Rush Enterprises, Inc.
Q1 2015 Earnings Call Transcript

Published: 22 Apr 2015

[Operator:]

Good day, ladies and gentlemen and welcome to Rush Enterprises First Quarter 2015 Earnings Results Conference Call. At this time all participants are in listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder this conference call is being recorded. I would now like to turn the conference over to Mr. Rusty Rush, Chairman and Chief Executive Officer. Sir, you may begin.

[Rusty Rush:]

Good morning, everyone, and welcome to our first quarter 2015 earnings release conference call. On the call today are Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Derrek Weaver, our Senior Vice President, General Counsel and Secretary. Now, Steve will say a few words regarding forward-looking statements.

[Steve Keller:]

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, 2014, and in our other filings with the Securities and Exchange Commission.

[Rusty Rush:]

As indicated in our news release, our net income was $16.8 million or $0.41 per diluted share on gross revenues of $1.19 billion. In the aftermarket our parts, service and body shop revenues were $337 million a 9.1% increase over the first quarter of 2014. Demand for aftermarket services remained steady this quarter. Although we have begun to see energy sector activity decrease slightly as compared to the end of the last year, with declining rig counts and contracts nearing completion. We expect parts and service revenues were negatively impacted but we remain committed to working with our customers operating in this sector throughout this difficult period. Moving on to truck sales, Rush's Class 8 new truck deliveries accounted for 7.2% of U.S. Class 8 through truck sales market up 52% over the first quarter of 2014 and significantly outpacing the industry which increased 25% over the same time period. We were able offset a decline in Class 8 new truck sales for the energy sector with delivers to mid and large size over the road fleets. This business is primarily served consumer retail markets. Our Class 4-7 new truck deliveries also outpaced the industry accounting for 5.6% of the total U.S. market driven by sales to several large leasing companies and our ability to offer ready-to-roll equipment to smaller operators supporting infrastructure construction projects. ACT Research forecasts U.S. Class 8 retail sales in 2015 to reach 267,000 units, up 19% over 2014 and U.S. Class 4-7 retail sales to reach 209,000 units up 4% over last year. Our backlog remains stable through the second quarter but order intake has begun to soften. We expect our Class 8 truck sales to remain flat next quarter as we continue to work to offset the decline in new truck sales to the energy sector with incremental business in other market segments and regions of the country benefiting from the overall improved economy. In the area of growth we've expanded our Rush care rapid parts call centers in the Midwest introduced our telematics product offering and remain on target to unveil our Momentum Fuel Technologies compressed natural gas fuel system in May. Major new facility construction and renovation projects also remain in process to expand our service capacity in Texas, Ohio and Colorado this year. With the exception of two newly acquired locations we have completed our business operating system roll-out. As expected general administrative expenses were sequentially higher this quarter due to employee compensation and benefits, payroll taxes and the rollout of our business system. We expect to incur continued expense in training and support of these dealerships that have recently transitioned for the new businesses systems for the next several months. Finally as we celebrate our company's 50th anniversary this year, I would like to thank all of our customers for their business and our employees for their hard work in contribution to the company's success this quarter and throughout the year. With that I'll take any questions.

[Operator:]

[Operator Instructions]. Our first question comes from Brad Delco from Stephens. Your line is open. Please go ahead.

[Brad Delco:]

Rusty, just wanted to get a little bit of more color on your comment that the parking service segment of your business would be negatively impacted by the energy weakness. I think last call you talked about seeing mid-single digit same-store sales growth. Are you kind of backing of that number or how would you expect growth to trend in that segment throughout the rest of the year?

[Rusty Rush:]

Well, I do believe that definitely will have a negative impact from the oil and gas sector on the service side. As I noted in the comments earlier we have begun to see it but just slightly, I look forward with a little apprehension in that side of the business, I don't have a total feel as well as I do say on truck sales side of how they will effect oil and gases going forward. I do know it's not possible, let's be real about that. But to what degree we see a downturn, where it falls as we get into the summer months from parts and service perspective, I am not quite, I really don't have a handle on to be honestly because we've seen slight decreases, but commonsense tells you that you're going to see some more as we go forward, right. As rig counts go down, projects finish up, that you will continue to see, but for now we're down slightly from a service perspective especially, but not dramatically. But I would expect to see more. And how does that affect the overall number and where do I still be? I am still going to believe that we can get mid-single digits. We have some upside in the organization from my perspective given other markets and segments, we look forward to be stronger, the construction side of the house when you look at the Navistar side of the house. I do believe there is still growth there since we finally -- but the Navistar side of the house went through the most accelerated compressed rollout 50 something stores in nine months. What I did 50 something stores on the Peterbilt side over five years. So they have been into a little bit shock. So as they adapt to new business system, we continue to train and get better and the overall market continues I think to get better for Navistar in general then I look for that, we also have upside in that side of the house. Obviously as I said, I mean, if I want to get geographic with it, you would definitely Texas and Oklahoma are going to feel the pinch, but I do believe we're going to have a stronger year in Florida, a stronger year in California, a stronger year in Arizona. So how that -- I am not going to back off that mid single-digit number yet, I would still think that we could hopefully achieve that with the diversification of our markets that we don't work real hard in the past to build.

[Brad Delco:]

And then maybe my second question either for you, Rusty or Steve. Looking at the average revenue per truck in Class 8 and it was down a descent amount in the first quarter. Guess what I am trying to understand is I know that's mix, but does you cadence of truck sales to the oil and gas industry, does it get more tough from a comp perspective in 2Q and 3Q or how do we just think about looking at that metric relative to a year ago period?

[Rusty Rush:]

Well, there is two things; I think you've asked -- there really two questions I believe in what you've asked. As I feel our sales price being down, no question about it and that's a mix issue, right. A lot of times there is a lot of updating that goes on when you're selling more oil and gas trucks. Oil and gas truck sales compared -- let's go year-over-year we were probably down about 50%, sequentially it was more than that and I don't have that number for you from what we delivered in the first quarter. Also in that as we had a lot stronger Navistar sales, our Navistar sales were up from -- they were up -- last year it was like 455 in the first quarter and this year it was 1,371. And their product line wins itself more to over the road trucks, with that as much updating and added equipment to them, so that drove the sales price there. When I look forward to oil and gas truck sales, I'll be quite honest with you, as I look over the next three quarters I could see somewhere between a 1,600 and 1,800 unit hit over the next three quarters. I mean, we expect that to be almost right up, there will be very little oil and gas sales over the next three quarters, but at the same time we hope to pick up in the other areas of the business but that may keep the average price down because you don't have the all the rigging and everything else since we evolved with it.

