Rush Enterprises - Q3 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to Rush Enterprises Incorporated's third quarter 2023 earnings results conference call. At this time, all participants are in 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 one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Rusty Rush, Chairman, President, and Chief Executive Officer. Please go ahead, sir.

W.M. Rusty Rush (Chairman, President and CEO)

Good morning, and welcome to our third quarter 2023 earnings release conference call. On the call are Mike McRoberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, Jay Hazelwood, Vice President and Controller, and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary. Now, Steve will say a few words regarding forward-looking statements.

Steven L. Keller (CFO and Treasurer)

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 31st, 2022, and in our other filings with the Securities and Exchange Commission.

W.M. Rusty Rush (Chairman, President and CEO)

As indicated in our news release, we achieved third quarter revenues of $2 billion and net income of $80.3 million, or $0.96 per diluted share. We are proud to declare a cash dividend of $0.17 per common share. In the third quarter, we achieved strong financial results due to revenue growth from our expanded service technician workforce, our support of large national accounts, and ongoing pent-up demand for new Class 8 and Class 4–7 trucks, following the limited new truck production of the past few years.

Though our largest customer segment, the over-the-road customers, are being negatively affected by high interest rates, low freight rates, and other economic factors, ongoing focus on our strategic initiatives help us partially offset these challenges and achieve strong financial results in the third quarter.

In the aftermarket, our parts, service, and body shop revenues were $643.6 million, up 3.5%, and our absorption rate was 132.8%. Though our aftermarket revenue has slowed, growth has slowed compared to previous quarters, the diversity of our customer base, our technician workforce, and focus on large national accounts fueled our strong aftermarket results this quarter.

Looking ahead, we believe aftermarket growth will continue to moderate through the rest of this year, and we are closely monitoring consumer spending and other economic conditions, which could impact parts and service demand. In the fourth quarter, we believe customer demand for aftermarket services will remain steady and that our aftermarket results will be similar to the third quarter, with slight adjustments caused by normal seasonal softness and fewer working days in the quarter.

Turning to truck sales, we sold 4,326 new Class 8 trucks in the quarter, accounting for 6.1% of the total U.S. market and 2.1% of the Canadian market. Low freight rates continue to affect smaller operators, but strong pent-up demand continues to continues due to limited truck production over the past few years. While there are still new truck supply issues causing us to still be on allocation from our OEMs, new truck production continued to improve in the third quarter, resulting in significantly shorter lead times for new trucks. ACT Research forecasts U.S. truck sales, Class 8 truck sales, to be 278,000 in 2023, up 7.2% compared to 2022.

We believe pent-up demand for Class 8 trucks will last through the fourth quarter, and that our fourth quarter Class 8 truck performance will align with our third quarter results. Our Class 4–7 new truck sales reached 3,244 units in the fourth quarter, third quarter, accounting for 4.8% of the U.S. market and 2.3% of the Canadian market. We experienced solid demand from a variety of market segments, and though truck manufacturers are devoting more resources to meeting new trucks, production remains limited and unmet demand in the market remains. ACT Research forecasts U.S. Class 4–7 retail sales to be 253,000 units in 2023, up 8.5% from 2022.

We are closely watching consumer spending and other economic factors, which could impact our new Class 4–7 vehicles, but continued pent-up demand, we expect our fourth quarter results will align with our third quarter results. Our used truck sales reached 1,797 units in the third quarter, up 1.9% year-over-year. New truck production, soft freight rates, tight credit conditions led to continued weak demand in our industry in the third quarter. Used truck values to continue to decline at an accelerated rate, though the rate of decline is slow and values appear to be normalizing. With new truck production continuing to increase, with freight rates not expected to improve significantly in the fourth quarter, we expect used truck demand will remain low through the end of this year.

