Paccar Inc (PCAR) — Q3 2019 Earnings Call Transcript

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer; Harrie Schippers, President and Chief Financial Officer; and Michael Barkley, Senior Vice President and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results. For additional information, please see our SEC filings and the Investor Relations page of paccar.com. I would now like to introduce Preston Feight.

Good morning. Harrie Schippers and I will provide you an update on PACCAR's excellent third quarter results and business highlights. To begin, I'm proud of our employees around the world who provide our customers the highest quality trucks, powertrains, and transportation solutions. In the third quarter PACCAR achieved sales and financial services revenues of $6.4 billion and net income of $608 million, resulting in a strong 9.5% after-tax return on revenues. PACCAR net income increased 11% compared to the third quarter of last year. PACCAR achieved robust truck, parts, and other gross margins of 14.9% in the third quarter, and also for the year to date. Through the first nine months of the year, our team achieved record revenue and earnings. PACCAR delivered 49,300 trucks during the third quarter, compared to 52,200 in the second quarter. This reflects fewer billing days in Europe, due to DAF's regular summer shutdown, which was partially offset by higher deliveries in North America. In the fourth quarter, deliveries will be lower by 6% to 8% compared to the third quarter, due to fewer production days in North America and lower daily build rates in North America and Europe. Fourth quarter truck, parts and other gross margins are estimated to be in the range of 14% to 14.5%. PACCAR declared third quarter dividends of $0.32 per share and year-to-date dividends of $0.96 per share. Year-to-date dividends were 19% higher than dividends declared in the same period last year. We repurchased 833,000 shares of stock during the third quarter, and there is $431 million remaining in the current $500 million Board of Directors' authorization. PACCAR continues to create a full lineup of innovative truck models and technologies. Kenworth, Peterbilt and DAF have introduced a range of electric powertrain vehicles in the last two years that customers are field testing in a variety of applications. PACCAR is well positioned to supply the industry with a complete set of powertrain technologies, including battery electric, fuel cell and diesel engines. This year, PACCAR has opened two global software research and development centers in the U.S. and Europe that are accelerating the development of embedded vehicle software, and PACCAR connected vehicle solutions for our customers. The PACCAR Innovation Center in Silicon Valley, which we opened in 2017, complements PACCAR's extensive R&D efforts and is focused on the development of PACCAR level 2 and 4 autonomous trucks. PACCAR will showcase many of our innovative products and technologies at the North American Commercial Vehicle Show in Atlanta next week, and at the CES Technology Show in Las Vegas in January. We hope to see you there. We are pleased to share that Kenworth, Peterbilt and PACCAR parts were each recognized as top employers for women at the Women in Trucking Annual Conference. We were honored for excellent work environment and company culture that supports gender diversity. Harrie Schippers will now provide an update on PACCAR's truck segment, PACCAR Parts, Financial Services and investment priorities for next year.

Thanks Preston. Our 2019 forecast for Europe's greater than 16-tonne truck market is to be in a range of 310,000 to 320,000 units, reflecting continued modest economic growth and strong truck demand. Next year, the Eurozone and U.K. economies are expected to grow about 1%. We expect 2020 to be another good year, with the European above 16-tonne truck market in a range of 260,000 to 290,000 vehicles. The U.S. economy is growing 2.3% this year, with 50-year low unemployment, and strong consumer spending. Freight tonnage has grown 4.2% year-to-date. In the U.S. and Canada, Class 8 industry retail sales continue to grow in 2019, following the strong orders and production over the last two years. We estimate 2019 U.S. and Canadian Class 8 industry retail sales to be in the range of 310,000 to 320,000 trucks. We expect 2020 to be another good economy, and estimate the U.S. and Canadian Class 8 truck markets to be in the range of 230,000 to 260,000 trucks, in line with normal replacement demand. The South American above 16-tonne truck market should be in the range of 95,000 to 105,000 trucks this year, and slightly higher in 2020. In Brazil, the above 16-tonne truck segment is projected to be in a range of 65,000 to 75,000 vehicles this year and slightly higher next year. PACCAR Parts business generated strong quarterly revenues of $1 billion. Quarterly pre-tax income was $207 million, 10% higher than the third quarter last year. Consistent investments in parts distribution capacity, customer focus programs such as fleet services and TRP Stores, and a growing number of PACCAR trucks and engines in operations drove these results. Since 2013, DAF, Kenworth and Peterbilt dealers have opened nearly 200 TRP retail stores on six continents. The stores provide high quality TRP branded aftermarket products and services to owners of all makes of trucks, trailers, buses and engines. PACCAR Parts is constructing two new distribution centers that will open next year. A 250,000 square foot facility in Las Vegas, which will make efficient use of solar power, and a 160,000 square foot facility in Ponta Grossa, Brazil. We expect part sales to grow by 4% to 6% next year. PACCAR Financial Services earned third quarter pre-tax income of $67 million. The portfolio was a record $15.6 billion this quarter and performed well, with low past dues. In the third quarter, industry used truck inventory increased and used truck pricing declined. Kenworth and Peterbilt truck resale values commanded a 10% to 15% premium in the market. We estimate 2019 capital spending to be in the range of $675 million to $725 million, and R&D expenses to be $325 million to $335 million. In 2020, we're planning for capital investments of $625 million to $675 million, and R&D expenses of $320 million to $350 million. These investments will continue to enhance PACCAR's truck, powertrains, and transportation solutions. Thank you. We'd be pleased to answer your questions.

