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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen, and welcome to the Rush Enterprises, Inc. Third Quarter 2018 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to turn the conference over to Chairman, CEO, and President, Rusty Rush. Sir, you may begin.
Good morning, everyone, and welcome to our third quarter 2018 earnings release conference call. On the call today are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Derrek Weaver, Executive Vice President; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Vice President, General Counsel, and Corporate Secretary.
Now, Steve will say a few words regarding forward-looking statements.
Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risk and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2017, and in our other filings with the Securities and Exchange Commission.
As indicated in our news release, we achieved third quarter revenues of $1.38 billion and net income of 42 million or $1.03 per diluted share. I'm pleased with our company's present financial performance.
In the third quarter ended and moving to declare a second quarterly cash dividend of $0.04 per common share. We remain confident on our strategic plan which includes 2022 revenue growth of $7 billion with a 5% pretax return on revenue as well as capital allocation strategies to run 35% to 40% by free cash flow to shareholders.
During the third quarter we repurchased $12.1 million of our common stock and 58.2 million during the first nine months of 2018. We also paid the cash dividend in the company's history of 4.7 in the quarter and still substantially increased our cash position during the quarter. The company's ability to continue to generate free cash combined with our strong balance sheet have us well positioned to invest in our strategy.
During the third quarter we continued to successfully execute our strategic initiatives which were partially impacting our growth. A healthy economy and widespread activities throughout the commercial vehicle market also contributed to our results in the quarter. In the aftermarket, our parts, service and body shop revenue were 427 million in the third quarter, an increase of 14% compared to the same time period in 2017.
Approximately half of the growth was a result of robust activity in the commercial vehicle market and the other half was a direct result of our employees' execution and our aftermarket strategic initiatives, particularly All-Makes Parts, growth in our technician workforce and technology solutions. Our absorption ratio for the third quarter was 122%.
While we expect the industry demand for aftermarket parts and services to remain strong and for us to continue to execute our strategic initiatives, we also expect normal seasonal declines through the winter months.
Turning now to truck sales, we sold 3,325 units of new Class 8 trucks in the third quarter, a 4.8% with whole US Class 8 market. A strong truck market contributed to a solid quarter for new Class 8 truck sales. Our results were down year-over-year primarily due to the timing, largely deliveries in the third quarter of 2017 and supply chain constraints experienced during the quarter.
ACT Research forecast US Class 8 retail sales to be 254,100 units in 2018, up 29% over 2017. We still expect manufacture constrains to push some Class 8 deliveries into 2019, but we believe our Class 8 truck sales will accelerate through the end of the year driven by large fleet deliveries. The sales mix could put pressure on gross profit margins related to truck sales in the fourth quarter.
Our used truck sales were up 26% in the third quarter, with longer lead times for new Class 8 truck deliveries helping to stabilize used truck values and lessen the impact of volume of the used trucks entering the market. We believe our used truck inventory is well positioned to support the market.
In medium-duty our Class 4-7 new truck sales reached 3,349 units, up 18% compared to the third quarter of 2017 and accounting for 5.1% of the US market. Our medium-duty sales significantly outpaced the market due to activity from construction fleets and lease and renewal customers and our nationwide inventory of work ready medium-duty trucks.
ACT Research forecast US Class 4-7 retail sales to be 254,075 units this year, an increase of 5% from 2017. We believe our top Class 4-7 truck sales will also remain strong through the fourth quarter.
I would like to take a moment to acknowledge the hard work of our employees and to thank them for continuing to provide superior service to our customers, while focusing on our long-term goals and helping our company grow.
With that, I will take your questions.
Thank you. [Operator Instructions] And our first question comes from Neil Frohnapple from Buckingham. Your line is now open.
Hey, good morning, gentlemen. Congrats. Great to see -
Thanks, Neil.
Great to see post of our dollar share even with new Class 8 truck sales down year-over-year.
Hey, yeah. That was nice.