We plan to maintain our inventory at lower than normal levels and believe we are well positioned to navigate these challenging market conditions. We expect that our fourth quarter used truck results will be consistent again with our third quarter performance. As we look ahead, we believe pent-up demand for Class 8 trucks will substantially be satisfied by the end of the fourth quarter and that new trucks production has continued to improve. We will continue to monitor economic factors which are impacting our customers, especially over-the-road carriers. While we expect typical seasonal softness in the fourth quarter, we believe our financial results will align with our third quarter results, and we will close the year strong.

As always, it is important for me to thank our employees for their great work every day, and for staying focused on our company's long-term strategic initiatives while providing superior service to our customers. With that, I'll take your questions.

Operator (participant)

Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. To withdraw your question, please press star one one again. Please wait for your name to be announced. One moment while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Andrew Obin with Bank of America. Your line is now open.

Andrew Obin (Equity Research Analyst)

Hey, Rusty, how are you? Rusty, Steve team, how are you?

W.M. Rusty Rush (Chairman, President and CEO)

Very good. Thank you, Andrew.

Andrew Obin (Equity Research Analyst)

So first question is, I think TRATON was saying today that they think they're starting to start sales of the new S13 engine and expect to ship around 40,000 Navistar units in 2024. So does this have any impact on your sort of profitability in the Navistar franchise going forward? And can you also remind us how you're positioned on the Cummins engines, you know, outside of your vertically integrated model on PACCAR? Thank you.

W.M. Rusty Rush (Chairman, President and CEO)

You bet. Well, you know, the S13, we're excited about it. We know that that Volkswagen is excited about it, and Navistar is excited about it. Well, again, we're getting started a little slower than what we anticipated with the engine getting in here. We were hoping to get a few more this year than what we've gotten, but we're excited and we'll be showing up in 2024. That said, when it comes to profitability, remember, typically, the most important thing that you derive, we're excited with what we believe will be a great performance of it, is the long-term parts profitability that goes with it, because if it makes, you know, parts become more profitable to that brand.

So, we would expect that over time to definitely have an effect in the profitability, you know, of, of the overall of the Navistar, of our Navistar franchises. I'm thinking about trying to understand your Cummins question. Obviously, Cummins.

Andrew Obin (Equity Research Analyst)

Oh, yes, yeah, just what's happening, what's happening with Cummins and what's your position, what's your relationship with Cummins? Just remind us.

W.M. Rusty Rush (Chairman, President and CEO)

Sure. Well, our Cummins relationship is great. From an engine perspective, we're the largest, you know, distributor of Cummins engines, considering their two largest customers are PACCAR and Navistar, and we're the largest Peterbilt dealer, and we're the largest Navistar dealer, right? So we're probably their largest retail dealer in the world, I would guess, when it comes to retail delivery. We also have a very strong relationship across the board. It's much deeper than just that.

Remember, we've got our JV, our joint venture, which is, we call it CCFT, because it's Cummins Clean Fuel Technologies, as, with them on the natural gas fuel system side, because we both believe they bought 50% share in that year, January 1, 2022, and we have accelerated our investments as what we prepare for what we believe, a big opportunity for that market share to increase, from what's always stayed around 2%. We think that, you know, over the next 2 years-3 years, that that share can increase 7%-9% as the especially the truckload side, the over-the-road long-haul side, has to, you know, wrestle with all the, pressures, the environmental pressures that we're dealing with.

As you know, right now, fuel cells still ways away, and hydrogen is a ways away, and I don't believe electric is a ways away when it comes to meeting the needs of, you know, a 400-mile or 500-mile haul on a daily basis. None of those are set up for that right now. So we believe they're bringing over their new 15-liter engine, and we do believe that together, that partnership is gonna do really well for us.

Really, as we get into 2025, 2026, starting to accelerate in 2024, but in 2025, 2026 and getting to 2027, we believe we've got a lot of opportunity around that from a fuel system side. You know, as I said, it's a very broad relationship with them, and, you know, we're excited to have that relationship and look forward to continuing to working with them like we have always had.

