Ryder System, Inc. (R) Earnings Call Transcript & Summary

Thanks, and good morning. I'm going to continue on with the transportation track today. We are very pleased to be joined by Ryder. We have Robert Sanchez, Chairman and CEO of the company, coming back for another year, Robert, thanks so much for joining us.

Well, it's great to be here.

So I think what we'll do is we'll pass it over to you, run through a few slides, and then we'll kind of dig into some Q&A, but maybe I'll pass it over to you to get started.

Okay. Great. Thank you, Chris. Listen, for those of you that aren't maybe as familiar with Ryder, just a really quick overview. Ryder is about a $12 billion transportation logistics outsourcing company. A little bit of a hybrid, if you follow transports because we're not a truckload carrier, or LTL carrier, we're -- about 40% of our revenue is a truck leasing and rental business, more asset intensive. We buy trucks. We lease them to mostly private fleets and then we also rent some trucks mostly for surge capacity for those customers. Then about another 35%, 40% of the business is now our supply chain logistics outsourcing business. So we have really grown that business more meaningfully over the last several years. We're in North America. So we're a big player in the automotive logistics space, CPG logistics space. We have an omnichannel retail, so e-commerce final mile delivery and then in an industrial logistics. I've been in that business for a long time, but have really accelerated that growth over the last several years. And then about now with this acquisition we just did, probably about 20%, 25% of the business will be a dedicated trucking business, dedicated transportation. We like to say it's specialized, dedicated because it's mostly not just playing what we'd call more [ drive van ] vanilla freight. It's typically freight that needs -- the driver needs to do something more than just drive the truck and pull into a dock door. They have to stop and maybe do a delivery at a local retail store, we're also very heavy in the metals industry, where they have flatbed. So those that type of private fleet operation is really where we specialize. So just to give you an idea of what we've been working on for the last 4, 5 years, we've been implementing what we call balanced growth strategy. And that strategy had 3 components. One was we wanted to derisk the business. We felt that, especially around our truck leasing business, we were taking a lot of risk unbeknownst to us on the back end where a lot of that we're expecting, I would say, too much of the returns for that lease to come from the final residual value in a market where used truck prices can go up and down. So we really lowered the assumption on that residual to be, I would say, bottom quartile or lower as opposed to an average, which means that we're typically going to get at least the return that we expected or in most cases, more than that. We did that -- we made that change back in 2019. So now a large percentage of our lease portfolio has this lower residual value assumption. We also exited our U.K. business. So our U.K. business is a bit of a drag on our returns. We exited the U.K. That was the last piece of business that we had as a company that was outside of North America. So we realized, we really wanted to focus on the large untapped market that we have here in North America and really exited the U.K. business for that. Then the second piece of our strategy was really to enhance the returns and free cash flow of the business. The big step there was to really increase the spread on our leases. So we had historically targeted 60 to 75 basis point spread between our return on our investment and our cost of capital. We increased that to 100 to 150, and we've now been getting 150 basis points for the last several years. So a good portion of our portfolio now, about -- probably 80% of the portfolio now has this higher spread business. That's big. That's where most of our assets. Our capital is invested. So just a higher spread means higher returns for the company. We also had an initiative several years ago over a 4-year period. We wanted to take out $100 million plus from our operating cost. A big part of what we do in our leasing business is maintain almost 250,000 commercial trucks. That's a network of about 750 locations across North America. And as you might imagine, a lot of people working on that. A lot of money is spent, about $1.3 billion is spent maintaining trucks. So we were able to pull out $100 million of that cost by process improvement and really reengineering the way we do business in those shops. So we achieved that. We completed that project last year. And then the other