So, Rusty, you delivered another impressive aftermarket revenue quarter driven taken by higher broad-based activity. It sounded like a further momentum, your all makes parts initiative. Can you provide any update on your expectations for full year aftermarket sales growth for 2019? I think you mentioned earlier in the year that maybe you could approach double digit growth, if I'm not mistaken, so just hoping you could provide an update to that?
Sure. Well, obviously, we've been - we've had double digit growth going on for the last two years, right? So what does that mean? I mean, your comps continue to get hard. But at the same time, I've got to tell you, with the investments that we've put-in in the last year and a half, I think you can see that's what's been driving the double digit growth you've seen so far. That being said, I don't believe it's reached its fullest potential either by any stretch, whether it's the technicians we've added or the other initiatives we've taken place from the all makes perspective, okay? Those technicians we've added save 300 plus on a rolling 12, there are only level one and level two, which we would call our entry level technicians. Well, they're not performing at their fullest, right, because it takes training and I continued in bringing your investment in those people to bring their levels of production up. So we feel good about that. Because we feel, we're going to continue that investment on the service side. When it comes to the parts side, we've - I've gotten to start rolling out right now, but I'm not going to get into the details I would, but we've continued to invest in technology and tools to just to put into our hands of our people, you know, the best information and a best data and a best guiding forces to guide action as we go forward. And as I said, we have new things that are rolling out here in Q3 and really rolling out in Q4 that hopefully we'll be able to continue on impressive results we've seen in the last two years. Now that being said, if it's only 9% instead of 11% or 12% or 13%, it'll be there. We've had - like I said, about half of our growth we believe was market and about half of it's are based upon our strategic initiatives that we've undertaken. So I'm still seeking for double-digits given the investments that we're continuing to make and also that we're not topping out of investments we've already made. We're just seeing - we're just continuing to get more traction as we go forward with that.
Okay, great. And then, Rusty, you mentioned, you commenced the project within the aftermarket side to increase the hours of operation throughout the dealership network, I mean, is that along the lines? I mean, are you able to talk more about this? Of course, unless you can for competitive reasons, but just curious if you can expand on this opportunity?
Well, I think it's, obviously, we're about servicing customers, right. And let me - taking you into dealership terminologies such as the dwell time and things like this. We're focused on getting customers in and out quicker of our shops, that will be the contributor, that will be the - that's one of the big differentiators when you look at whose someone does the business with, right. I mean a commercial truck no matter what application it's in, it's only as good as it is when it's on the road, right, or it's in the - whether it'd be - whether they got it in the rough use [ph] business or the construction business, over the road business continuing to work that way. At the same time, beginning whom to keep that product on the road up and running as we would like to say. Now, also at the same time, understand that our shops we've got plenty of unutilized time in our bays in our shops and it's also a great training ground for these new technicians, right. One thing about our shops, we probably don't do as much maintenance. We're not in the maintenance business as strong as we should be. So one of our big focus is going forward is to utilize these other hours where needed where we are extending hours to go after different market segments that we probably typically don't go after during our normal shifts, and that's not to say that our shops are eight of five shops now, they're not by any stretch. But there are other hours that we're extending what we think that that we can get bang for them, make a return on them and also service our customers better.
Okay. That's very helpful. And one more if I can sneak it in. What's your gut telling you on just vocational related sales for 2019? Clearly, there's a lot more optimism for fleet sales and more opportunity [ph] there. I'm wondering if you think vocational can experience more growth next year following a couple of strong years for these guys? Thanks.
Right. Well, right now I want to tell you, we still believe it's going to be strong. I don't know it could get - we had a good two years, right, good strong careers. Now, I will say this, we - we're watching the housing market, okay. Remember, housings [indiscernible] our interest rates going up and things like that. We'll have to see and what commodity prices rising, all of those things that could inhibit the housing market could have an effect on it next year, right now it appears, we're still pretty strong and solid, but we will have our eyes out watching the housing market. Overall, there's a lot of road construction still going on. So that's a good thing. At the same time, the housing markets that we always watch has crested from a construction perspective on the heavy and the medium duty side of the business. So - but it's still strong. I don't - I can't sit here and tell you it's going to accelerate any more but it's been good, it's been really good in the last two years and we feel good about where it's - we feel good now going into the first half of the year and how about that. I can't answer to the back half of the year as a little far out, but in the first half, I feel good about it.
