers around getting too far out, not wanting to get caught up like they did last year when you're having to bring in surcharges and things like that. You know, you got a customer base that's wanting pricing for two or three years out, and you got manufacturers saying, "Wait a minute," you know. If they do, there will be caveats to protect themselves. This just goes across the board for what they saw happen to them last year, right? I do expect, you know, they'll be back to more normalized margins themselves, and that's across the board. I think, you know
The last question, the market share opportunity for Rush with some of the new product launches.
No, there's no question. We have not just in our historical areas of responsibility that we have, but in the acquisition side, understanding that Summit is in big fleet country, I would call it. You know, when you look at Missouri and Kansas and Arkansas, there are many over-the-road fleets, probably more based there than in all the other 20-some states we're in, from an over-the-road fleet perspective. The problem, Jamie, is allocation. You know, it's a constraint. You know, the problem for us will be we're pretty much on allocation. You know, we know what we're gonna sell, and I think in 2022. It's possible that could continue into 2023, which will hamper our ability to go out and conquest, you know, other new business, right? I mean, we've had to deal...
All manufacturers have had to tell certain customers, you know, that customer wants X. Well, this is all you get is Y, you know. That's gonna put a little bit of a damper. I feel good about our allocation numbers. We got caught a little bit last year that we were pretty much back half loaded, and then we had all the supply chain constraints, and so we didn't get product that we expected to get. I expected to deliver a whole lot more trucks. If you look at the results we had in 2021, it's pretty outstanding when you think that, you know, we were back half loaded, and then we couldn't get it because manufacturers couldn't produce. You know, I think we're gonna take some share. There's no question we're gonna go up.
I would expect us to be ACT's up, what, slightly there, under 10%. You know, I would expect us with our acquisition, again, to be somewhere up, you know, 18%-20%, maybe, something along those lines.
Okay.
15%-18% in our deliveries. We're limited 'cause that's all we can get, right? That's all you can get. That you know that hampers you a little bit to go out and conquest new. I do expect our market share to go up above, obviously, with the acquisition, and I think even you know not being so back half loaded, but more evenly distributed from Rush's perspective across the whole year. I do expect us to deliver more trucks for sure and have better than 4.9% of the Class 8 market without question.
Okay. I'll let you save your voice for someone else. Thanks, and hope you feel better.
I don't know if anybody else wants it.
Thank you. Our next question comes from Justin Long, from Stephens.
Thanks. Good morning.
Your line is now open.
Good morning, Justin.
Good morning. I wanted to ask about the Summit acquisition, obviously a big deal that just closed. Any way you can help us think about the impact you're expecting from that acquisition in 2022, and maybe just after having a look under the hood, how you're thinking about the opportunity there to integrate the business and improve the business.
Yeah, let's talk about that. We'll talk about, you know. Remember, we just finished our first month of January with the acquisition. You know, while you know, you do your due diligence and you do everything, but until you know, you can do one quick test drive, but until you, get in the car, start the engine, you know, Justin, then drive it, then you know what you got, right? They've got a great group of people there. We're excited about what we've seen within the first month. At the same time, there is a transitional period. Understand that when we close the deal on the 13th of December, typically, historically, we switch everybody over to our SAP business system, which we believe is the best out there.
We believe we have more in-depth than anybody when it comes to that, which allows us to achieve the results we do, especially on the parts and service side. That said, we did not switch them. It would have been a very large undertaking that would have been very disruptive to the business. That said, we are going to switch them, 1/2 the group on March 1st and 1/2 the group on May 1st, okay? There's, you know, an acclimation period, right? They have to get acclimated to using a business system that provides a lot of tools but can be a little complex. That transitional period can take people a little while. Those are all exciting things, though. You know, we're very pleased with what we've seen so far.
We will continue to roll them into our culture. They had a great culture, but obviously we're the purchaser, so they will roll into being a Rush employee, a Rush person. That doesn't. You know, it's not an add water and stir. We believe, you know, there's a lot of good upside for us, especially with all those large fleets from a national account perspective. Not necessarily, they don't necessarily do trucks, but more around the parts and service side than anything else. We believe there's opportunities for adding a lot of technicians to their network, as we've looked at, you know, a lot of mobile service possibilities. I mean, these things are not gonna happen just day one. There is, without a doubt in our mind, upside to that.