Wow, I'm not used to being first. How is it going everyone? This is a first for everything, I guess. I was wondering if you could provide any information on production levels for 2020, considering what you've mentioned about the industry outlook and the slight increase in inventories? Could you share your thoughts on your production plans for 2020?

As we observe the industry stabilizing, our inventory levels are in a positive position. We currently have 2.4 months of inventory in retail sales, which is a healthy amount. Our backlog has been adjusted, and we hold 36% of the industry's backlog, indicating we're in a strong position. Looking ahead, we've made adjustments to our build rates for both North America and Europe as we approach the end of the third quarter, ensuring we are aligned with the market needs for a reasonable production level going into 2020.

And can you give us any sense about the parts, margins, I could see and we can all see in 2019, the margins are up a little bit, profits growing faster than revenues. You gave us a revenue number for next year, is there enough momentum in the business and the new parts distribution centers to be able to do that again in 2020, you think?

I think the guidance we gave on the 4% to 6% growth, and I think margins would likely be comparable to what we saw this year.

In the 27% to 28% range, that's what we typically see for parts.

I'm not used to Joel being first either.

Good morning.

Thank you, Preston, for your comments on production expectations. Do you believe that the expected production declines for the second half of 2019 will be sufficient, and that you can maintain stability through 2020 as planned?

I think we'll watch what happens in 2020. I don't think it's going to be an even year; every month will be different. I mean every quarter will be different. So we'll make sure that we adjust build rate appropriate to the orders we have. Right now we have reasonable backlog in the first quarter, especially in North America. So we feel like we've got ourselves about right and we'll watch as the year comes along, what we need to do, whether it's to go up or down in build rate.

Okay, understood. Can we discuss the decremental margins? I assume they will be decremental next year. You've managed to keep your incrementals in the mid-teens, with some reaching the high teens. I'm curious if, given your increased vertical integration with engine growth in the U.S. and the addition of parts distribution centers, you believe your decremental margin will remain in the mid-teens range, or is there a possibility it could be higher due to the extra investments?

I believe that historically, we have observed incremental and decremental margins in the range of 15% to 20%, and I anticipate that this will remain similar for next year.

A couple of questions. First on the Financial Services and this is kind of picking at it, but SG&A and provision for losses on receivables were up a little bit sequentially and year-over-year, what was driving that change, and was it due to any specific region?

What we saw in Financial Services, we've had really low credit losses. We've had low past dues. The portfolio continues to perform really well. In fact, we're pretty pleased with that portfolio. The only headwind we've had in Financial Services was used trucks.

And then, I just want to make sure I have this right, if I compare the truck segment performance to Q3 '18, you had a pretty beneficial gross spread between the 12% revenue increase, and the 3% volume growth. And I recall Q3 last year had some timing issues related to buyback contracts and stuff like that. Was that the difference in the revenue growth and the volume growth really driven by comps and pricing, or was there something else that occurred in the quarter?

Yes, if you just think about what this quarter was about, we did have reasonable pricing influence that more than offset costs. So I think those are the things that drove our stronger margin performance for the quarter. I don't know if I've gone back in terms of kind of a bridge to the 3Q of '18 numbers and what was going on back in there. We did have fewer operating lease deferrals in Q3 of '19 versus Q3 of 2018, and therefore, that helped our revenue a bit.