Okay, great. Thanks so much and again congrats on a great quarter guys.
You bet. Thank you, Neil.
Thank you. And our next question comes from Jamie Cook from Credit Suisse. Your line is now open.
Hi, good morning. This is actually Thomas [ph] on for Jamie. Nice quarter.
You sound like Jamie. [indiscernible] change that much. Go ahead.
I think just going back to the supply chain issues, you mentioned in the quarter, could you maybe give us any more details there? And is that an issue that's going to persist in Q4 and into 2019? Or is it short of resolving itself?
Well, it's an issue - it was an issue throughout the quarter, right, and it wasn't just one OEM, okay. What you have is the suppliers, if you go back a few decades, there were many suppliers. The consolidation of the supplier base for the OEMs, right, because I don't care which brand you talk about, they may all get the same panels and things like that when I'm talking about interior pieces and stuff like that from the same books they're made and supplied to them. You had a large - there was a large bottleneck around that and it was varied from different components. Now, does it get picked up, you know, we - does it get caught up, eventually does bring someone else pops up, right, we have another supplier pop up and it less what we've seen. I do expect it to get caught up pretty cleaned up by year end. We're still experiencing some slowdown in getting product, because it's going to be short, I don't say short shipped, but it will be - it will come offline, there will be short of pieces because those components were available, right. So that just delays the delivery to the end user and that's what we've seen. That's what when I say I expect our fourth quarter deliveries to pick up, but there's more fleet deliveries inside there and at the same time, we're catching up some of the stuff we believe that we were short on in the third quarter, that should've gone up in the third quarter.
So, we believe it's going to get caught up, but it's still - I know what something that popped up two weeks ago with another component, right. And you get one thing clear and then another component of those OEMs come up a little short on the others, but you don't get caught up. And I see something - I have seen it before during these types of cycles, again it's part of the cycle, it's not happened back in - it happened back in '15 - when we have - when they were doing 57,000 units, that year it got tight, it's happened in other cycles when you want to accelerate. It's just really hard when you have such volatility sometimes in the sales with the Class 8 truck market going to have some heavy volatility in. It's hard for the suppliers to keep up when you hit this part of the peak cycle, but they always get caught up.
Got it, that's very helpful. Just a question on pricing, could you talk to the pricing environment on the new trucks and what's the appetite to pass through hard costs broadly in the industry?
I think most hard cost are getting passed through at the moment. I don't know how much margins are increasing. I know at the OEM level. I understand pretty relative what they have normally been. But I don't look at that way, so [indiscernible] reported in the last few days, but I'm sure that everybody - normally when you get volume your margins should go up a little bit if you're a manufacturer. From our perspective they're pretty flat. Ours is more driven by mix and we've basically been just - we've been able to pass those cost increases, there's raw materials and we know what everything that's been going on and the labor costs have gone up. So those things I think have been passed through. There's been no big increase in margins; it's just basically been passed through from our perspective.
Got it, thank you, Rusty, and I will get back in queue.
You bet.
Thank you. And our next question comes from Faheem Sabeiha from Longbow Research. Your line is now open.
Hi, good morning, guys, and congrats on a good quarter. I'm wondering if we can dive into the all-makes parts business a little deeper here. So you guys open -
As much as I'm going to tell you.
Fair enough. So you guys opened four new all-parts locations in the quarter, can you remind us how many of those locations you guys had prior to that? And what size footprint are you targeting at this point?