[Operator:]

Thank you. Our next question comes from Andrew Obin from Bank of America. Your line is open. Please go ahead.

[Andrew Obin:]

Hopefully I will get my accounting skills improved, we'll try. But question I have, you also said in your commentary just on broader cycle that you continue to see business from smaller and medium fleets also contractors. Can you give us some more color because I think there is a lot of controversy where we're in the broader cycle and how close we are to the peak? I know you use ACT forecast I get it, but just would love if you could sort of draw in your experience and talent what you think about where we're in the cycle broadly speaking?

[Rusty Rush:]

No, we're in the middle. Remember we're on the end of the tail, right, so our deliveries to fleets are going to be up. And that's one thing we've built this model for this type of diversification and our model for these types of moments when one sector goes down, right, you hope others to offset it. But we are in the middle of deliveries and will be over the next couple of quarters of these types of vehicles, right. The construction side you asked about, I've seen a lot of highway lettings and things going on and port construction and stuff like there is all types of projects out there that we actually probably haven't booked all that business, right. That’s some forward-looking stuff that we look forward to be enable to book business around a lot of highway projects, there is port construction, there is other things that are going on and infrastructure building out there right that we believe we can capitalize in our model. The order intake, are we at a peak is that what you're asking me?

[Andrew Obin:]

Well, I am more interesting in production, right, because for you obviously sales is what we care about.

[Rusty Rush:]

Sure.

[Andrew Obin:]

I mean, I think you listened yesterday with Pathar's call; there are still plenty of slots available. I think our slots available throughout and the year still. So we believe we still have production to sell into. So that being said I guess it's up to us to sell into and then we’re fairly confident given the diversification of our sales force across the network and the relationships we have with enough markets and not all that is oil and gas, there are enough markets that we see that will give us some upside and we have ability to sell into because we have production and in our manufacturers, both manufacturer both PACCAR and Navistar. But we’re confident that we’ll be able to sell into that into those markets as the year progresses. The year is not over with by any stretch from our perspective and that goes for all the OEMs we represent both on the medium duty and heavy duty side. We’re not out of production to sell into and we’re working feverously to sell into that.

[Andrew Obin:]

And just a commentary you made on small and medium fleet, because for a while it seems that this market segment has gone away permanently. Can you just tell us what you're seeing in terms of the health of the top segment and the ability/willingness of the sub-segment to keep order in trucks?

[Rusty Rush:]

Well, I believe given the rate environment that we’ve experienced that our customers have experienced for the last year or so, last year was the best period ever for rate increases. So anytime in any business that you in my experience whether any business since you get rate increases, it increases the opportunities for people to look at it as a good venture, as a venture to growing, as a venture to replace it, and that’s what we’ve seen along the way and continue to see because those are the folks that people sometimes lose sight of, because they are not publicly traded, right. Everybody loses sight of the 300, the 400, the 500 even a few thousand truck private fleets that are out there, but they are there. And given the robustness I think of their business over the last 1.5 year, it's creating an opportunity to replace because they had held off replacing for a while. The large public truck load carriers had continued to replace and even some of the large private ones have continued to replace through the down cycle, these folks though have now come forward over the last few quarters and replace, and there really hasn't been to your point on expansion. There really hasn’t been that much expansions is mainly this is -- there is some expansion going on in my mind right now, mixed in with folks that hadn’t replaced due to the environment where we’re in, now given the better environment we're in and also given the quality of the product, the fuel mileage of new products. I mean there are many driving factors to replace vehicles because I always tell people for me I look at it and look back. If we say the average number ramble little here for which you know me, let's say the average is 200,000 units, we only delivered 97,000 in '09, 100 in '10 these are U.S. retail numbers and '11 if I best recall was around 173 or 174 in '12 and then went to 198 and it was 180 to 196 to 188, last year was the first year we topped 200,000 in forever. So I still believe while this might be the peak year, I don’t look for the market to drop-off it dramatically 10% to 15%, next year you're still talking about the best year in eight or nine years. So, I mean 10 years since it was six so it's hard to for me to get too negative or too down in the future as I look for, because all that pent-up demand from the recessions through those years of under purchasing is still there, some of it is still there. Yes, we are easing a way at it but there is still more to go from our perspective.

[Operator:]

Thank you. Our next question comes from Neil Frohnapple from Longbow Research. Your line is open. Please go ahead.

[Neil Frohnapple:]

Rusty thanks for the color on your guidance expectations for Class A trucks sales remain flat versus Q1. So just as a follow-up, you guys had a strong quarter for medium duty any thoughts you can provide on the outlook for the second quarter for deliveries for that business?

[Rusty Rush:]

Yes, I feel very good about it, I feel as solid as we were in Q1 and possibly a little up depending on timing. I’ll tell you what; one of the biggest issues right now is remember our medium duty truck typically has a body on it, right. You don't sell many medium duty trucks without bodies. So the demand in the press around the supply side is a little -- is pretty strong right now. So getting all that out, when you get in this type of environment you running some charges and things like that, but our medium duty business still looks very strong throughout the year, I would expect this to be a record delivery I'll be quite honest from a medium duty perspective. A lot better, I just -- no guarantees in there, but no our medium duty backlog looks good and so we feel pretty confident about that, especially when I spoke about all of these construction projects that are going on, right, that count typically requires a lot of medium duty and infrastructure build outs so things that are going on, that typically requires a lot of medium duty focus. So, we feel real good about where the medium duty business is at.

[Neil Frohnapple:]

And then regarding the new CNG fuel system, so you guys are on track to launch it next month, just curious have you guys had customer interest at this point or orders or just can you just kind of walk through little bit how that's going to work from here?