Andrew Obin (Equity Research Analyst)

Thank you. And just a follow-up question on sort of you're sort of saying that Q4 is roughly gonna be in line with Q3, and, you know, sort of I hate to be asking a question about next year, but how sustainable is this sort of quarterly pace, right? We know that you're sort of telegraphing that new unit sales are gonna be down, but you have your own dynamic and then the aftermarket. How sustainable is this sort of earnings power? You know, I don't know, let's call it around $0.90 going forward. Thank you.

W.M. Rusty Rush (Chairman, President and CEO)

Well, how about if I stay off of a number, Andrew, as always? I'm not gonna change that, but let me talk a little more broadly, a little more in-depth about what I see in the fourth quarter and how we view next year. As I said in the release, in Q4, you know, we expect it to be similar, very similar to Q3. When I say that, there's gonna be puts and takes, right? It's different. There's seasonality involved, but there, there's puts and there's takes. We think when it all washes out from a return perspective, what you see, it won't be exactly the same, but the results should end up around the same. Based on what we've got, you know, we're already into October. We know how October is running and, you know, fairly flat, but, you know, sequentially.

So that gives you some outlook. You know what you should be delivering from a truck sales perspective. So, you know, we, we, you know, as I said, we said in the release, Q4 would be about the same, but there'll be some puts and takes. Looking into next year, well, you got to remember that, you know, ACT's got the Class 8 market down 22%. Okay? Now, we like to believe that we can probably do a little better than that. I'm not going to get, you know, into exacts in the way of EPS with you, but we like to believe we can do better than that. We don't-- We do believe that the Class 8 market for us will be down. We're hoping not that dramatically, but what you've got to understand is they just opened up order books in September.

You saw the September number, it was like 37,000 units, right? People go, "Oh, my goodness! You know, we've got this big order intake." Well, I think you got to dive a little deeper into it. Remember last year, September was like 54,000 or so, if I remember correctly. And what's happened is typically the manufacturers used to open their order books up earlier in the year, like around July or so. Okay? Well, when we had all the run-up in inflation from the commodity side a couple of years ago, they got burned pretty bad, right? With all the surcharges and everything else. So what they've done is push out when they open up their books a couple, three months, okay? I mean, they take orders back in the day, I think June, and place an order, stuff like that, and count it.

But now, they have pushed that out to September. So what you had was some pent-up demand. I think some customers had already ordered for 2024, but they were not released by the OEMs because they wanted to get more comfortable with the pricing, with their cost factors, and not get burned like they did a couple of years ago, which they got pretty burned, let me tell you. That's why you had to come in with all the surcharges, etc. So there really was it wasn't a September number. It may have been a little bit of a head fake, okay?

When I say that, because there was some pent-up demand, that maybe orders had been placed back in June and July, but were just not released by the manufacturer because they didn't want to open it up, because they were protecting themselves from maybe some sudden, you know, quick rise in commodity costs, etc., you know. So when that 37,000 really wasn't as big, I think, as people, you know, as people saw. So again, we've really only been working for middle of September, four weeks on business for next year. So it's a little bit early to say, but I would have to believe that overall, you know, the market is going to be down a little. It's going to take a breath before.

But, but you got to remember, though, with the EPA laws coming in in 2026, or excuse me, at the end of 2026 or first of 2027, we still expect 2025 and 2026 to be very robust years. And 2024 will be a year that we'll get through it. I don't anticipate us going backwards as far. Why? Because of the diversity of our customer base. If we were tied totally to the small carrier over the road, dry freight, reefer freight, that type of stuff, we would be, and I would tell you my number would be closer to that or worse. Again, I don't expect it to be the same. I expect it to be down.

But given the diversity, because if you remember, all the money that's still got to be pumped into the economy on the vocational side, right, from the infrastructure build, that's still got to be spent. So, and there's a lot of other market segments that we play in that, you know, should maintain a lot better than just, you know look, we're in a freight recession. If anybody didn't know that, we've been in a freight recession, just go check the results, check it all out. We've been in one for a year now. I mean, I was just with a lot of customers, you know, last week at ATA, and it was not all, you know, peaches and cream everywhere.