thing we wanted to focus on was free cash flow. And a big driver for that was depending on how much we want to grow the lease fleet. The good news is that a lot of private fleets do want to outsource to lease. It's really our decision as to which we want and how we want to do that. So we targeted 2,000 to 4,000 units of lease growth, and we feel that with that, we can still maintain positive free cash flow in most years and I've been doing that certainly over the last several years. And what we wanted to do was positive free cash flow in most years and certainly positive free cash flow over the cycle. And then finally, we wanted to increase the -- accelerate the growth of our more asset-light businesses, Supply Chain and Dedicated. Those businesses historically were about 40% of the company. And this year in 2023, they're now going to be 60% of the company. So that's a combination of large -- faster and accelerated organic growth but also some acquisitions that we've done over the last several years. And then this is really -- we're really proud of this slide. This is really the tale of the tape around the transformation. If you look at 2018, which was a peak freight cycle year, our comparable earnings per share was just under $6 adjusted return on equity, a big metric for us was $13. So we typically, in a really good freight market, we would be at in the, call it, mid-teens, call it, 13%, 14% and a bad one, we'd be in maybe 10%, 11%. We made all these changes and as you'll see, it will be different now. Supply chain was growing about 16% and operating cash flow was $1.7 billion. Fast forward, post the changes that we've made, comparable EPS in a down cycle in a downturn market has more than doubled what it used to be in the peak. So we used to do $6. Now we did almost $13. Our adjusted return on equity went from 13% to now 19%. So where we used to be between 10% and 15%. We're now saying we're between 15% and 23%, depending on the freight cycle. So the overall water sea level of earnings has definitely changed the company. And then our supply chain business, clearly, between acquisitions and organic is growing at a much faster clip, generating much better operating cash flow. So this is what the year looks like for us this year. We are expecting this to be a trough year in the freight. Maybe not so much in the freight cycle, but in our used truck and rental market. Our used truck and rental typically lag the spot market by about 6 months. So we're expecting the second half of this year to start to see some improvement in rental and used trucks, not significant, but certainly some. You're seeing our earnings will be down slightly but if you look at what's driving that, it's really used trucks and rental coming down about $3 a share, almost completely offset by the growth in the contractual -- earnings from the contractual parts of the business. Return on equity is in that mid-teens, which is what we would expect in a trough year. And then free cash flow is going slightly negative, and that's primarily due to the fact that we are having -- we are expecting to replenish some of our rental fleet that we brought way down during the downturn as things start to come back up. Obviously, if that doesn't happen, we would pull back on some of that CapEx. And we're expecting that to happen probably mostly in the back half of the year. The other thing that's important is the estimates that we make on capital for our lease customers is an estimate. We don't buy a truck until we have a signed lease. So it does depend on what the demand is going to be, and that will help determine what that free cash flow number will look like. So we think we're well positioned for the upturn. Obviously, rental and used vehicle sales, we will see a benefit from that, the $3 of headwind this year per share could turn into $3 of tailwind certainly over a period of time and things start to come back. Typically, when the market comes back, it's really good for our lease sales as private fleets need more trucks. Good for our dedicated sales as people have -- companies have a tough time hiring truck drivers, and we should see our growth in Dedicated organically really pick up post that. We think also as we get into closer to 2027, probably back end of 2025 you may start to see a prebuy similar to what we saw in 2006 right before there's a significant technology change. As I mentioned earlier, the tighter driver market in Dedicated should help. And then the other piece that in our supply chain business, e-commerce and last mile have been impacted somewhat by the slowing economy. And as the economy comes back, we expect those parts of the business to come back, and we'd get a nice earnings bump from that.