And then on the used truck market in North America, you mentioned inventories are growing I think, have you started to see the price trends kind of gradually decline? Are we starting to see more double digits?

So if you think about used trucks, one of the things that has been nice for PACCAR, is we've made investments over the past few years to grow our used truck capability. We created a new used truck center in Los Angeles. We're in the middle of creating one in Denton, Texas, that will open in the fourth quarter. Obviously PACCAR's used trucks provide a premium value in the marketplace. So that's a nice thing for our customers, and really we have a 10% to 15% premium over our competitors. And actually sometimes, more than that compared to some of the competitors. But we have seen the used truck market in general, go into that double-digit level of declines on that 10% to 15% decline, and that's already been kind of dealt with through this quarter.

Yes, our analysis shows that while there is a premium in the used market, prices are down year-over-year like everyone else. Thank you for confirming that. My question is about the inventory at your dealership, which has been at 2.4 months based on peak trailing sales. Isn't it likely that as we move into next year, the months of supply at the dealers will increase, leading to a need for production cuts? Could you elaborate on this and explain why you wouldn't need to reduce retail sales production next year, given the higher backlog?

I think that's a bit less than how I would view it. While we recognize that the inventory is based on a trailing run rate, we consistently engage with our dealers and customers, and we anticipate strong demand for our products moving forward. Last quarter's order intake has decreased, but as we enter the fourth quarter and discuss next year's buying patterns with customers, I believe there will be a continued demand for trucks. The overall market appears to remain solid across the country and Canada. Therefore, I expect our inventory levels are manageable. Regarding production adjustments, we will continue to make changes based on market demand as needed.

Yes, that's for sure. And then just based on your guide's history. I know the truck cycles over the long term and a lot of them have been manmade. But if we're going into a decline in 2020, for whatever reason, have we ever seen a cycle that's on a one year decline, or should we be bracing for a couple of years and then back to normal again? Just your perspective on that from your years of experience will be beneficial. Thanks.

Yes, it's challenging to predict the decline rate and whether it could extend beyond a year. However, we believe that the economic fundamentals in the U.S. and Canada remain strong. The GDP is positive, and tonne miles are high. We see the market normalizing with estimates of 230,000 to 260,000 feeling about right. As for what happens after next year, it's uncertain whether this is just a temporary slowdown before a reacceleration or if it will last longer than a year.

This is Erin Welcenbach on for David. So my question for you is, just how firm does the backlog look from an industry perspective, and when would you expect order activity to pickup this year, if at all?

Sure. I think we've done a good job assessing our backlog and collaborating with our customers to ensure it reflects actual commitments. We have addressed any cancellations and scheduling changes. While I can't speak for the entire industry, we believe our backlog is in a solid position at the moment.

And then my second question is just, maybe if you can provide some additional color on your thoughts for Europe, and any regional variances you would expect next year, given your outlook for double digit declines in sales.

One of the things we've seen in Europe is that the U.K. has performed well for us this year. Despite all the news surrounding it, that may continue. We are also the leading brand of tractors across Europe. As we observe Europe expanding further east, our DAF premium products are performing excellently throughout the continent. We have market leadership in countries like Poland and are strong in Hungary and Romania. As the European market matures, DAF is doing very well, which allows us to increase our share there.

This is Ben Burud on for Jerry. Just wanted to spend a few more minutes on Europe. So the second quarter of production adjustments in a row it seems, and it seems to be the main driver of deliveries, only increasing 3% year-over-year in the quarter. I believe your guide three months ago was 5% to 7%. So can you just spend a little more time on what drove the softness there, if that's continuing? And if you guys like to flex production over there, on a quarterly basis or if there was second production adjustment, what was more of a surprise, any color there would be helpful. Thank you.

Sure. I think your observations are quite accurate. We made adjustments in Europe to align with market demand, and we've managed to maintain our market share gains along with our build rates. Currently, our market share stands at around 16.4%, which is close to historic highs for us. We believe we've balanced the situation effectively. Europe experienced a decline a bit earlier than we anticipated, which is why we implemented the necessary adjustments, and it appears that we have set the right levels.

And then, can you give us an update on how you're thinking about dealer location growth next year, for the TRP locations? Are you still thinking of adding 50 new locations per year, and any expected increase in Kenworth and Peterbilt dealers in 2020?