Well, we still expect that market, hopefully sometime, maybe April next year, I don't know exactly, because I probably already missed the date before, to pick back up, but it hasn't yet. It's still bobbing along. I hope it's on the bottom. Just check out the spot rates, the contract rates. People are anticipating at least not taking they're still people are still taking hits on their contract rates in that side of the business. The small guy is still getting pushed out with the rise in fuel prices that we had, you know, the 90, 100, and 120 days there. There's just a lot we've had a little bit too much supply on the long, over-the-road trucks. We just have. So we're trying to it's trying to be pushed out, which it will get pushed out. It always does.

But that is still the largest piece of, of the Class 8 truck business, okay? So I'll try to reflect. I could go on and on, but I think you can get the gist of what I'm saying.

Andrew Obin (Equity Research Analyst)

Yep.

W.M. Rusty Rush (Chairman, President and CEO)

Parts and service, you asked about that also. As I said, I would look, you know, growth rates will slow down. Understand, if you look at where we're at now, and you go, "Well, we're only 3.5%." Well, you got to dive in there a little deeper to really understand it. We were fairly flat at the revenue line. Okay, well, the problem is, 30% of our business, roughly, is still what we call unassigned accounts, the small folks, the ones that you don't have dedicated account salesmen to, you know, or the cash customer, those types. There's still 30% of our business. That business was off almost 10%. That is caused by the freight recession, okay? Those are the that's the flex piece inside of everything that's out there. The big guys are still good.

You know, they're not making as much money, but they have great cash positions to ride it out, you know, your big public carriers. But those folks are also a higher margin piece of our business, right? Okay, so fortunately for us. You know, we've done some really nice stuff around going after, you know, dedicated people, going after national account business. So that business is up quite dramatically. So that helps offset, but it's at a cost, too, okay? It's not as high a margin business as that small business, but we've had a lot of success around it, and we'll continue to focus on that because that should be the steadier piece going forward. So we'll just have to see how next year plays out.

It's a little bit early, but we still feel good, pretty good about our business model. But, you know, it's gonna be a tougher year. Anybody that think it is, is wrong, okay? But I think to check what we've done with the company over the last few years, look at the results of the last few years. That's all I gotta tell you. And we believe very strongly in the results going forward, even with, you know, 2024 not being as good as 2023 and probably not as good as 2025 or 2026, so. But it's not going to be terrible, okay?

Andrew Obin (Equity Research Analyst)

So, the last question from me, and I think you set it up for me, and I bet you know the question I'm gonna ask.

W.M. Rusty Rush (Chairman, President and CEO)

Uh-huh.

Andrew Obin (Equity Research Analyst)

You know, you keep delivering earnings well ahead of consensus, even as things are slowing. I think if you look at the fourth quarter, you know, your message seems you're coming up, coming out versus consensus. You know, excellent SG&A control. You're doing everything you're supposed to do. You know, you know that the next year is not gonna be good. You also know what 2025 and 2026 gonna look like. You know what the company is gonna deliver. What's the board's thinking about sort of stepping up share buyback in this environment, particularly, you know, on a day like today, when stock is down 8% on very solid numbers?

W.M. Rusty Rush (Chairman, President and CEO)

Good question, right? I just finished a board meeting yesterday afternoon, in fact, Andrew. You know, we look at it as a great value, or we wouldn't have been doing what we've been doing. We stepped it up 50% this year. You know, we're gonna return you know, we've got, you know, we've got a pretty detailed of what we wanna do, and we would typically want we've said and stated we wanna return 35%-40%, you know, in shareholder return between a combination of dividend and stock buyback. That said, a free cash flow, excuse me. That said, we're gonna return 55% this year, okay? I don't see us returning, whatever that FCF is next year, I don't see us returning much more than 55%. I think, you know, you like to build in a cushion.