Is that right?

Yes.

Good stuff. Well, that's a great overview. I appreciate you laying it out for us. Let's start with kind of how we've started with most of the folks that we've talked to over the course of the last couple of days, which is just a little bit of your view of the market as it stands today. You have an interesting perspective because you look across sort of the freight landscape and in particular, the truck business. So what are the expectations? What are you seeing here in the first quarter in terms of freight more broadly? We certainly have heard from a number of players so far if you're more truckload or intermodal exposed. It feels like things are still a little choppy and February isn't particularly great relative to January. Some of the other guys on the rail side maybe a little bit stronger. So what do you see in the market right now?

Right. So just as a reminder, for our lease business, our Dedicated, Supply Chain, it's contractual. You don't see as much of that volatility and movement, our rental and used vehicles, where we see it. So rental is soft, still soft. I would say we're still kind of in that downturn whether it's bumping along the bottom or still coming down on the used vehicle side, same thing. We're still seeing some pricing declines there and demand declines. Clearly, our view is we're pretty far into this downturn already well beyond your normal average one. So we'd expect it's still going to continue. Our estimate is another couple of quarters at least. But we are, I mean I think the rate of decline, we should see it start to slow and we're beginning to see a little bit of that. But yes, still soft, still soft around our rental and used vehicle sales. And I should probably distinguish when I say soft, Class 8 tractors are very soft. Straight trucks, so you think about more like e-commerce type moves and things like that, not as soft. I think that demand is certainly has held up much better during the freight cycle.

Yes, absolutely. That's a good distinction. So sort of short-term about what you guys have talked about I think you have an EPS guidance range out for the first quarter. I guess, what are the levers that you think that can happen within that range to kind of put you at the higher or the lower end, I think it's in the 155, 180 kind of range. How do you think about that?

Our contractual business, I wouldn't say completely locked in, but generally without -- unless there's not a hiccup they're typically are pretty predictable. So it's really the used truck and rental side that it comes in a little softer than we expected, could be on the lower end, it comes in a little bit better, could be on the higher end. So that's kind of how we come up with our estimates.

Okay. That sounds good. I guess, for FMS, let's start there in terms of lease fleet growth. I guess you're expecting a tough rental market as you noted here but I know you want to grow the fleet here a little bit. So I guess, what are your plans for sort of first half, second half, if maybe you can show us a little bit of the shape of what you're expecting this year?

Yes. So our -- we're going to be growing the fleet about 13,000 units which is significant, but 9,000 of that is because of this acquisition that we did of Cardinal. So Cardinal brought over 9,000 total units, 3,400. I think it is -- or 3,900 are power units and the balance are trailers. So those all be managed and basically maintained by our fleet management business. We're expecting organic lease growth of 4,000 which is on the high end of our target range of 2,000 to 4,000. So we feel that's probably going to be coming in throughout the year, maybe more -- a little bit more towards the back half but we still see a decent amount of demand in our lease business. Even in this environment, companies have to replace. Private fleets still need to -- parts of the business need to grow. I mean, if we really opened it up, I think if we had -- we went out and wanted to grow at a faster cliff, we would probably hire a lot more salespeople, we'd have more marketing, and we could really grow it a lot more. The demand for outsourcing of truck services is pretty strong. So we're still -- we feel pretty comfortable about getting to that 4,000 unit.

And then are there any -- you mentioned that outsourcing is strong. Are there any sort of end markets specifically that those customers are serving that are better or stronger than others?

Well, what we've seen over the last several years clear industrial held up -- has held up pretty well. Automotive. We're a big playing on mobile logistics. That's held up very well. Consumer packaged goods has held up well. We started to see softening around housing-related businesses. Retail had slowed quite a bit, too. So I think it's that same dynamic, I think, still continuing to play out.

Do you get any perspective about your customers on the retail side just since you mentioned I wanted to ask you about sort of their sense of inventory levels or where we are through that part of the cycle.

I think the overall feeling is that inventory levels are getting more in line, but still not -- you're not seeing a rush of orders coming in. But again, everybody, I feel like we're closer to the end than the beginning of this down cycle. And it's a matter is it going to be 1, 2, 3, 4 quarters as it really bottoms out, it comes back.

Yes, we certainly have seen some positive signs on containerized imports, which hopefully is a leading indicator.

It's the beginning.

Okay. That's helpful. And then I guess maybe lease pricing expectations around that fleet growth in 2024. I don't know if you think about this year as being -- how do you think about volatility in pricing this year on the lease side.

Yes. Remember, what we do is we target that 100 to 150 basis point spread. We feel pretty good about our ability to achieve that regardless of the environment. Because customer has to buy a truck, they're going to buy it either they're going to lease it from us or a competitor or they're going to buy it and they still have to pay whatever that price is. So we're a large purchaser of commercial trucks, so we get favorable pricing. And then we take that. We look for our return across our suite of services that we provide and we feel good about our ability to get there.