Yes, I'll begin by saying that we have the best dealer network in the industry, and we've spent a significant amount of time working with them. They are excellent business partners, and we see substantial investments from them in North America and Europe. One way to look at this is that they are continuously renewing their facilities and adding service bays and shop capabilities to ensure our customers can maximize their uptime. Next year, we expect them to keep investing in new facilities and have exciting plans to add more locations. In North America, we anticipate growth in locations, while in Europe, we expect ongoing development of replacement sites and enhanced service bay capabilities. Regarding TRP Stores, we plan to add TRP Stores in 2020, similar to what we've done this year.

First question regarding the revenue per truck, which grew almost 10% year-over-year. Was this entirely due to a higher contribution from North America in the deliveries, or is there also some underlying content growth or mix story that is playing a role?

No, you've got it about right. It's mostly contribution from North America.

Okay.

Pricing improvement, right?

Yes.

Right, okay. Regarding the Financial Services and the pre-tax profits, I understand there is limited disclosure in the release. Regarding the increase in the interest and other line, how much of that is due to higher depreciation that might continue going forward, compared to impairments or losses on used items that are likely one-time in nature? The essence of my question is whether we should expect a similar profitability run rate in the third quarter or if there were any one-time events affecting that line. Thank you.

So as far as the continuing profitability, we think the strong profits we had in the third quarter will continue going forward and for the detail of your question, I will let Michael want to address that one.

Yes. We did have some impairments that were taken, and we also adjusted our depreciation to reflect expected future impairments. And so that run rate will continue going forward. And as Preston indicated, will be reflected at a similar pace in coming quarters.

I'm just trying to understand gross margins in a more draconian scenario than what you're forecasting for next year. I mean, I think if you go back in gross margins ex R&D in more of a garden-variety downturn have been around 12% to 13%. But you've got to go back like seven or eight years to see it. I'm just wondering, how do you think gross margins look in the next downturn, whenever it comes, in relation to that 12% to 13%, given the way the company has evolved over the last decade, particularly with the growth in the Parts business?

I think one of the great strengths of PACCAR, is that we are always looking at operational efficiency gains, not just in one year, but over the course of time. We're always thinking about cost control. So as we head into markets like the normalized market we're facing, we've already been aggressively thinking about cost control, and I think that's enabled us to deliver the solid gross margins we had this quarter, and even the quarterly gross margins we predict for next quarter in 14% to 14.5%. So I think that we are always managing the business efficiently for the benefit of our customers, and we think that 14% to 14.5% that we deliver next quarter will be pretty solid.

I understand that. I wasn't inquiring about next quarter or when the next downturn might occur. I'm just curious about what you anticipate your gross margins will be when it eventually happens, especially in comparison to previous downturns. I imagine it has been quite challenging to maintain the 14% to 14.5% range, particularly if Class 8 builds drop below 200,000.

Well, that's kind of hypothetical to us. Just to think where it might go down to and how we might react in those circumstances. But you can imagine, that we will always be focused on cost control, and we have a long, long history of all different markets back through the recession of 2009, and we still continue with profitability and we'll continue to do a good job in those, even if those circumstances were to return, which we don't predict.

How quickly can you reduce SG&A as Class 8 production normalizes, and where will the savings come from? Also, how should we view SG&A for next year as we return to replacement level demand? If we estimate it at 2.3% of sales for this year, will it remain at that ratio in 2020 as production normalizes, or will the ratio increase?

Yes, I think what we're always looking for in those in SG&A, and in our spending is to make sure that we are developing the right products and services for customers looking into the future. And so as we shared, we think the level of spending for us on R&D and capital will come down a little bit. R&D is roughly flat, and I think in SG&A, we will apply rigorous disciplines, to make sure that the costs are appropriately controlled.

Is the reduction mainly due to adjusting the workforce, or are there other key sources of savings as well?

Workforce is one, contracts is another, licensing agreements, work we do, those kinds of things, all get looked at. We really don't think of things in terms of a lot of fixed pricing.

We go through our overhead budgeting process every year, as a zero-based budgeting process, and we review all necessary spending in detail and make sure that we're keeping our organization as lean as possible.