[Rusty Rush:]

We have customer interest you better believe it, we’re excited to launch it. Now just because we’re launching it in May remember production is really going to start in the summer and we’ll start selling -- you've got a prototype, we’ve already given that, you're going to test vehicles with customers to build confidence. This is an ongoing -- it's an accelerating process, but you have to go through the steps. So you can’t -- you have to get confidence from your customer base, but is there a demand out there, is there a keen interest and what we’re going forward with you better believe it because at the end of the day, I believe like everything else we do, what's going to drive the success besides the quality of our product and I'm not going to give more details will unveil next week -- excuse me the first week of May at ACT, the largest natural gas conference in Dallas. But our service network like anything else we do service is going to sell it first for us. The quality of products is going to be there I'm very confident in but our service network and our ability to take care of customer basis regardless of where you see natural gas going, has it slowed down? Where the growth path people think? Maybe, yes but I have my strong beliefs and we're at fixing the market that fits in and we're still highly focused, highly dedicated and highly excited about unveiling the product and really, allowing it to be big contributor to Rush Enterprises. -- I'm not worried about the next year or so, but over the next few years.

[Neil Frohnapple:]

And then just one last one if I can. Can you provide any updates on the attraction you're having? Moving the used gross are trucks with the MaxxForce engine pick up in used sales there?

[Rusty Rush:]

Yes, I can. There was anything that I woke up on January 1st determinant to do, to support our customer base. And how we're going to move more used Maxxforce engines. So in combination within Navistar, as I said on along, if you do all the -- if you will go and do all the proper campaigns on the engines and focus on it, you can -- focus on, the truck will run in the second and third in the markets without question. We have put a focus from that perspective on it. We have focused on customers, trying to help trade customers, out of that product and reasonably been able to do it because we've really put an internal focus on moving that product, not just through just our Navistar stores, we've engaged our whole network, which includes our independence; our joint venture used the same. We have a lot of different things out there tools, we put in our tool box just to prepare for this type of moment. And we've increased sales dramatically, without -- percentages become but trust me, we may be selling 10 amongst we're selling 80 to 100 of months. So, we're really focused, we're seeing that it does well in the second and third market. And at the same time, not the truck itself is fortunately 2012 models at bottom of 2011 are coming into better focus to be able to trade for, were the GAAP between what was out there perceived value from an option perspective and what real value should be as closing, as they come down on balance sheets and as talked we build confidence in the customer base and bring back the valuation on the product, raise the valuation from where it had been over the last year, when it was beat down pretty hard. So the combination of all the things that I've talked about, I think it is allowing us to see a light of the window, to really help get this product moved in that second, third markets and get the great product that they're building, that are into the hands of customers.

[Operator:]

Thank you. And our next question comes from Jamie Cook from Credit Suisse. Your line is open. Please go ahead.

[Jamie Cook:]

I guess a couple of questions or clarifications. One, Rusty, you talked about just the issues behind, why the price per truck or average selling price is going down. You talked about Navistar and energy. Outside of that, our customers are asking for any pricing concessions? Is the market becoming more challenging on the pricing side? My second question is last quarter you saw throughout a 20% headwind to EPS because of energy, I don't know if that's still the right way to think about it. And then my last question, is that market share opportunity specifically for Rush as we hear in the market some of your peers are out of capacity? And Peterbilt has plenty capacity, Navistar does. So, while you're always looking for market share, do you see a larger opportunity to gain share in the remaining nine months relative to normal year?

[Rusty Rush:]

In regards to the average sale price, Jamie, I don't see -- there hasn't been this huge ramp up, I think you can tell by looking at the manufacturers releases, there is not the -- we haven't seen their margin expand dramatically. So, as I said all along, nothing more than your normal.

[Jamie Cook:]

But the pricing market isn't getting more competitive, I guess, that's my question, is that contributing?

[Rusty Rush:]

No, I don't think for me this time. I think there has been good discipline on each side; it's been 1% to 2% each year. That just basically covers cost as much as anything. And so I don't think there has been huge expansion in margin and I don't think you see customers. Especially they haven't been -- it's not like their prices have gone through the roof over the last two or three years. So there is not much, I don't think there is really a lot there to get to be honest with; this was pretty steady, actually we don't see that out there in the market place right now, because they haven't been taken advantage of, should I say over the last couple of years or last year during this. So I don't see but there is a lot to get there, when it comes to the energy and the 20% number throughout, well let's break it into pieces here. I said, I'll talk to you in April, right.

[Jamie Cook:]

It's April.

[Rusty Rush:]

It's April.

[Jamie Cook:]

It's the end.

[Rusty Rush:]

Well, no, the end is my birthday, the last day of April.

[Jamie Cook:]

But it's the end -- it’s the next earnings call. So as I break it into pieces there is one piece that’s clear and there is one piece that’s still a little foggy here. I think I’ve sort of touched on it earlier. I can clearly understand and I forget percentages we won’t get to absolutes because that’s what you paid me for anyway. The absolutes as I’ve said earlier I can see anywhere from 1,600 to 1,800 units out of Q2, Q3 and Q4, related to energy. Now let me back up on that a second and try to explain what that is. It’s not just a large deal, it’s that second and third and fourth tier person that is related to energy that you may not see as related to energy. We’ve done our best to get our arms around that. There is a lot of other things that aren’t directly related to the drilling of wells that produce whether they’re building buildings or hotels or things that are going on in these sectors of the country. There is all kinds of roads and stuff that go on that these people are affected too. And people and the other population around because the per capita income drops when people are laid off, and so that really comes from energy but it’s hard to -- so we’ve done our best and then when I come with that number that’s a mix of all the above. But I think in those areas especially in Texas and Oklahoma we believe that that will be somewhere around the effect much as 600 units a quarter, the next three quarters and I am not going to look at much further than that because you can’t crank it all back it would be a little further out till we see how the energy sector response going into 2016 I am not ready to go out there. On the parts and service it’s more than 20% now that 20% was an EPS.

[Jamie Cook:]

No, I know, the only reason I am asking the question is because the street basically is modeling flatter in this year, so that’s why I am just trying to parse it out?