And how do you feel about the OEM side, right? So we -- I think we're largely out of the woods from their production challenges and sort of disruptions that we've gone through over the course of the last several years. But is the cadence of vehicles coming into the fleet kind of what you'd expect it to be any issues there at all?

No. Obviously, we've seen -- on the Class 8 side, we've seen lead times go from almost a year down to now 4 months. So it's down to much more normal levels. On the truck side, the chassis are in that 4 month range, but then the bodies are still delayed. So body manufacturers are still backed up or still takes close to a year to get a straight truck built and delivered. So we still think that I don't see an end to that yet. We're still working with the body manufacturer to figure out how we get that bottleneck broken up, but still out there and we're assuming this year still continues through most of the year.

Is there anything specific within the straight truck from an assembly perspective or a parts perspective that is uniquely challenging that they've talked to you about?

I think it's just been the pickup in the demand they got during COVID. It just had a tough time recovering that everything from labor to raw materials have really gotten backed up.

Let's talk about supply chain a little bit. I guess curious how you're thinking about the growth opportunity for SCS in '24 and maybe how we think about organic versus maybe what's coming from acquisitions.

Right. So we're very excited about where we are with supply chain. I think this year, we're really expecting supply chain margins to really recover in a meaningful way. We did it's a combination -- we're expecting this year to be in the double-digit -- low double-digit range for growth. It's split. It's probably 60% of the growth is going to be through acquisition, an acquisition we just did called IFS. So our goal in supply chain is to be a port-to-door provider here in North America. So we do everything from final mile delivery to bringing in product from the port. We do more cross-border between U.S. and Mexico than most companies. So we have a big strong presence in Mexico. So what we've tried to do is really round out our portfolio. And one of the pieces that we didn't have was a co-manufacturing co-packing capability, especially for CPG vertical that we're in. So we acquired IFS and we're excited about the opportunities to cross-sell services because some of these companies where we currently do, we may be running the warehouse, but we don't -- we could be doing co-man and co-pack. We're not doing it because we don't have that capability. We feel there's an opportunity now to sell that in. So being able to provide that full end-to-end solution for a customer, we find to be very valuable. There's not a lot of companies out there that can do that. And so we can run the warehouse, we can manage the transportation. We can do the dedicated. We can do the final mile delivery. And we've seen customers really open to looking for a partner that can provide that broader solution.

And IFS from a geographical perspective, are there anything that, that opens up for you?

No, it's all -- we're North America. IFS is squarely a U.S. North America-based company. So everything we're doing is really still focused on this market. If you look at our markets, 80% to 90% of the market still hasn't outsourced. So you think about private fleets, warehousing, distribution, there's a huge opportunity for us to just keep chipping away at that.

Got it. You mentioned Mexico, and that's something we were talking about with Werner recently, and it's been a bit of a theme within transports in terms of the idea of near-shoring and then just overall opportunities there. Can you frame up a little bit of how that sort of plays into the SCS strategy?

It does because like I said, we have a strong presence in Mexico. We do a lot of logistics for companies that manufacture in Mexico for distribution into the U.S. I think about auto companies, industrials. So we see now as companies begin to look for near-shoring opportunities, opportunities to sell more of those services into Mexico. We do Mexico to the U.S., we had about 250,000 border crossings a year. We've got all the certifications that you need to really accelerate that process and facilitate it. So we are beginning to see some pick up there. I think this is a long process, though. It's not an overnight. For a company to decide, I got to make a move and really get all that going. But we think the long-term opportunities there could be pretty meaningful for us.

Where do you fit in, in terms of the development stage? So when are you being contacted by the companies when they're thinking about landing facilities in Mexico? Is it immediately -- how does it all play out?

That's a great question. I think historically, we're probably later in the process. But what we're trying to do now is working with consultants and working with people that are earlier in the process of how do we figure out to get in front of these customers earlier.