Well, we're basically - when it comes to the independent strategy, we're pretty much in a test mode right at the moment. We're piloting. We're piloting without making the exact number. We're piloting single digits, okay, mid-single digits right now out across the country and determining, and they're in different forms and [indiscernible] where they when I say that there may not be parts-all of the parts and service, they have parts and service and something else added to them. So we're out piloting at the moment and we'll see if this is a strategy where they're further in continued investment and we'll probably determine that by the end of - sometime in 2019. So that would be the - and some of those stores were not just independent stores I don't believe. I think there's one or two I think had franchises with them if I'm not mistaken. So they weren't all. Remember, we have a territory, we still open up stores inside of our territory, there was one in Georgia, I know we opened 8 years ago. That was inside of our territory. And so it's a mix, okay, but we're - from the independent perspective, we're testing and piloting and we'll know more about that as we hit the financial results up in over the next six-month to 12-month.
Okay. And I appreciate that, it's in pilot mode right now and you have a better idea by the end of 2019, but is there any sort of performance metrics you can share with us with the stores you did have opened?
At this time, I would say, oh my goodness, I would say, I really don't want to share anything at the moment, I'll just leave it that. We really are piloting at the moment. As I said, some of these things, when you start something else, sometimes you got a blueprint, right? Well, sometimes they evolve as you go forward, right. We're still very excited about the potential of our independent strategy. I'll just leave it at that. Okay.
Okay. So within your strategic growth initiatives for the aftermarket business, does that also include M&A of other all-makes operators in the market?
Currently no. This is our total - when we started this, we said we're going to double our parts business by 2019, that's off our footprint. Okay. Now, that doesn't mean that territory, I might not open up something else in that territory that counts, okay, and they are. But we have said all along that our goal was to try to double that by 2022 off of our footprint. Now anything - where some of these like I said we're testing and adding as we go with some of these others. But the majority of it is coming through our footprint. If the independent was maybe 10% of that, Okay, or so 10% to 15%. And when I say independents, it's also means we're opening up other stores included inside that in our territories. Maybe, I mean, we've opened up - I'm not going to get it, we've opened up I think two - one opened up in Texas coming up. We've opened up one in Georgia. We're just - we're continuing to look. But it's a piece of the growth, but not a large piece of the growth. Okay.
Okay. Thanks.
The leverage piece is the most important piece. You've got to understand. When you step back and you look at it, I realized what our market share was top this quarter in Class 8, because of all the fleets, but over time we're 6% Class 8 player and we're going to be up 5% medium-duty player. Now we have goals to grow that to 7.5% and 6.2% by 2019, but if you look at, you're only doing 4% of parts business, you yourself why, and that's what started this three years ago. So we know that we have the ability to do a better job inside of our stores with the tools that we're putting in the hands of our folks with the technology we have. I'm very confident and leveraging but most of it being leveraged off of our asset base, that's the biggest thing we've got our asset base and how we leverage and push more product through that asset base, is that as you see those margins to grow up, you can see that 5% margin we talked about when I mentioned earlier.
Okay. Sounds great. Thanks for the time.
You bet.
Thank you. And our next question comes from Andrew Obin from Bank of America Merrill Lynch. Your line is now open.
Good morning, gentlemen.
Good morning, Mr. Obin.
I have a question for you. So, you outlined capital allocation in your press release and you sort of saying 25% to 35% investments, 35%, 40% return to shareholders. And how should I think about sort of the remainder of that and what happens to the rest of the money?
Go to the bank. No. Well, remember, Andrew, always want to have a little fire powder in the gun, right, and keep a few bullets in the holster. So I think that's a pretty ambitious. I don't think folks realized in the press release, we bought back $160 million worth of shares right. Sometimes people understand what we've been doing. But I would think about we're still out there looking at M&A. Okay. And it doesn't mean there is anything at this moment and it's part of the cycle, but I do believe there's some M&A out there we might be able to do overtime. So we're continuing to focus on that because business cycles we know that, especially on the sales side. That's really the most important thing and continue to invest, I mean, as I said, I'm going to continue to invest in our strategies, that's not going to stop a matter where we are in the cycle. We've determined that by the results with that so far and the results we believe we can have.