[Rusty Rush:]

I expect -- it could be down as much I could that was to give a guidance for a starting baseline, that 20% was a take last year and take 20% off of that. It’s not going to be less than 20%, it could be 25%, I am still getting my arms around the parts and service side as I said we have been steady, now that as I said on the call on February, now it’s up for us to build some of that back I don’t like to build all of that back but I can build some of that back. But it’s somewhere in there is a direct my best estimate of the impact of what it is to our EPS is that and then we’ll try to build some of it back to all these other initiatives. But the energy sector for us is very critical and important. But unfortunately the diversification of everything else we’ve done throughout the years we’re able to offset it with other industries. It’s just that there are a lot of other things that go on inside the energy business other than just the trucks sales, it’s the support and aftermarket support that is key and for our customers and for ourselves obviously. So, that number is not going to be less than that 20 per share and it could be as much as 25 for a baseline. But it's up to us to try to build some of that back for you.

[Jamie Cook:]

The last on the market share and one more just on used inventory and pricing?

[Rusty Rush:]

Used pricing, we had a great quarter. I had almost a record quarter when it comes to used and margin. So we were sequentially off but I believe year-over-year we were up. The pricing on it, we were -- it was up about $2,000, $3,000 year-over-year from a year-over-year perspective, volume wise we were little less sequentially I think than the fourth quarter, I’d have to look back in Q1 of '14, I don’t have it I had to find here in front of me. But we feel good, if we won’t talk about the used truck business I feel good about it. Prices are stable, prices aren’t rising, price just seem to be normalized when I say that on trucks with age and values go down but they go down like they should as time rolls on because used truck continues to be older. But we don’t see any huge drop that you see right now. Is there more supply coming on, on the used side? Well, of course, because we’re coming off the year and we’re picking. We’re not going off from 2009, 2010 year supply, we’re going off '11 and '12 supply. So, we would -- but at the same time the market seems to be absorbing it, the demand is there and we’re comfortable right now with our inventory and valuations and where we’re at.

[Jamie Cook:]

Last just market share, larger opportunity to gain just because with freight line were out of capacity….

[Rusty Rush:]

Well, you bet. I think I tried touching on a little bit there is one thing we’re confident and we still have production to sell into. And we’re very focused on that from the sales perspective and all the different markets. Obviously we feel hopefully that will give us some advantage. And we believe that Navistar will continue even though they may have not shown it and their market over intake, I would look for their order intake to pick up later as the year goes on even as low as it may have been in the last two months I do expect it to pick up and we have production to sell into so yes here is the answer. We look for that to be an opportunity to do a descent job for you folks and our shareholders.

[Operator:]

Our next question comes from Rhem Wood from BB&T Capital Markets. Your line is open. Please go ahead.

[Rhem Wood:]

So, Rusty you’ve talked a lot about oil and gas. But just to be clear, you are not backing away from your unit guidance you gave in I guess in last slide deck which is up for pretty -- for I guess all the segments. Is that correct?

[Rusty Rush:]

Not all the segments. We just talked about oil and gas, you talk about other segments.

[Rhem Wood:]

At the total Class 8 is expected to be slightly up this year, is that correct?

[Rusty Rush:]

I think I said we look forward to being flat to possibly 5% up, something like that, yes, year-over-year right, but in a more, more quarter-to-quarter not as dramatic, we're not going to start off the year like a different type of year, right, is a more steady year than last year was.

[Rhem Wood:]

Right.

[Rusty Rush:]

Way ahead of last year, we don't expect our deliveries to accelerate as dramatically as they did last year but at the same time when you add the whole year up, yes we expect to be flat to slightly up, like I said we still have production to sell into. So we'll see where we end up the year right now but as I try to give Q2 guidance in the release, I'm not ready to give guidance out other than broadly say we expect to be slightly up for the whole year, that's what our plans are and if we get lucky we do better going down the road as we do have production to sell into but we’ll just have to see how the year unfolds.

[Rhem Wood:]

And then can you give us an update on the service bay projects? I think you spoke more recently about 100 million in expansion projects that were expected to be completed by the first quarter of '15, but I assume you have other stuff you're working on. And where does all that stand right now?

[Rusty Rush:]

No, it wasn't first quarter of '15; I've never said that, it's first quarter of '16 maybe but not '15. Where are those projects? Well we opened up Cleveland in the first quarter and well more than doubled the size in the nicest facility in the area. We're working real hard at Cincinnati, if you take the projects going on at San Antonio and Denver and Columbus and Cincinnati, and I'll back up and include Cleveland and going to break ground in Odessa. We were more than -- way more than double the size, the amount of service base we have to service those markets, that I think bodes well, I think we've shown in the past that everyone we make investments we increase the returns. Now it doesn't happen but over the next, let's leave it, it'll probably get all those open, it'll be 12 months to 16 months from now but they will be coming online as we go forward, later in the summer, we'll have later in the summer with San Antonio will increase three fold, all these places are going to dramatically increase we still have that, I think we spent 27 million 29 million right Steve in the first quarter in construction 27 million in construction in the first quarter. So that number will remain like that every quarter going forward. So at least with all we've got going on, so I don’t look for that number to come down as bring these stores online. But to benefit always is shown up for the company and the shareholders long-term is it allows us to increase revenue, increase absorption, do all the things that we've shown we're capable doing in the past and these are areas that needed it. The stores in Ohio I bought, they needed this investment, badly customers needed this. So we're just -- that's just the steady investments that we've always done and boded well for the organization.

[Rhem Wood:]

And then two more and I'll turn it over. Just the one, can you talk a little bit about the new telematics product that you mentioned in the release? And second one just on the balance sheet, I noticed that inventories and the floorplans payable are up. Is that just a timing issue?