Yes, as part of their sort of dedicated solution. Okay, that makes sense. Okay. And then I guess, we wonder sometimes in the supply chain business, how sort of the pricing dynamics work here. Obviously, we're going through an interesting cycle from a freight perspective. And obviously, this business was very busy back in COVID and sort of the pandemic periods. But how do you think about pricing? And maybe you can break -- maybe you want to break that out IFS versus kind of core organic, but is there any unique dynamics that we should be talking about there?

Yes. So if you think about our long-term targets for supply chain business are low double-digit top line growth, high single-digit earnings before tax as a percent of revenue. We feel good about our opportunities to hit that this year. I think that's what we're expecting from that business is that regardless of where you are in the cycle, that you can -- we can maintain that high single digits earnings as a percent of revenue, pretax. These are long-term projects. These are not spot type prices. So customer wants you to take over a warehouse. It's going to be a, let's call it, a 5- to 10-year agreement and you're going to price everything that you need in there. You're going to have an expected return for that investment, and you put it in the market. I think we end up winning our fair share primarily because of our operational capability. We run over 330 of these facilities in North America. We're at 100 million square feet of warehouse space. So we have the ability to show that we know how to do this. And on these outsourcing projects, execution is so critical. Because the one thing that could really ruin the career of the person that made the decision is a bad start-up or bad execution of an outsourcing. So our ability to show that we know how to make this happen. We know how to make it work and that you're going to be very happy with the results, I think, is extremely important.

So there's a lot of opportunity for growth in this business as more outsourcing and logistics and general supply chain gets more complex, particularly as e-comm is a bigger piece of retailer and other end markets process. So what does the pipeline look like? I mean how are you thinking about that? And how interesting are the opportunities going forward from here?

Yes. complexity is our friend. So anything that makes what we do complicated is really good for Ryder. I don't like to say that in front of the government because they can do a pretty good job of making that happen. But it is because if it's easy, most companies will do it on their own and the more complicated it becomes. So obviously, COVID was a huge boost for our business in Supply Chain because everybody is trying to figure out what do I do with my Supply Chain, what do I do in my distribution centers, transportation, and we really are in a good position to help companies figure that out. So I think continuing to be a thought leader in that space and the ability to not only provide what would typically be consulting, but advice around how to do, how to manage our supply chain, but really actually be able to do it for them is extremely valuable in this environment. And I think that's our goal. Our goal is to continue to find ways to get into with customers who are looking for those types of solutions and be able to show that we can execute and we could provide you that service with a continuous improvement mentality. We have lean manufacturing practices in all our facilities, and we're able to show customers. It's not just winning the business, but being able to show you that we can continue to run savings to year-over-year.

What's the competitive landscape look like in this business? I think we hear it's obviously an interesting one. Like you said, complexity is a good thing. It ends up for stickier relationships. And I think most companies in this business have relatively low churns. But there is a desire, I think, for people to grow within this space. So has that changed at all over the course of the last several years, the competitive landscape?

There's local and regional players. You're just going to run a warehouse, but the big name players, there's a few of us, I think, that really can do this right. I think it's a relatively disciplined market place. I think there was a time I've been with the company for 30 years. I think there was a time that everybody had jumped in, and there was a lot of folks that struggled with execution. And I think that got flushed out. So you've got some specialty around if you think about the verticals we're in, in automotive, there's some good-sized players that are all relatively disciplined, CPG, probably retailers where you have a little bit more of a localized competition that sometimes makes it the pricing a little bit more aggressive. But we try to stick to our return. We want to get paid for what we do. We think we're really -- we add a lot of value to our customers. So we -- the one focus across our business, you're going to see is really that pricing discipline to make sure we're getting the right returns.

Yes, because you have to live with that over a multiyear period of time. Yes. Got it. Okay. Let's switch over to DTS dedicated here. Maybe talk about the Cardinal transaction, obviously, a relatively interesting and big deals. So talk a little bit about that and what it brings to the table.