I wanna make sure I've got some money in case an M&A comes along. You know, I don't have a great M&A right now, but I have a feeling with the downturn, typically, some M&A might show up, right? And so we wanna be positioned to, you know, be able to do everything. We're not going backwards, okay? We're gonna spend the whole $150 million this year, and I would anticipate us, we'll, we'll make that decision. We have a call by November 28th, a board call, if you wanna know the truth, to make that determination as we're getting a little further along. You know, another few weeks never helps, and you're trying to look in the crystal ball.

So we've got a board call set up yesterday afternoon when they left for November 28th to announce for our December 1st, because that's when we announce every year, is December 1, is what our buyback will be. So stay tuned about that.

Andrew Obin (Equity Research Analyst)

Well, you know, you know what I feel about it. Great quarter. Thanks a lot.

W.M. Rusty Rush (Chairman, President and CEO)

You bet. I know, Andrew. There's a balancing act, as I said. Possibly some M&A might show up, and I wanna make sure I'm prepared, and I don't wanna take debt. And we don't have to, we've got but we just wanna be able to, you know, take care of everything we need to, while still we believe it is the best investment we can make. I'm totally in agreement with you.

Operator (participant)

Thank you. One moment for our next question. As a reminder, to ask a question, that's star one one on your telephone. Our next question comes from the line of Justin Long with Stephens. Your line is now open.

Justin Long (Equity Research Analyst and Managing Director)

Thanks, and good morning.

W.M. Rusty Rush (Chairman, President and CEO)

Well, good morning, Justin.

Justin Long (Equity Research Analyst and Managing Director)

Good morning, Rusty. Well, I wanted to start with a question on customer mix, going back to-

W.M. Rusty Rush (Chairman, President and CEO)

Okay.

Justin Long (Equity Research Analyst and Managing Director)

some things you were saying earlier. Do you feel like.

W.M. Rusty Rush (Chairman, President and CEO)

Sure.

Justin Long (Equity Research Analyst and Managing Director)

The small customers that are unassigned, do you feel like the activity there has bottomed at, you know, down 10% this quarter? And then can you share, on the other side of the coin, how your national accounts are performing right now, just so we understand the relative trends?

W.M. Rusty Rush (Chairman, President and CEO)

Sure. No, you bet. I'll get the numbers, like I said, down 10%. I don't have that answer, but if the comps are gonna get easier. So I gotta tell you, if you're gonna year-over-year comp, yes, they're probably right there, okay? Sequentially, I don't know if there might be another couple, three points left in there, buddy. I don't know that we've the market's not totally been cleansed yet, okay? There's still folks out there that are hauling freight for basically barely break even and can pay my fuel, okay? I mean, I heard some numbers that people were hauling freight for last week when I was up there. I met with a lot of customers, okay, at ATA, and I heard some of the, you know, slashing that was going on out there.

So it you know, it's liable to continue for another six months here, okay? So that means you're gonna keep flushing some out. But I would expect the year-over-year comps with that market to be around the same. You know, sequentially, it may have a little bit more, knowing that it wasn't as bad in Q1 and Q2 last year, right? Okay, so it depends on how you want me to talk about it. But I would suggest that it'll stay similar on a year-over-year basis, I guess, would be what I would tell you, because it got worse as the year went along. When it comes to the national account business, you know, we're really proud of the efforts because we put in a lot of dedicated people and spent some money on that.

That's all inside our G&A, and focused on it because, you know, our ability to grow that piece of our business is directly tied with the second most valuable piece of of this, of this company. My people are always first, first and foremost, but the second piece is my map. My map is bigger our map is bigger than anybody else's map. And when you can provide consistency of service, and I can take you to interview many people, many large companies that we can do that with. When you can provide that consistency, your opportunities, to me, are endless. I mean, you know, I mean, they're not endless, but they sure feel like it for us. We've got plenty of conquests out there that we don't do business with, or a large national account. So consolidation has continued around this industry for years and will continue.