Yeah. There's a follow-up question on that. You did highlight sort of how much cash you have. You do - the strategy seems to be working. So as you talk about M&A, how do you think about incremental buybacks of your own stock, I know that you did buy backs and lot of stock over the past several years, but the share count, one of the pushback's we get meetings says that the share count has been relatively flat. Any consideration given what the stock is, looking at my coverage hard to find a better value than Rush. I would imagine giving your systems, giving your market share, hard to find a dealer in the market public or private, that's a better value than Rush right now. How do you think about sort of your own shares on the margin here?
I think it's probably the best deal out there, Andrew. So the answer's everything is under consideration at the moment. Okay. I really don't feel ready to go out right at the moment. I've got some conversations going on about that. So currently - so when you talk about the best value out there, yeah, I believe our stock is about the best value. I agree with you, your statement you just made. So we'll continue to look at incremental opportunistic buyback opportunities.
And just another question, the market similarly has decided that we're going to recession. Just thinking about your parts and service business, which is very profitable and which is growing right, and which is probably - truck cycle peaks. What are you saying this business can do volume wise in a normal recession not '08, '09, but just a proper normal recession of which we have to manage in the past 20 years, but can it - how you're seeing at recession scenario?
I think that mostly keep shifting earnings to the parts and service side, everybody told me that, okay, Rusty, you're going to have to prove it with sales down, right. Well, guess what when it comes, bring it, I can't wait. Why I say that because I do believe that what will happen, so truck sale slowdown. Well, we're going to have a lot of units in operation and they are going to start aging again. And I believe our opportunities to show the work that we've put in, the people we've had, the outside sales reps, the technicians we've had to pick up a lot of that work that will be out there. That will still be there. The truck sales might go down. Trucks will still be operating out there and they are going to be very well poised and position to prove what we do and what we've been doing is the right thing to do. I think our customer base will be broader, I think our share of customer - our customer share perspective will be broader. I hate to say I can't wait for a recession, but at the same time you're doing this what we're doing and you're are being treated that way in the marketplace you want something to have a pivot point and I guess that's what it is. It could be frustrating to your point, you think [indiscernible] good value all you cover, we do too, but I'm not sitting here crying over spilled milk. I'm just going out to improve it.
Great quarter, Rusty, thanks a lot.
You bet.
Thank you. And our next question comes from Brad Delco from Stephens. Your line is now open.
Good morning, Rusty.
Yeah, good morning sir, how are you doing?
I'm good. All the good questions have been asked, but I will give it a shot here.
Oh, not all the good questions have been asked Brad. No one asked - used to get and I know that's got to be coming, so.
Were you - I'll start there you guys have picked it - used truck values would be under a lot of pressure right now. Is it a matter of when not if or kind of what's your updated view on that particularly if -
It's a matter of win. I'll step back, hey; I was wrong 12 months ago. I told you by now they'd have been under pressure. I would've never told you that used truck sales were about strong. I thought, but obviously I'm sure your carriers have told, there's no more trucks in operation, right, well, ha, ha. Yeah, of course right. It's meaning we delivered almost 70,000 new Class 8 trucks in the US in Q3, yet used keep getting slowed up these late model used. Well, where they're going, they're not being parked on the fence, right. Okay, so they're going into the supply. Obviously, we've had good demand. Do you have concern out there? Obviously you're going to hit that tipping point whether it's - where freight demand does not keep up or supplier exceeds freight demand, yeah, you do. Obviously, I would have a very good forecast because I thought it would come late summer, but it's still - we still see it fairly strong, very strong - fairly strong as we speak. Now, we were cautious because we've been in this business long enough. You know that - you know that there's coming, right. But so far demand to step up [ph], but with our inventories and we're turning our inventories, we're making good margins, obviously double our margins was as strong as we ever had in Q3.
Steve had given us those numbers, yeah, but that's my next question.