Yes. I think that this acquisition was a really good fit, I think, for our business, a company that really focused on customized, Dedicated. So very similar to the type of Dedicated we run. If you look at the revenue boost for our Dedicated, it's going to be almost a 50% increase in the size of our Dedicated business. So that allows us to build density, more density across locations where we could leverage the infrastructure. So we're really focused on that. Obviously, bringing a fleet of 9,000 vehicles into our FMS network, a lot of savings that we can find there. So it's really a good fit that I think will allow -- it clearly places Ryder as the #2, very close to the #1 in terms of Dedicated provider in terms of fleet size. So we think that's going to allow us, over time, to expand the margins of that business as you get more leverage. We talked about on the call that we don't see a lot of accretion from the acquisition this year, but really a more significant accretion next year. And we've got line of sight to these synergies and we feel really good about our ability to get there. So we think as we get into next year, we didn't really give the exact numbers, but maybe people do a little math that we're going to be below our -- and Dedicated below our low double-digit margin percentage this year. But as we get into next year, we expect the entire business to be back at or near that number. So if you think about 50% larger business back to the margins that we were at, it's a pretty meaningful increase in our profitability there.

And I guess where do you see -- I guess before I get to synergies because I do want to ask you about that. But in terms of end markets or specific customer exposures that Cardinal brings that you didn't have before, can you talk a little bit about that?

Yes. That's similar markets. There's probably a little bit more in the -- they have some stuff more in the housing sector. But generally, very similar profile of what -- to what Ryder's Dedicated business has been. They also brought over a freight brokerage business, which is a pretty good size and double the size of our current freight brokerage business. So although right now, freight brokerage is in a bit of a slowdown as the market comes back, that business is always a good return business. And for them as well as for us now is a profitable business. So we're excited about really being able to bring that part of the business together.

And then I guess, Dedicated is an interesting business, and we look at it through the lens of a couple of other companies as well. And I guess, the pricing there is usually typically more stable than what we see multiyear type of contracts there, inflation-based escalators oftentimes, as you think about that, any changes from like a contract length perspective as you bring this new business on.

Yes. Look, I think that's one of the nice things about being a specialized Dedicated. There is unlike some of the -- what I would call the more traditional truckload carriers do what we'd like to call more like Dedicated capacity, where you're moving more vanilla freight that is maybe not as tied into each vehicle. Our business is primarily -- our contracts are you're paying -- if you need 10 trucks, you're paying for the 10 trucks. And you're going to pay the fixed and variable on those trucks regardless some of the volume volatility. Obviously, over time, we'd like to provide a little bit more flexibility there. We have in some cases. But generally, it is a more fixed and stable. You've seen that in our business, our margins have really -- and even last year when the market was really soft, the margin on our Dedicated still remain very strong. Even though -- maybe the growth rate is slowing down because you don't have as many companies running out looking for companies that can help them with recruiting drivers and finding trucks, the profitability of that business still holds up very well.

And I want to jump into synergies here. But if anybody has any questions in the audience, feel free to raise your hand. We'll get you a mic. While you guys are thinking about that, let's talk about the synergies here. So I think you have different dynamics that can play out, obviously, trucks into the FMS business. I think there's some mechanical or maintenance aspects here that are opportunities for you. Can you talk a little bit about the synergies for Cardinal?

Sure. So Cardinal, a lot of their business was maintained by third parties. They had a few of their own locations, but you bring in Ryder's FMS capabilities, we are buying power, our leverage across all our shops, our capabilities around maintenance. There's a significant synergy there and benefit, especially as those fleet starts to turn over. They're not all owned, so some of them have operating leases that are going to roll over. So as they roll over, they turn into Ryder leases with Ryder's buying power on the equipment, too. So that's a meaningful piece of it. If you look across just overhead type opportunities we're going to see some there. Operationally, locally, where we can leverage some of our local management across multiple accounts, we're going to do that. And then over time, one of the things we're focused on, and again, being specialized equipment makes the opportunities not as great as maybe some of the truckload carriers, but an opportunity to share power across accounts. We've got a focus on that, that we think that's going to start to pay dividends over the next several years. But now with more density of accounts in the location gives us an opportunity to do more of it. Double utilization of equipment of drivers, that type of stuff.