That's gonna, you know, roll in over year one and year two and, you know, and year three as you roll through it. You know, I couldn't be more pleased with the acquisition. I feel stronger now about the more medium long-term upside than I did when I made the deal with Mr. Gantz back in July, August. But those are, you know, those are timing things. Trust and, you know, look at our historical results and watch what we do. 'Cause we've got a great group of people to work with, great territories that just fit, like I said before, like a piece of a puzzle and all around, right in the middle of all our networks, and it just strengthens our approach to customers, right?
You know, I'm all about differentiating ourselves from everybody else, and our map is our biggest differentiator outside of our people. So we're excited about that. You know, I mean, as I said, you know, the numbers, you know, they're gonna obviously be up. You know, you're talking parts and service and sales. And I'm gonna tell you, adding them into ours, you know, high teens, you know, things like that may be a little better, but again, we're on allocation from a truck sales perspective, so it's, you're just limited in that way. But the big upside for me in that acquisition is our opportunities in parts and service. You know, they've got good facilities, what we bought. I mean, I believe we can grow the technician base 50% a year or so. Okay? I honestly do.
You know, bring mobile. They don't have mobile. They don't do some of those other things again. Put in some of our, you know, the initiatives that we have, whether it's RushCare Service Connect, RushCare Parts Connect, all the different names of the things that we do, express services, things like that. Just a lot of upside, but it's not an add water and stir. Allow us to operate it. We will be creative, don't you worry. We've just got to get it done.
Understood. You talked about truck sale expectations this year. When you think about the parts and service business, what are your expectations for growth in 2022? I guess both organically and then once you layer in Summit.
I had told you know, high single digits, maybe a little bit more, okay? Based upon some inflationary pressures from a same store perspective. We're looking high teens, you know, both on the truck sales side and the parts and service side with Summit integrated in, okay? Similar, you know, growth rates, but more opportunities over time on the parts and service side. There's no question, I say it again, that we've got some opportunities. You know, like I said, you talk about lifting the hood up, we just cranked the engine, and we hadn't driven a mile yet, really. We just rolled out of the parking, rolled off the driveway. But those will be what I would tell you now.
Maybe a little bit more upside in it, but you know, let us drive the car a little bit more and get rolling and get our stuff in there. You know, that's basically what I can tell you, Justin. As I said, we run it for January, and everything's just like it's supposed to be and lots of opportunities.
Thanks. Last question from me. Just looking at the first quarter, I know there are a lot of moving pieces with Summit getting layered in. I think you mentioned earlier, Rusty, G&A would be up sequentially. Any way to help us think about kinda EPS from 4Q to 1Q and what you're expecting? Maybe put some numbers around that G&A increase.
Okay. Well, you started hitting on EPS, and you know I'm not gonna do that. Go back historically. I'm gonna tell you, business is solid, business is great, business is good. Understand that Q1, if you look back all the time, is our softest quarter. Okay. We layer in more G&A. We have all the, you know, equity, comp, cost, taxes, this, that, the other. Just they all hit you in Q1, and then we level out. You know, you know, when you got G&A, you got SG&A, right? I expect sales to be up, so S's will be up in my mind, okay? G&A will be up. I, you know... With Summit in there, it's gonna be a little murky, okay? But I do expect strong results. You know, you can look back at last year.
You know, I think first quarter was like, what, $0.79, and then rolled on up from there. I expect it, you know, we'll, you know, take it from there, add Summit in. Business is solid. We are on allocation again. Remember that. I'm not sure what first quarter truck deliveries were last year, but, you know, they're not building at a higher rate this year than they were Q1 last year. You know, what were they, Steve?
29.
Yeah, they were way back. You know, we were almost 3,000 units, okay, last year in Q1, compared to this year's fourth quarter at 25, I guess.
Mm-hmm.