It was like 12, 9 Steve. Used margin was high like 12, 9 right. I mean so we've - it's a great quarter for used. At the same time, you've been in this business as I said long enough, you always got - you've always got a keen eye out in front of you waiting for that inflection point. And you wake up one morning and there it is, okay. But we feel good about our inventory - I mean we don't have a slip. I've had - look, there's been years I've had 25%, 30% more inventory than I do right now at the time. So we've been turning it good and will keep moving - we feel the value properly and we'll just keep working that and working it because there's always some risk. Look, I'm making deals where I'm given used values out four or five months ahead, right. So you could get caught a little bit in that, but we don't have that much out there, but I wouldn't, you never know the difference. Maybe at a certain point or so in the margin commitments that are out there that far away, we don't anyway, so we've - used continues to be strong, there's typical used slowdown in the winter time, there's slight [indiscernible] everything, but not - but right now I can sit here and tell you, yes I see anything outside of normal seasonality.
Okay and maybe this - the next few questions for Steve or Rusty you can probably chime in on it as well. Pretax margin this quarter was 3.9%, your 2022 goal is to get to 5, how do we think about margins throughout cycles because I'm assuming if truck sales are down margins could be up because most of it would –most of your profitability be driven by parts and service, so I was just trying to think of how we close the gap from 3.9 to 5 over the next four years.
Well, [indiscernible]
Well, it's the ramp up right. The strategy calls for our parts to accelerate to 2 billion over that amount of time that becomes a larger part of your sales mix, you're right in the way you think about it. It's a larger piece of your overall sales mix. It's going to drive up that pretax margin, right. And those aren't the only goals we have, we have goals to actually increase our truck market share and to drive efficiencies on the expense line, so it's all of those things that are going to contribute to, and increase pretax margin over the next –over the next three years, but it's going to be heavily driven by your sales mix and your parts and service becoming a larger piece of what you do and that's why we focus on that piece. It's less typical and it's a higher quality of earnings for the organization.
Right and Steve is right on this. That's the plan at the same time the headwind of that margin as we plan on getting more markets in trucks regardless of where the market is. We're going to have what - whether it's a - whether it's 180,000 market or 250,000 market, we want share and we're driving into our sales organization something away they've never really approached it and it's the share. We're going have to report certain share, so what you can say, will that be a headwind to your 5%, no. But we'll accelerate the back ends even further than that is our plan and some - as Steve said, stability on expense management later. Right now, we're still investing, okay. Understand, we are still investing and we're still being able to put out these kind of numbers right and so we believe we want to do - sorry?
Can you quantify what that investment has done on the margin now? I mean do you think that's weighing on the margins right now?
I think it's weighing on G&A, okay. But I don't think I - and when I say weighing, the G&A is there, we're just going to - with –no our growth we think we can get out of it. More than anything else, I mean you go hire a 120, 130 outside parts and salespeople, you're not successful on everyone let me tell you right now, okay. So you have to work your way through, it takes them a year to 18 months to get up to be returning where they need to be, where they're going out with accounts and car accounts and we - with the tools we put in, we could manage better we've ever been able to manage and understand - I don't want to get into rigs and I'm talking about well, like for example [ph] secret sauce. We've got to - that allow us to work these folks. Well, sometimes people don't make it, so then you got to replace that person, right. Not every mech –not every technician ends up working that. So if it is a continual flow so, but as you go forward those levels rise, those levels of production rise. Now your G&A may not go away, but your production rises, right. That's all I'm really trying to say and then when it comes to the new tools I'm not going to talk about what they are, but there are exciting new tools that we've got coming out for our people to allow us to just use the data. If there's anything as I've told folks, anything - SAP will be a painful ten year operation for us, yeah it was. But I'll challenge, they didn't want to have the data we have in our industry. The data we have is above and beyond, we're just learning how to harness and utilize that data.
Brad to quantify that for you a little bit, the expense always comes for the gross comes when you're doing things like we're doing now. But year-to-date we have - and we've told you guys before of our incremental gross profit on the back ends, we hope to keep around half of it. Ultimately that's our goal and let the store spend about half of it to create it and year-to-date we've only kept about 32%, so that gives you an idea. We're not half - we're not keeping half and that is because what Rusty just explained to you, the investments we're making are heavy and we're not getting all the production out of it yet, but that that was still our ultimate goal to move that direction. So yes, it's weighing our margin to answer your question directly and I gave you the numbers so you can see it.