[Rusty Rush:]

Well I'll let Steve address and say, I mean our inventories have risen our in process of delivery trucks which the ones we have that we're getting ready for customers are up right now, now that's part of our backlog. I think if you take the whole backlog between what's at the factory and what's in process and delivery it was down 1%, so pretty flat right. So it just happens, some of it shifted from what was at the factories in our hands but we're getting ready where they're getting bodies put on or this put on or that done, that was just, that level was up, so that's what led to that. We feel very comfortable with our true stock inventories and what we have in stock inventory right now, we're comfortable where we are at. As far as our telematics project, you know customer touch and if you hear it from everybody in this industry from manufacturers that you probably don't hear as much from dealers but we have put a big focus on since the summer of last year of understanding, listening to our customers and delivering a product that we believe will be tied in with our call centers and everything else that we're doing and as I talked about the other systems that we're putting in for transparency between the trucks in our shop tied in with our telematics product to allow our customers in an open architecture kind of way to truly manage their trucks better, right. Remember it's all about uptime, and that's what we're going to continue to drive and drive deliveries uptime through all these projects. So we're very excited, we put a separate division in, separate set of dedicated sales force, dedicated personnel to this and we're just were going out and we just actually started selling them, installing the first ones and we look forward to where that may go in the future and at the end of the day we believe that given our network, remember this is a leverage off of our network as much as anything else, because we have a network like anyone else that we can leverage and help keep a customer up and running and through transparency working with our customers and always we believe that this project will lead to increased growth, the number of customers that Rush adds over time.

[Operator:]

Thank you. Our next question comes from the John Barnes from RBC Capital Markets. Your line is open. Please go ahead.

[John Barnes:]

Rusty you've talked a couple of weeks ago about with outlook just for something oil and gas side beginning to maybe address the cost structure a little bit, little bit more focus on that area. Can you talk a little bit about what success you've had there now and maybe what other buckets you would target going forward?

[Rusty Rush:]

Well, you're talking about from a cost perspective?

[John Barnes:]

Yes.

[Rusty Rush:]

Well, really and truly the service side as I said hadn't been hit, that's the majority of where your cost is, right. It's just taking a slight downturn. We will continue to monitor and manage that when it comes to the specifically from the mobile perspective. Our mobile trucks are out. Right now, it's been so slight it's been less than -- I said slightly decreased. Right now, I get a weekly report trust me on where we're at. We're just slightly down, so you're holding steady so you're working with your customers, right, are we listening to our customers as they are under the crunch, you better believe it. We're having meetings with customers all the time seeing where we can help them that may help them focus differently on it. We have pretty much in those areas of Texas and Oklahoma, we haven't really had any big -- we haven't added people, but I really haven't affected which kept it fairly flat as I watch it unfold. Remember on the sale side, it's mainly on the sales with commission there is not that much cost structure behind it. But most of the costs in a dealership go towards the part back in the parts of the service to body shop operations, but they're still maintaining but trust me we'll use diligence we've always used in the past to manage the organization to the demands of the marketplace as we go forward.

[John Barnes:]

Expanding on the question around the used equipment, could you talk a little bit about when is the inflection point when we start to see more used equipment in the market? You kind of gave that run down of the years of production. Are we close? Are we getting close to that inflection point?

[Rusty Rush:]

Right now, it's growing there is no question. I always back up one second; I guess I didn't give enough credit where credit is due. Our folks in my mind are managing it fairly well in the field and you've asked about look at the absorption. Remember seasonally Q1 is always our worse quarter absorption wise, but our absorption is up four points over the last year. So I feel I should give a little bit more of credit. They're probably -- we're not doing a dramatic reduction they're just managing tightly and that's reflected from my perspective in the absorption rate of the first quarter. Now to what you had here, I am sorry. Used equipments, yes, we've already started. The used -- we're already seeing more used trades other there in the marketplace and that's the reason that we went out here over the last couple of years and we've got different independence and JV deals going probably next or six independent locations out there that we didn't have in the past. So we feel that we're poised and ready to handle that as we go forward, handle that increase and trades as we go forward. It's not over the top okay, but it is increasing and will continue to increase given the sales of those years. If you look at it right now typically folks trading trucks that are four years old which is I am going to says about average over the road, trade-term time that was trucks that were built in 2011 that was 174,000 units that year. So that was the first year of ramp up, so we're already seeing that start right now. Now, that will continue to increase and obviously what happens over the next year, two years a lot will have to do with the overall economy and how we facilitate taking care of this product. There is demand in the overall growth of economy to absorb these instructions of the second and third tier markets.

[John Barnes:]

And what do you anticipate, I mean, should we expect as more of that equipment becomes available, the average selling price that begins to slide a little bit more?

[Rusty Rush:]

Yes, that would be the natural thing that downstream. I don't see it happening over the next quarter or two, but as we get into 2016. But actually 2012 was only 190,000, 196,000 units I remember. Yes, there will be -- you could have some pricing pressures right as you get into later of this year and into 2016. I don't see it in the next couple of quarters though.

[John Barnes:]

Last question on the absorption rate. You've got a lot of moving pieces here. You've talked about the pressure of mix with some of the mobile stuff coming out of oil and gas. You've got the opportunity on Navistar. And when we think about the absorption rate from here, with all the gives and takes, if I look at this over the next 12 months, 18 months, and I put all that together, am I talking about an absorption rate that's about where we are today or about where we were for all of 2014 with all the gives and takes? Or is there more opportunity on the Navistar side that kind of overwhelms the oil and gas pressure? How do you think that plays out?

[Rusty Rush:]

I look for it to be with the oil and gas pressure. Now, if it's stable like it is right now they're not looking for us try to grow it later this year, but I do get what I anticipate to be some pressures on the parts and service side some deterioration in that more than the 5% or so I've seen right then I would look to try to maintain and roughly flat with last year by taking grains to the other side. If you look at the Navistar side of the house in Q1 for example, he is offering the Navistar side of the house was only 104 that’s opportunity. I look at other areas of opportunity as we get these new stores open. Now that when we're opening a new store we drive absorption down originally but then you may get back in volume and you pay me for absolute dollars at the end of the day. But just speaking without taking that into account, if oil and gas was to take a bigger hit in parts and service then my goal would be to maintain the last year, if it stayed steady which common sense says it's not going to, it's just where is that point at, what is the it's not going to go to zero, let's get real. But what is that drop from a parts and service perspective, I am not sure where that is and I am still trying to get my arms around and as I say, I got the sales side pretty much figured out for the year. But the parts and service side of the oil and gas part I am still evolving -- is an evolving moment. But if it goes down as I would anticipate then I would hopefully we’ll maintain flat with last year.