You know, we were down 450-470 trucks. You know, from Q1 to Q4, I'm not sure we can get to that same Q1 right now. We might. We probably can be somewhere back up, but it won't be over truck deliveries, right? Because of the allocation. I do expect the rest of the year, deliveries should be better once we get into Q2, Q3, and Q4, because I don't believe we're going to have the supply chain constraints. There'll be some. There still are some. I hear about them, right? There's no question.
I don't think that they'll be as pronounced as what they were, especially in Q3, remember, because we are the retail delivery, and a lot of times we're lagging 60-90 days behind production rates as we, you know, put bodies, do this, do that, and deliver vehicles. I know I'm giving you know, a long-winded, rambling answer here, but I'm trying to tell you, it's, you know, I should say the same store. We will deliver more because of Summit. My bad. On a same store basis, not knowing, I don't know if we're going to get to 3,000 units or 2,990 like we were last year. You know, we'll deliver more for sure, but with Summit, in, you know, in Q1.
I expect it to ramp up from there as the year goes on.
Got it. Thanks. I'll pass it on. Congrats on the quarter.
You bet. Thank you.
Thank you. That is star one if you would like to ask a question. Our next question comes from Andrew Obin from Bank of America. Your line is now open.
Hey, Rusty, how are you?
I'm fine. Did you...
Yeah. You know, I would say.
Did I hear Andy Obin?
Yeah, no. I would say you sound almost presidential. That's how I would describe it, you know?
Oh, no, Andrew. What number president are we going with, Andrew?
Well, you know.
Let's leave politics aside this morning.
The question I have for you is, you know, given all the inflation, right? Clearly, the execution has been the differentiating factor for your results. Given all the inflationary pressures, right? When we talk to you guys, it seems that the way you're running the company differently this cycle, right? You know, it's just you're committed to no cost creep in this cycle, right? Sort of keeping control over costs over the next couple of years. You've changed, I think, internal compensation metrics. You changed communication internally, right? The question I have for you.
Yes.
Given all the inflationary pressures that we are seeing in the market, how do you manage or how do you pivot your strategy on containing the costs while being able to grow in this environment where we're short of labor, short of components, and clearly costs are going up? Thank you.
You bet. Great question, Andrew. Don't think that hadn't been at the forefront of my mind recently, okay? I can't run from inflation. I can't run from wage pressure, you know, and we are getting that like everybody else. It is real, okay? If you're getting it, you should be getting it on the revenue side, too, right? It's just a management. Back to what we talked about. If you'd have told me six months ago when we were communicating, you know, and I looked at how I was gonna manage G&A, I probably had to raise G&A, more G&A is gonna go up next year. I can't run and hide from it. At the same time, I can manage the spread, okay? What I get from a revenue perspective and what my G&A increases are, right?
They should go hand in hand, except my job is to manage the things we talked about, Andrew, to manage that expense piece around, but I'm getting it on the revenue side, but to keep that percentage difference, you know, and that's what we're about. We're gonna have to do. I can't run from higher fuel costs. I can't run from higher labor costs. We're affected like everybody else. At the same time, it becomes a spread game, and it's all about making sure you're getting it on the other side, too, and then keeping that spread where it needs to be. It's just diligence. It's, you know, you're going to spend some money, but again, it's about how much do you spend? That's what it's about, right?
How much is that revenue or how much is that gross profit really what we're talking about that you create, that you spend? How much do you keep? I can't change where I'm at. I can't change the world I'm in, but I can manage that spread, and that's what we're focused on is managing that spread. As long as we're getting it over here on this side, if I'm getting it here, I'm gonna be getting it over here on the sales side. Again, I've said it 3x already, it's that spread and that management of it, and we believe some of the tools that we put in place, some of the disciplines that our folks have learned. I mean, there was nothing greater than.
That's a terrible way to say it, but nothing was a better teacher than dealing with the original onset of COVID and the business blowing back up and managing through it. You learn to do the things you had to do, and now you're not gonna give them away. I believe we're capable of doing that. We've communicated that. Proof of the pudding is in the eating, so I guess we'll see here over the next year or two, right? I'm looking around the room at a few folks that, you know, it's their responsibility. It's ultimately mine. that buy-in on our ability to keep that spread where it needs to be, regardless of what cost. I can't control inflation, but I can control the spread. That's all I can tell you.