And then can you just remind us the percentage of your European deliveries that come from the U.K.? I seem to remember, it's around 20%, is that in the right ballpark? And can you remind us what portion of Leyland's capacity sold to the U.K. market versus the European Union? I mean on that note, could you shift production out of the U.K. to DAF in the Netherlands to serve Europe, if we did go through a hard Brexit?

So as we think about the U.K., one of the beautiful things for us is, we have great production capacity in the U.K. We also have it in Eindhoven, and so we were able to flex depending on what Brexit might or might not be appropriately for the market, so we can build the trucks we need in the U.K., in the U.K., and we can build all the trucks, the CFXs we need for the continent, we can build on the continent as well. So that gives us good flexibility, and I think Harrie, you were looking at the number...

The U.K. typically is between 15% and 20% of our European production.

Most of the existing production this year would be for the U.K. market from the U.K. factory.

Yes, we can use it for both, and we have enough there to support the U.K. and we have enough capacity in Europe to support Europe.

And being the only truck manufacturer that has a factory in the U.K., that could give us a very nice advantage.

I guess one question, as you're thinking about the commentary that you made about decrementals of the 15% to 20% or so, are there any variances or differences as we think about where the weakness is coming from, are the decrementals dissimilar in the U.S. and Europe or not so much anymore with being more vertically integrated in the U.S. now? And then I guess my second question relates to sort of price costs. Obviously pricing has been pretty strong for you guys this year, and the downturn that you guys are forecasting, do you think you can hold sort of price in that material cost could potentially be a tailwind for you? Thank you.

Yes, I think it is quite possible that your second question holds true. We will continue to manage pricing to the best of our abilities in the market, and we are consistently examining our cost structure. As you pointed out, this could provide some advantage for us moving into next year. In 2019, suppliers are operating at full capacity with some inefficiencies in their shipments, so there might be some potential for upside in that aspect.

And just the first part, difference U.S. versus Europe in terms of impact on margins?

Yes, they're very similar, very similar.

I wanted to revisit the clarification regarding your build rate and how it aligns with the current orders in your backlog for the first quarter. Should we assume that at the start of 2020, we will return to a replacement rate of 20,000 orders a month? Or is the current build rate based on staying under 15,000 orders, with the backlog compensating for the difference? Additionally, I want to confirm that the September build rate is the assumption we should rely on moving forward.

Well, we've made adjustments in the first parts of October for our build rates, so this is coming at that. So we think we've got that set up right. When I think about our backlog and build rates for next year, we still have quite a healthy backlog, and so there could be a little bit of more time for the normalization to that quarter intake of 20,000 per month, as you put the number out there. But orders are definitely starting to pick up. It's a very normal part of the cycle to have late summer be quiet, and then as people are putting their capital budgets into place, then to see the fourth quarter be a time of ordering, and we're seeing that right now. So whether it's going to be exactly at level this month or it will take a month or two to normalize out, it should normalize out.

It seems that you expect to see a return before the start of the year. Regarding capital expenditures and research and development, you provided guidance for 2020, indicating a decrease in capital expenditures compared to 2019, though still at a higher level than historically typical for your company. Should we consider this as the appropriate investment level that the business requires at this time, or are many of these expenditures one-time? Additionally, regarding research and development, which is anticipated to increase, especially with concerns about decrementals next year, are there specific areas within R&D that might be included as well?

For both areas concerning whether they represent one-time expenses or ongoing run rates, we always assess the range of projects and opportunities that will create value and focus our investments there. Our strategy is built for sustained growth rather than just quarterly results, which is how we determined our guidance of $625 million to $675 million in capital expenditures. A similar strategy applies to our R&D efforts. Currently, there aren't many compelling projects with strong returns on investment for our customers, but we continuously evaluate which ones should be pursued and their potential value. Our portfolio is impressive, especially with factory enhancements like the new paint facility in Chillicothe, which will enhance efficiency and quality. In terms of R&D, we are focusing on projects related to powertrains, including electric and autonomous vehicles and more aerodynamic truck models. All of these initiatives aim to enhance our already outstanding trucks, and if they can significantly improve performance, we will proceed with them.

And then just lastly, I think last quarter you called out some customer mix headwinds. Obviously, we saw an improvement in margins this quarter; part of that was just stockings from the headwinds from last quarter. But were there any customer mix changes this quarter that we should be thinking about, kind of for the remainder of the year?

I believe we've already discussed that North America was a positive factor for us this quarter. It's really the only minor aspect that contributed. Overall, we experienced good pricing, effective cost control, and a stronger North American mix.