[Operator:]

Thank you. Our next question comes from Brian Sponheimer from Gabelli & Company. Your line is open. Please go ahead.

[Brian Sponheimer:]

Most of my questions have been answered. Just a quick one. You've got some exposure in the West Coast with Peterbilt. Any hint in the quarter from the port slowdown?

[Rusty Rush:]

No, I don’t believe we saw any of that from our perspective. I mean if it was it was minor. We did not -- the performance for the stores was in line with expectations.

[Brian Sponheimer:]

And just then with the energy patch, when you're talking to your customers that are directly exposed, have they thought of a particular price of crude where they think of the inflection point as far as their own business? And it may be something for us to think about if we get any bounce in crude as the year progresses.

[Rusty Rush:]

Well, as they contracted here dramatically, we read about them in a paper every day, the large companies. The one thing about it I can say is we are much more nimble in today’s market, I think with fracking and things like that they can ramp up a whole lot quicker then we historically could, there is no question about that. For a price you're asking me for a dollar price, I mean it very…

[Brian Sponheimer:]

I know you can’t pinpoint it obviously.

[Rusty Rush:]

Yes, I mean I would look for a steady 80 bucks a share, 80 bucks a barrel, some people said 70, some say 90. But when you look at the areas that we represent and they are lowest cost areas to produce oil and gas. When you talk about the Odessa Permian, when you talk about the Eagle Ford it didn’t get any cheaper than they are to produce, so to go drill wells, so the cost at the beginning a barrel of oil out of the ground as cheaper there that it is any place in the world, the country, I don’t say world, excuse me, but in the country. So I would expect when there is an uptick that we would be the first ones to see it in our areas, so I mean that when you think about it from that perspective that bodes well. Everybody has got is one thing about oil and gas is you read all the articles, right; everybody has got a thought, where is oil and gas going. There are so many things not just economic but political drivers around it that becomes very difficult target. But from my perspective I think everyone knows that we peak and production is coming down in the Eagle Ford and production will continue to come down in the Permian Basin, simply because when you frac a well it runs off at 50% average the second year. If you stop drilling you look at rig counts down 50% since November, now the decline is not quite as dramatic as it was during December and January and February and March and sort of slowdown. But if you're not punching the holes in the ground, I realized that suppliers is going to be is all time record highest, but I don’t see any way it doesn't start coming down later this summer. So you take that into account and you look forward, I mean I realize as a political things to you. But from a U.S. perspective supply should be down dramatically some time by the first quarter or next year or the end of the year which hopefully we’ll have a decent effect on our -- I don't want to say depends on what point I am talking, [with my] customer are, but from oil and gas person hopefully that prices maybe can get to $70 a barrel by the first quarter next year.

[Brian Sponheimer:]

I guess body language wise, it sounds like you're more confident with your Navistar stores than you've been in the past. You obviously wouldn't have bought them if you weren't overall very confident in the long-term outlook. But it sounds like things are going a little bit better there just from a customer touch point perspective.

[Rusty Rush:]

Well, I think I don’t want to say our backlog -- our backlog has been a little flattish, but our activity level is pretty strong right now. But I would say our deliveries are better, like I said they are way up from last -- from 12 months ago you better believe it's a lot better. But it's nowhere near where I wanted to get to and obviously you can see that the products we build right now -- that they build are quality products. And so we believe that our opportunities will continue and is only going to get -- it should get better, I don’t see it getting any tougher than it was 12 or 18 months ago. And with us figuring out and used stabilizing used prices and markets to sell the used product into hopefully that will allow us to work with our customer base to trade them out of some of those over engines and because they are finally starting to depreciate enough of most customers' balance sheet to where they're making some sense to trade, that gap narrows between -- because the products looks like huge hit, in valuations and options and things like that but we're finding -- we find we continue to balance that with finding a retail market so that use for those used products. We see a nice light at the end of the tunnel, this bodes well for the whole deal.

[Operator:]

Our next question comes from Joel Tiss from BMO. Your line is open. Please go ahead.

[Joel Tiss:]

So, I think we've covered a lot of ground. I just want to dig into one sort of related area. It seems like you've got a number of tailwinds. The industry is growing, your used business is getting better, you're going to get some benefits from integrating acquisitions, and you're adding capacity. And it sounds to me like the only headwinds really are energy, whatever knock-on impacts are from that, and maybe people worrying that the cycle is going to be over. So I wondered, the one thing that seems to me that could really make the difference -- and I'm not asking for specific numbers -- but as we look out to '16 and '17, just what -- maybe this is good for Steve. What kind of leverage do you guys have to pull besides adding the used capacity and also adding more service days and all that kind of stuff? What are the levers do you have to pull to really drive mix? Or what are some other factors that could really drive margin improvement and profit improvement in this sort of still positive environment?

[Steve Keller:]

Well, as you look at into '16 and '17, we believe our interest for the customer either through telematics our focus on the all mixed parts business. We're really focused in that arena. Obviously we get out later into '16 and '17 I do hope to start getting accretive in '16 with our momentum. Our investment in momentum natural gas fuel systems. I don't want to put that much this year, we're just going to be ramping up but at the same time, when we get on the '16 especially in '17. I think the possibility is there, pretty dramatic. I'm not really quantified during the call right now but I look at it is great growth opportunity for us, given our go to market strategy. So, between all of those and there is always the thing on acquisition, so who we're always looking, and then of course acquisitions and then the biggest other biggest thing is -- after buying 50 Navistar stores. Hopefully, Navistar gets back into market, the stronger and better, we're able to benefit from that growth -- from that area because, we bought those stores with the understanding that we're in exactly buying them when they were in peak, it from a long term perspective for return long-term for the organization. So, I know, I maybe rambled and just hit a few topics but I always like to have more than one bullet in my holster when I'm looking forward. So I like to think, five or six different areas, that I'll talk about and trust me we're working very hard strategically to identify others around here at the same time because that's what you price to do so, those are the ones that come to top of my head right now but we defiantly got our ore in the water, we're looking hard

[Joel Tiss:]

And then one specific question. Are you sharing a little bit of the hit on each one of the Navistar used trucks that gets sold? If they are -- just say Navistar has a residual value in their books at 55,000 and that trucks are trading for 38 or 40 or whatever it is. Are you participating a little bit in that hit? So just trying to think again further out as this backlog of used equipment goes away, there could be a huge improvement in profitability.