Okay. And we begin to see that start to play out probably more in earnest like you said in '25 over time. Okay. And there's no reason to think that Cardinal when you think about that sort of low double-digit margin dynamic of the Dedicated business, broadly speaking, that's kind of the right way to think about it through the cycle as we go forward.

Yes.

Okay. Got it. That's helpful. I wanted to talk a little bit about Class 8 vehicles kind of more broadly. We always love to get your perspective on how things are going in that respect. I know we touched on it a little bit earlier here. But as you think about the used equipment market, that's obviously seen a lot of volatility over the course of the last several years to say the least. So I guess, I think your perspective is we're getting closer to maybe what is a trough in this dynamic. But I guess, how do you think about that? And can '25 be a rebound year? Or are we sort of still bump along the bottom here? It's a little hard for us to tell.

Well, we have a chart that we provided in our earnings deck. It's in the appendix that shows the used truck pricing as a percent of original cost for the last 25 years. And if you look at that chart for tractors, the first thing you notice is the massive spike during COVID where -- trucks were selling for almost more than we had bought them originally. But in the last 25 years, there's 2 trough points, where used truck prices came down to it, it's almost the same point. So there seems to be a floor at which used truck price -- used tractor prices go to and then at some point, sellers just kind of hold on to them. So we're -- if you look at that, our assumption is that at some point, you approach that and you do what we've done historically is once you approach that, it eventually comes back. So I think the more -- I mean, our estimate is that the market will continue to decline through the middle of the year. probably getting near that point and then come back and start to find its way back up.

Okay. And I guess this is sort of a tangent to this conversation, though. We've been surprised by the resiliency of the small carrier and the ability to hold on through what has been a very challenging truckload market environment. Part of it is this truck values as well. I guess, has anything changed in your opinion in terms of how lenders or other folks have approached that market. Are they -- we've heard dynamics of maybe not being willing or wanting to take these trucks back from folks who maybe are challenged with their ability to make payments and things. I guess how do you think that influences used truck pricing and the market broadly?

Yes. I don't know. I know that there's still people buying used trucks, I mean because we're selling quite a few of them. But I think it is so closely tied to what eventually, what happens with the spot market, right? So that spot market starts to recover and drivers who were on the sidelines start to want to come back in the market. They're going to come buy more trucks from us and that's when you start to get the supply/demand get back in line and you start to see customers but you start to see the pricing come back up.

So last thing I wanted to hit on was your comment earlier on, you mentioned prebuy opportunities, and we've heard a little bit of that. Obviously, there's some emission standards, technology standard changes that are coming in the not-too-distant future. So how do you think that, that kind of looks as you think about OEM production and customer behavior in advance of that?

I think it's going to get really interesting because it's happened in '06, right before the '07 technology change. Every -- the OEMs try to crank out every engine and vehicle they can before the technology because they've become very high demand form. I think you're probably likely to see something like that because we are talking about a significant rate increase going forward. So I think that could start as early as maybe the second half of 2025. I think the OEMs are going to build what they can, but there's only so much capacity. So I think as people start to see that -- the company start to see that they will maybe start buying those a little bit sooner. So we expect that to probably begin in maybe in the second half or late 2025. We'll start to see that in our lease sales numbers. So those will probably 2026, will probably be a more significant lease growth year for us, but a little more CapEx too. But again, the other nice thing about that is, typically, if you look at what happened in '06, it creates [ buoy ], if you will, or really helps to solidify our used truck prices. Because they use -- the prices of those trucks that you buy prior to the technology game become very valuable in the used truck market. And that happened with the '06 units were sold for a lot of money because people want to continue to run that older technology that operationally can be more efficient.

Yes, absolutely, yes. I remember, I was just starting in this business back then. It was an interesting time. That's for sure. So Robert, thanks so much for joining us. Really appreciate your time today.

Thank you, Chris. Thanks for having us.

Thanks, everybody.