Thank you. The other question I have, you know, when we do our channel checks, there's this debate about the impact of higher interest rates and the expectation of higher interest rates on the underlying economy. You've been around for a while. You know, you touch a lot of industries, a lot of geographies. First, can you just tell us what you are seeing in the broader economy? Second, could you share your thoughts with us based on the conversations you've had with customers about the potential impact of higher interest rates on just the underlying economy? Not the truck cycle, but just the underlying economy, as I said, because, you know, clearly, you now touch very, very broad swaths of the economy. Thank you.
Sure. You bet. Well, right now, it's all been more talk, and it has not trickled. I don't like the word trickle down, but it has not, you know, got into there. But everybody's there is concern about that rate increases. But business is still extremely strong. Okay? And the balance sheets of a lot of these companies are in pretty good shape. Where it will have an effect will be on the smaller folks, the medium to small guys that don't have as strong of balance sheets. That's typically how it works. You know, they're the last in, first out, you know, when you got to swing, when it blows up like that, you know, the smaller medium-sized guys are the last in, first out, and some of this stuff. I haven't really seen it affect anybody's decision processes yet.
Common sense at 63 years old, going to be 64 in April, been through enough of this. You know, you, again, you know, I just like, you can't run from it. Higher rates will start to squeeze off some of those other, you know, some of those smaller folks because they can't, you know, leverage off their balance sheet because they don't have it, and they rely on, you know, leveraging themselves up. Obviously, that will affect their abilities to grow and to, you know, obviously make money going forward if you're leveraged. I don't look for this to be any different. I have people talk about it. I haven't seen anything slow down decisions right now, but you would anticipate, given historical, that day will come. I haven't seen anybody.
You know, remember, I'm not in touch with every customer. We got a big company. I haven't heard anyone speaking of slowing down based upon rates. I'm talking about, but these people I want, probably most people I've talked to are the larger, have big balance sheets. Okay? I haven't heard it from the field yet. You would anticipate that to come when the real rate increases get in there, which they're trickling in obviously now. You know, a couple points is not gonna blow it up. It's gonna take more than that to slow it down. You know, but it will start to slow those others down if it, you know, it goes up three or four points, at the borrowing end. Again, I-
Thinking about the broader economy, what you're sort of seeing from your customers in Florida, Texas, Southern California, you think, you know, sort of the initial reaction to interest rates should be muted other than, as you said, sort of small and medium truck fleets. Is that how I should be thinking about it?
I think so, Andrew. You know, that's just my opinion, but you know, got a few years at it. You know, because business is still so strong. Now, if it starts slowing people's business, it's naturally going to you know, affect growth, and that'll slow down people's purchases without question. For now, you know, there's a little room in there, I think, to pay a little bit more interest. A lot of people got some strong balance sheets that you know, they're not levered up. It'll be that small, medium guy who's levered a little more that'll feel it first. Margins are so good, you know, even with the inflation and everything, everybody's getting pretty good. You can see, you know, the over-the-road is still. Look at all the rates that people are getting, which is driving inflation.
Right now it's, you know, I don't see it having much effect at the moment, but it could have an effect, you know, if we start going up substantial. A quarter point here, a quarter point there is not gonna slow, I don't think, you know, just the overall economy at the moment, just because the demand is so strong still. You know, after all the money we put in the economy the last couple of years, it's still out there. You still got demand.
Now, Rusty, in my 25 years, you're one of the smartest, sharpest guys I've met. Despite sounding presidential, I would take your advice over 45 or 46, so thanks.
Thank you, Andrew. I don't know if they're deserved, but I appreciate the kind words.
Thank you. I'm showing no further questions. I would now like to turn the call back over to Rusty Rush for closing remarks.
Well, folks, we appreciate you taking the time this morning to listen to our fourth quarter results, year-end results. We look forward to talking to you soon. We'll be speaking to you about the middle of April with our first quarter results, and hopefully you'll be back. Thank you very much. We'll see you then. Bye-bye.
This concludes today's conference call. Thank you for participating. You may now disconnect.