[Rusty Rush:]

I think there is an opportunity for improving the profitability, what you don't see possibly. I may not be participating in theirs but I've plenty of my own. So, over the last few quarters, we always make sure that our used inventories properly value at every quarter. So, we have made adjustments in our used inventory over the last year, that's just actual. So, as we're able to get further, you can look at there is an opportunity for us but I wouldn't I'm working with customers not necessarily with Navistar. I'm working with customers in conjunction with Navistar to trade them up and sometimes we do split deals were they take some other traders and I take some other trades, every deal is different, and sometimes we'll take him, sometime they'll take them. So, it's up to you to value that product properly. The good thing is as I keep saying, is it continues to decrease in the amount of the balance sheets of customers and I think we've been able to find a way to create a retail market so we can close some of that gap. That's been my biggest focus with them since the first the years, we've got to have a retail market, supported with margin with products that are properly campaign, with finance options to help customers and get to them because, the value had gapped so much to the competitors products that -- when you can get it to -- make sense to a used buyer, the value is change so much, you buying four and get three trucks instead of three, right. If the trucks are on the road that means you can hold another fair amount of freight, you can make a lot of sense to people with that. And I think we’ve been able to close some of that gap from what you were seeing and create a retail market with those types of approaches.

[Operator:]

Our next question comes from Bill Armstrong from C.L. King & Associates. Your line is open. Please go ahead.

[Bill Armstrong:]

I see that your parts and service gross margin was actually up year-over-year for the first time in quite a while. I was wondering what was driving that. And also in light of your comments that the service side probably will get impact as we go forward from the oil and gas. I would think that would put downward pressure on the overall margins?

[Rusty Rush:]

To answer the last one first could possibly do that. Hopefully some of the growth in some of our areas was adding more base and doing service in other areas of the country will help pick some of that up. And our focus on making sure that we still deploy and maintain our mobile fleet of over 300 that are out there, whatever markets they’re into, it could put some pressure because some other markets may not be quite as utilized as the oil and gas side as you like them. As to what may, I am agreeing with you I’ve been looking through it myself and it’s around the country in certain areas. I mean really it was hard to pinpoint one business reason I had some regions, regions that were slightly down and some that were up pretty good in those regions. So it was not really driven I was looking at it this morning before the call understanding why it was up slightly. But I don’t have a good solid answer for you, it’s nice to see. We saw and I’d say a couple of the Navistar areas were up and just not real first, and it was just mix. It was a mix bag in the different regions and not one definitive thing. So it was nice to see maybe it’s -- I can say everybody get used to operating the business systems a lot better and starting to take advantage of that because it look like some of the areas that had it rolled out into earlier might have been up it was a mix bag.

[Bill Armstrong:]

And then on the Class 8 impact, the 1,600 to 1,800 units, 600 per quarter possibly, how much of an impact or hit to unit volumes did you see in the first quarter?

[Rusty Rush:]

Well, in the first quarter I think we were about I think last year remember let’s go back in history a little here. First quarter was our lowest quarter of energy deliveries last year. So it ramped up throughout the year. If I am not mistaking it was around probably 375 and it was about 2 in a quarter, somewhere in there. We were now at about 150 units over Q1 of last year. But that will dramatically ramp up in these next three quarters but so will our other deliveries that we’re going to have we think. And so that’s why I called it sequentially flat probably with Q1 to Q2 I am not ready to pay Q3 and Q4, but my gut tells me that it will be similar and maybe better if we have proper production to sell into. But that will all evolve over the next couple of months.

[Bill Armstrong:]

So, that 600 per quarter is versus year-over-year then?

[Rusty Rush:]

When I say yes -- when I say what I say that it maybe when you look at it, it may not be 600 per quarter, it maybe 450 in Q2 and 5,700 in Q3 I mean and then a little larger in around that number in Q4 really. But we believe we’re hopeful that our -- it will offset with other deliveries into other deliveries. So it will be a little difficult. And I’ll tell you that into Q2 what it was exactly. But we do know the sales are going to be -- maybe who knows right now 100 units rest of the year, no one is really purchasing on that side of the house we’re just -- we're focused as much on the other market segments right now selling into them so we can help offset that.

[Bill Armstrong:]

So then sounds like you’re assuming then just that these units go almost to the euro then for the rest of the year, I mean they pretty evaporate?

[Rusty Rush:]

The problem with that again as I probably maybe overstated by saying that, as looking into that second and third person that’s affected, it doesn’t say I hold sand or I dig water to the well side or I pumped this, or I am working the holes or downhole service or wire-line. It’s a person that’s affected inside that geographic region, so that’s the one that’s hard to get your hands. So I shouldn't say that no zero is not right. But at the same time it’s a very difficult thing and that’s 20%-25% of that downturn that I am saying is in there. So hopefully it won’t be quite that bad but I still believe it’s going to be 1,600 units or so over the next three quarters and hopefully maybe we sell a couple of hundred into those second and third markets.

[Operator:]

Our next question comes from James Goodfellow from Avondale Partners. Your line is open. Please go ahead.

[Jamie Goodfellow:]

This is Jamie jumping on for Kristine. I was hoping you guys could break out your margins by weight class for the quarter and also for used trucks?

[Rusty Rush:]

You mean by medium and heavy, sure. Obviously, because of our heavy margin was 6.8 in heavy, 5.2 in medium and used was 13.1. Light duty which we sell so few was 4.9 -- 4.5 excuse me.

[Jamie Goodfellow:]

Any explanation on why that used margin jumped up so strong sequentially.

[Rusty Rush:]

We did a good job. It had to do, I think a lot had to do -- some of it had to do with our ability to learn to start retailing some of the Navistar product right, where we may have been losing money before I believe where we're having to get rid of it in wholesale, we found a retail market for a few hundred units there. And so that helps.