Yeah, that's very helpful. Lastly a quick question if I can get it in.
No.
Please Rusty, the - historically I think you guys were talking about 20%, maybe 25% of your parts and service business being driven by new truck sales because of updating, but I imagine I imagine with your all mix parks initiatives that number is declining, is there any update on that number?
Let's start to begin with; you're wrong to begin with about that.
Okay, I'm okay with that.
Okay, it will all be your [ph] it will still be closer to 10%, possibly a big spike here, you might get closer to 15, but really it's more like 10, okay. So we'll get the 20 and 25 off the table. So yes, of course that should go down. I'll be honest with you, this year it's probably down this year anyway. We didn't have –last year I had some huge oil field deals, I didn't have one this year, okay. So we didn't have in our first - our first records. We had - I had four bigger four digit upgrading and things last year that we did not have that's why we - typically a lot of times have been our biggest. We do a lot of other things trust me on CDS solutions and things like that, but we didn't have that. So far we've done less this year, I would get - I haven't looked at it, but I would tell you that upgrading was less in the first nine months of '18 than it was the first nine months of '17, okay. So yes, of course that's going to become less and less a percentage if we grow that outside customer base which is what we are doing.
Hey guys, thank you so much. You've been very generous with your time.
[indiscernible] Take care of the four children.
I'll see you in a couple of weeks Rusty, thank you.
You bet.
Thank you and our next question comes from Mike Baudendistel from Stifel. Your line is now open.
Thank you. I heard there is - perception from - lot of the heavy sort a Class 8 ordering the past several months have come from dealers. What you've been seeing and hearing?
You say come from dealers, you talk about like stock orders or something or?
Yeah, on basically dealers placing orders.
Can't quite understand your note last night, I saw your note you were going to ask me and I was trying to really understand what you were trying to ask me, so go ahead again. I didn't listen to call - I didn't listen to call yesterday's backlog, so I'm not sure go ahead?
Okay, well, I guess - I guess the perception is that there was - some dealers have placed a lot of orders for - lot of the Class 8 truck orders last several months have come from dealers anticipating a strong 2019 and I'm just wondering if that's consistent with what you're - you think?
I would tell you there has to be some of that going on. I don't have - I mean honestly not on my side, if it is, it's slight, okay. When I look at - in fact I - other people that might be placing that - some orders - I know there's a lot inside their backlog in my mind. In my mind, when I look at what the total - not Rusty's backlog, the count - the whole backlog of the industry, okay. When I look at that I believe it's pretty high right now. What they're doing is trying to hold slots, okay. It's basically what you see, but only they have customers that they believe and he says, yeah if this goes well, I'll take it. There's some of that in there. Can I quantify that for you? No, there's no way in my little brain that you could have the biggest quarter ever in Q3 of 2018 it's ever been for an order intake when July is usually a terrible month. August is much better and you got those three months there's got to be pulled forward, okay. There's pull forward, but I'm going to guarantee you not all of them are set in stone and real, it's just impossible, okay, because that's not when order season is. We all know typically you get into October, we've got 88 coming up next week or in Austin and then you've got November December those are - again those are your bigger months typically has everybody flows in for their the next coming years orders. So yes, you're - they were probably correct about that. Do I feel I have a lot of that in my backlog? No, I don't. My backlogs - our backlog is larger than it was at the end of Q2. Could there be some of it? Sure it could be sound, but I went to the sales guys just yesterday and they said, if there is some it's way less than 10%, probably maybe in the 5% range is what we saw when we went into the backlog yesterday, so.
Okay, got it. That's helpful.
But I could guarantee there's more - there's more water in that board out there in the total country, in the industry that 5%. But some people may not like you saying that, but that's the truth, okay.
Got it, yeah, that's why we like these calls, you always tell like it is. Another question from me is for example anecdotes of fleets, some of the largest fleets performing some of their own - more of their own maintenance and I don't know if that really competes with what you're doing with the smaller fleets and those things, but maybe - have you seen any of that and can you talk through the competitive advantage in the parts and service that helps you capture some of that business that's pretty competitive.