That ability to go out and capture some folks, and I'm not going to get into naming names on an earnings call, but we know there's still plenty of opportunity. I sat in meetings with folks last week, almost begging us to come over and do business with in some way. Regardless of whether their business is up or down, I can't change the environment, but what I can do is provide a different, you know, solution. Understanding your competition and differentiating yourself is what it's all about. And we know that with that, that kind of growth, we grew 19%. All right? I'm talking about being down 10%, but it's a little, you know, it's at a lower margin, but it's still really good business, right? And, and then, and the other piece you've got to keep into account is, you know, our service business.

We expect our service business to be, you know, up next year. We may take a hit to some parts business, but we expect our service business to grow. Why? Because we brought 150 technicians this year, many of them mobile. We have a goal to get to. If you'd asked me a year ago, we were 500 and something, we're 650 now. We got a goal to get to 1,000, okay? And the demand for that type of thing is out there. Plus, you know, it's just providing an array of services on a consistent basis that on a larger map. That doesn't mean our competition is great. I'm sure they're all listening right now, but at the same time, they'll listen to the replay, and that's good.

But there's, you know, we try to differentiate by having a larger map and being able to tie it all together, regardless of brand. There's still a lot of non-proprietary. It's not all vertical, and it's not all proprietary, so and we're able to take care of folks. So that's really the best I can, definition I can give you that, you know, we got a lot of runway left in there. Whether the market goes up or the market goes down, we think we can grow it consistently on a year-over-year, quarterly basis. We don't look for that to change either, okay, as we go forward.

Justin Long (Equity Research Analyst and Managing Director)

Got it. That's helpful. You mentioned earlier, the ACT numbers for next year have continued to trend lower, and now they're.

W.M. Rusty Rush (Chairman, President and CEO)

Yes.

Justin Long (Equity Research Analyst and Managing Director)

Expecting a 22% decline in Class 8 truck sales. If that plays out, if reality is pretty close to that, how should we think about your ability to grow parts and service? Do you feel like you can still grow it? And if so, any thoughts on the order of magnitude?

W.M. Rusty Rush (Chairman, President and CEO)

Sure. You know, I think, you know, our year-over-year comps will start to get a little better because when we get into Q2 and Q3, because it's flattened out some this year, right? Remember, when I was speaking earlier, you know, that shift in the small guy that's got more margin in him towards that national account? Yeah. You know, that made it a little tougher. You can see it, you know, you can see it in the numbers and parts and service profit. We expected that. We do expect it to be a little better next quarter. We think Q3 was like a trough, we hope. But, you know, I would tell you, it would have some effect, there's no question, but we think we can overcome that, or at least maintain.

You know, we're not gonna have, like, first quarter this year, we had 17% growth rate. We're not gonna do that next year. We were 3.5 in Q3, and we're probably gonna bobble around that in Q4. And I would expect that probably to continue Q1 with the same dynamics that we're dealing right now. Q3 will probably have the same type of dynamics. I do not see I'm hoping I do not have them a brand, but I'm not, I don't, I can't guarantee the future because it's, pretty volatile at times out there, but I don't see us, you know, any big, huge market decline based on what I'm watching right now. You know, we think we can overcome what obstacles are out there with, you know, less, you know, less truck sales, get a little less internal work.

Got it. But we really believe in our growth strategy around our service arena and around our dedication to, you know, the larger customers. Will it have an effect? Yeah, but we think we can keep it where we've got it by picking up in other areas that are available to us, I think. So, you know, I mean, is it somewhat of a headwind? Of course, it is. I can't sit here and lie to you and tell you, "No, it's great. We're going to sell less trucks." Because, you know, we do a lot of internal work, too, on trucks, getting them ready.

But we believe that probably, I'm thinking Q3 was indicative outside of truck sales, but I'm thinking, you know, that parts and service side, we'll, we'll keep, we'll keep pounding it out, even if we're having to shift into a little, you know, some up, some down, puts and takes. But giving up the remember, our diversification is not just the over-the-road I talk about. Remember, we're so embedded in so many other market segments, that we're committed to, and that's look, if, if we were just, I'd be getting crushed like, like a lot of my customers are, if I was just in the over-the-road business. If we were just tied to that, we'd look just like them when it comes to comps year-over-year, from 2022 to 2023.