[Jamie Goodfellow:]

And then I'd like to jump back to the absorption rate difference between year-over-year you're up 4% and looks like you're targeting about a 117ish for the year. Can you speak to what impacted last quarter, was it seasonality or what were the drivers there?

[Rusty Rush:]

You can always look at the first quarter, I mean taxes, payroll taxes, everything hit starts up again, right, first quarter is always typically, I won't say always but the majority of the time the first quarter is our lowest absorption quarter of the year. So that is in line with historical performances, so when I say we're up four points and I target to be flat that's assuming we have some more reduction in our oil and gas, obviously parts and service business but we make some of it up in other areas and who knows maybe we can, I'm counting on my folks to do like they always and surprise on the upside, but we'll have to see, that's not realistic to expect when you expect your oil and gas, parts and service business to go down more than it is selling so far. But that's one good thing about absorption, absorption has a numerator and a denominator, so it's also the management of expenses, besides just the growth of upside which are always focused on the revenues and then on those stores I'm sure will be focused, it'll be affected by that, as that downturn takes place over which I know it is, it's just to what degree, you guys got to be realistic to expect we're going to get hit more than we have been from parts and service perspective. And they're all from the oil and gas side and hopefully we'll make it up to get us where we were overall for the year last year, that's still a great job in my mind, given the -- I don't think anybody's seen oil and gas decline this dramatically, this fast in forever. So I look forward to the rest of the organization picking up the slack of those stores that are hit, they'll manage their way through it like they always have.

[Operator:]

Thank you. Our next questions from Art Hatfield from Raymond James. Your line is open, please go ahead.

[Derek Rabe:]

This is Derek Rabe on for Art. I just have one question and you know as we look at your long-term targets I think it was about $5 billion in revenues, you should come close to hitting that this year, obviously beyond that you've got a lot of puts and takes across your various markets, but have you started to look at longer term, maybe what potentially a new target revenue run rate might look like?

[Rusty Rush:]

You want me to tell all my secrets. I would tell you that we are focused on areas of growth; we still believe we have some. A lot of it has to do with not just internal as you know a lot of growth cannot be just all organic, it has to come through acquisitions too right, it's a mix it always has been for us. We still believe we have acquisition runway out there, we don't have anything really huge to report at this time but we'll always measure, always monitor the marketplace especially you know a business is cyclical you always monitoring the market place. So we believe there are areas in the country, we believe we need the presence in, so we will continue to look in those areas as we look forward. Strategically I've talked about some of those things earlier, from the momentum fuel system to our focus in the parts business and our focus on independent used locations. And we will continue to look at other opportunities around the transportation to continue to leverage off of our core expertise which is transportation here in the US. So other than that I don’t really have dollar targets, it's really hard sometimes in this business given the cyclicality of it to target the absolute dollar marks or you can pick the mid points of cycles and things like that. But it's quality growth with quality earnings that we'll always be focused on.

[Derek Rabe:]

And you just brought up another question from me, on the momentum side. Do you know roughly when that should start contributing to the bottom line? I know you talked about earlier some of the….

[Rusty Rush:]

In reality, probably the first of '16, we're going to roll out the sales systems this year in the back half of the year, yes, but will it really start contributing sometime in '16 and really that's going to be a demand on the market adoption after selling I have to give you better clarity on as we get further into the year. But no I would expect it to be accretive in 2016. Not what I expect in '17 and '18, now mind you by the time we're really into the marketplace, but I am very excited about it. I've always been excited about I think I've not -- I've been unabashed in my excitement about that venture that we're getting into, because remember folks we are touched, I've got natural gas base all across this country. I've got 120 technicians and more than anybody in the country, so our ability to service for customers that need that product in areas that it demanded for will be above and beyond anyone else's it's unmatched and will be untouched in my perspective. So that's what gets me excited about product and selling and as how we service go into market the product in the future. So I do expect it should be accretive in '16 while I look forward to be this year or just to be rolling out getting test vehicles, but we have -- there is demand out there it for it, there is keen interest should I say and so we're excited and I'll be able to give better clarity on that as the year rolls forward.

[Operator:]

Thank you. Our next question comes from [indiscernible] from RBC Capital Markets. Your line is open, please go ahead.

[Unidentified Analyst:]

Did you any cadence on SG&A this year?

[Rusty Rush:]

No, I haven't given cadence. Obviously as we always know Q1.

[Unidentified Analyst:]

We've kind of walked through in the past before 1Q is a pretty big number not necessarily as a percentage of sales but sometime sequentially you'd kind of talk about it?

[Rusty Rush:]

As always I expected the trend was seasonal as it has in the past.

[Unidentified Analyst:]

Okay.

[Rusty Rush:]

We don't have some big market turn one direction or other. If we have what we expect in the marketplace, Q4 will probably be our lowest quarter and always is. It will trim that direction, Q2 and Q3 can move around a little and then typically we do a great job in the fourth quarter of managing especially just the way it works, right. As your taxes and everything are paid on down and et cetera that's just typical the industry, as you get into that time of the year. So Q1 should be the largest unless we put some acquisitions and I have to script those out for you et cetera in there. So I would expect it to perform with historical, historical average to see from the seasonal perspective.

[Operator:]

Thank you. We have our next question from Rhem Wood from BB&T Capital Markets. Your line is open, please go ahead.

[Rhem Wood:]

Just two quick ones, did you give the same-store absorption ration and then what was the light duty margin, was it 4.5 or 4.9?

[Rusty Rush:]

That was 4.5 but it's really not a lot. We don't -- I think it was only 354 units something like that and Steve's looking up.

[Steve Keller:]

Same-store is 115.9.

[Rhem Wood:]

Yes, same-store 115.9 almost 116, good job by my folks.

[Operator:]

Thank you. And I am showing no further question at this time. I'd like to hand the conference back over for closing remarks.

[Rusty Rush:]

Well, we appreciate you guys for participation today and we will look forward to talking you with second quarter results in July. Thank you all very much.

[Operator:]

Ladies and gentlemen thank you for participating in today's conference. This does conclude our program. You may all disconnect.