We don't really see it. We don't see more that we see more opportunities for us. I mean I'll be honest with you, especially the small and medium-duty base and when you tie in our technology, when you're tie in what we've been doing just with our rush chair and all the stuff that we're doing and service connect and service length and things that we've been rolling out the last few years - last well, last couple years. No, we believe our opportunities are only increasing. We don't believe they'll decrease for us because we've got that network. I mean, I look at it, like mobile units, I go back two years ago, we had like 313, we got 513 mobile units right after right now. I mean, there's been exponential growth for us. The opportunities we believe for us are going to - only going to continue to increase because we've got - we spend millions and millions on training and keeping up with technology. What - we go the opposite direction, okay. We know how to hire technicians, we know how to train technicians, we will invest and I don't think that's always the forte of our fleets. Now, what they do - so they're going to continue to do the big guys - going to do maintenance [ph], but there's no way they're going to get involved and some of the more technical aspects and more sophisticated work that's being done, that's our job that's what we do and we can do it cheaper and do it better for them. We have many deals of large national accounts from a service perspective and we'll make deals with large guys. That doesn't –they don't want –we understand how to do that. And I think opportunities are only going to increase for us, we're going to - we've got to focus to get better the maintenance business, okay. Use that that as our training ground as I mentioned earlier for our technicians, so we are excited about the opportunities for us in that area.
Got it, that's all I had. Thank you.
You bet no worries.
[Operator Instructions] And our next question comes from Joel Tiss - BMO Capital Markets. Your line is now open.
Hi, guys. This is Alex signing on for Joel Tiss.
You definitely don't sound like Joel.
Yeah, no, I do not.
Probably a good thing for you.
I don't know about that unfortunately. I know you've highlighted in the past the headwinds Navistar decline in market share for your parts business, but I assuming that the company can continue to recapture market share and get back to historical levels, when do you see that force transitioning from a headwind to a tailwind?
Well, actually you know we've been picking up a little steam in the parts and service market in spite of Navistar the tailwind. Look they're gaining market share, but that does –the parts and service business typically lags the market share gains, right.
Yeah, exactly.
So there's a lag on that, right because we've got warm and working out, but they're not breaking down or having issues, but with our initiatives we've got going on, our Navistar stores are joining in and getting out there and they understand the tools that we're putting. We could go after other customers. They don't have to just be Navistar customers. We can go get more wallet share in other ways and our growth in our parts and service business has been mid-single digits, okay. We haven't gone backwards. I know that we've trended way better than most other dealers on that side of the house. Now, is it robust and going to take us to these great? No, but we're doing good. When you look at the headwinds we feel good. There are people who have gotten out the doldrums of being a Navistar dealer where it was like three, four, five years to understand. We've got new products; we've got stuff, now, let's go out and capture parts of service business. It wasn't historically our business, okay. Sometimes headwinds like that can be the best thing for an organization, the best thing for a team. Sometimes in football or any sports headwinds are tough, when you face diversity like that it makes you look around different ways. You know you've had a great running game, but never stopped to run again, you have to read the passing game right. Well, then when your market comes back you add the two together, you get one plus one equals three operationally as I was saying and you go and you win. So I feel real good about where we're at because I know we're going to get - we're going to get some tailwind from gaining –market shares being gained now in the future. Yeah, that's just still out there, we can't worry about that, we have to approach every day, look at - got a new play to go out and gain share in the parts and service business and wallets, obviously not the same as the other side of the house it is growing, so we feel good about that and I feel good about the folks that are going out there and get it done.
Great, I appreciate the color guys.
Thank you and I'm showing now further questions over the phone line. I would now like to turn the call back over to Rusty Rush for any closing remarks.
Great, we appreciate it. It's going to be a while when we talk to you in February, so in between now and then everyone have a happy holidays and I wish the best for you and your families. Thank you all very, very much. We'll see you there.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.