We're not, and our numbers speak for themselves, because we, we are diversified into so many other market segments.

Justin Long (Equity Research Analyst and Managing Director)

Got it. Last question from me is on the used truck market. You talked about that a little bit earlier, but I was wondering if you could give a little bit more color in terms of what you're expecting for the trend in used truck pricing as we move into year-end and early 2024.

W.M. Rusty Rush (Chairman, President and CEO)

Sure. Well, we know that we've probably come down same like for like four or five-year-old trucks year-over-year, oh, September, October, let's say, and kept around that timeframe, 35% in value. There may be another 10% to take out or so, I'm guessing. I, it'd be hard for me to see it go much more, because what happens is that spread between new and used gets real too, you know, it gets too large, it's all of a sudden, you know, you can go buy three late model trucks for the price of one new. So, you know, then eventually, when I say that, it adjust, but whatever, that spread creates a value proposition on used when it gets so low. The problem is that the used truck buyers, typically, you know, the small person, right?

Well, they're getting crushed, so you got to have demand too, okay? You can take prices as cheap as you'd want. Now, that spread, that spread looks really, you know, looks really enticing. But if you don't have demand because you don't have any market, you know, to go lease the truck on someplace, it makes it difficult. So eventually, it just takes time. So right now, it's a little higher. You know, like I said, depreciation is accelerating, not as dramatically as it was, but it's still over what I would call, you know, typical depreciation by percentage on a monthly basis. So, you know, typically, you don't see it like, you know historically, we're not there yet. It's still a little accelerated. It's that demand piece that we're going to have to give back.

So I just, you know, I don't see anything changing around that till we get maybe, you know, till we thaw out in the spring. And hopefully, we'll do what seasonally, we always do a little better than once we get through wintertime. So that's, you know, I would hope that we would have, by the time we get through, that we would be on a normal depreciation cycle in, say, 4-6 months, 6 months from now, something like that. That's what I'm hoping because it's been so accelerated before. But the reason it was so accelerated, it got way too high when you couldn't get new trucks, right? The money people were paying for used trucks a year and a half and 2 years ago was crazy.

And so we've had to take all that back out as we continue to now we're meeting the demand with new, so used demand is down and used values go down. It's just, it's a little bit of a vicious cycle, but it should straighten itself out sometime, you know, I don't know, second quarter next year, late first, second, second quarter next year, to be safe, conservatively. But we're in good shape. We've got as lower used truck inventory. Without the upside for us is probably a little less because we're carrying less inventory, but the downside is okay.

We're trying to get our turns. It's always about turns, and your turns have to be in line with what demand is. And we feel like we've pretty much got our used truck inventory, well, we know we do. Our margins were back to typical margins in Q2 and Q3, you know?

So, you know, we're just going to stay on top of it and be cognizant of, you know, the demand that's out there. And, you know, we still trade for trucks every day. It's just, we just have to make sure that we can turn them fast enough because, you know, they're not like fine wine, they don't get better with age. So, but we're doing a good job of dealing with it right now, but it comes with, you know, tighter controlled inventory because demand is not, you know, sometimes we would have inventories upwards of 2,500 units. Well, I got inventories of 1,300-1,500 right now because I don't have the demand to turn a 25-unit inventory faster, just out there. So, but that allows us to still maintain a decent margin, and we'll monitor the market closely.

And as it was to start picking up, we'll try to increase our used truck inventory. But again, it goes back to not just pricing, not just what valuations, it goes back to demand.

Justin Long (Equity Research Analyst and Managing Director)

Makes sense. I'll leave it there. Thanks for the time.

Operator (participant)

Thank you for your questions. I would now like to turn the conference back to Mr. Rush for closing remarks.

W.M. Rusty Rush (Chairman, President and CEO)

Folks, we appreciate it. Thank you very much. I'd like to wish everyone a very happy holidays, and we will speak to you early to mid-February with our Q4 results. Again, thank you very much.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.