I wanted to start with a clarification of the fourth quarter production being down 6% to 8% sequentially. Could you break that out between your plans for North America and Europe?

So I think they're fairly comparable without running exact numbers. They are both roughly in the same ranges in the quarterly, look at how they moved about high-single digits in North America, and it was a series of smaller steps through Europe, that did the same thing.

And then, I'm wondering what your view is on medium-duty truck markets next year in North America, and then also your thoughts on Europe as well?

So for the medium-duty market in North America, I think we're seeing it's around 100,000 in North America and right around 50,000 in Europe for next year. So, comparable numbers for this year.

And then just back to Europe. I'm wondering if you would be willing to share with us the magnitude of the order declines that you did see in that region, and do you get the sense that order rates are bottoming out now, if we start to see a leveling out of that pace of decline, or is that maybe still too early?

What we're really trying to look at, is what's going on with the cycle and what's going on with the timing of the calendar year, and in fact of recent, we've seen an improving order intake in Europe, actually it's matching up to our build, so that's been a nice balancing point. And hopefully that will be what continues.

Is there any particular region or part of the continent that saw a nice improvement?

Got to believe it has something to do with providing great trucks to our customers, and I think that really is a big part of it at the end of the day, because I think that we've been able to get to our record market shares in Europe and hold on to that share because people are experiencing our fantastic trucks and want some more of those.

I was impressed with the parts outlook for next year. Can you give us a little more comfort on your visibility to project that kind of parts growth for next year? I know you have some help from the aging of the engines, hitting a sweet spot. But can you help us get a little more comfort with that stronger growth?

Yes, sure. I think that strong growth is a result of, as you said the engines. It's also this investment in TRP that we're doing. Our team there does a fantastic job in e-commerce and in reaching out to our customers through new ways that are meeting their needs. So we're able to just kind of keep taking more and more of the market. These investments in our PDCs that we mentioned, both in Ponta Grossa in Brazil and in Las Vegas, allow us to get parts to the customers more quickly in those regions, which makes us a more desirable provider. And really frankly in partnership with our dealerships, who are fully committed to growing their parts business, because it's good for them, good for our customers, and good for us, it's one of those real opportunities for win-win-win.

Are there any metrics regarding the backlog or the percentage of the parts business that has some form of annual contract?

Yes. Parts don't really work out that kind of a long backlog, it's much more of a...

I appreciate that. But just any anything you're looking at, that might give us some more comfort on the number?

Well, I think the comfort should come from the historically strong performance and then the reasons that we just talked about, which are just a lot of great products, growing relationship of PACCAR products in Europe and North America over the past several years and that has also contributed to that growth and will continue to contribute to that growth, and some strong markets that we have a large part of trucks out there.

And last, the European business, the leasing of trucks, can you help us a little bit, well you said there was less of it in this quarter, sort of what are you seeing on that front for the mix going into next year?

Missed the first part of your question on this side, can you say it again David?

For the European business, the mix of businesses where there are some buyback guarantees and the leasing of the business, how you represent to the revenues, it impacted the price per unit delivery this quarter. Can you just help us take us through your thoughts on '20, on the mix for that into next year?

I think it's probably going to run a lot like this '19 has gone. Those adjustments were more '19 to '18 than they were looking forward. So we're at a pretty stable rate of optional and fixed rate GRVs.

A lot of my questions have been answered. I wanted to focus a little bit on tax rate, if that's okay. It looks like the tax rate outlook had come down a little bit, and maybe I'm not thinking about it right, I would have thought more North American exposure would have driven it higher? Am I wrong, does it drive it lower, and is that kind of a lower level of taxes that we should be thinking about for the rest of this year?

The tax rate to consider is typically around 23%. In the third quarter, we had a positive impact from higher R&D credits than we had initially expected. Those represent our final returns.

So should I carry that through to the end of the year, or is it more of a third quarter thing?

Well, I think you should think in terms of 23% for Q4 and for 2020.

And as I look to you said for 2020. That's my question, all my others have been answered. Thank you.

In U.S. and Canada, it looks like Class 6, 7 growth was pretty healthy in the quarter, and better than the market, and so curious, whether that's just sort of time...

Joe, are you still there?

Lindsay, are you there?

Well, I guess we aren't hearing from you, so we'll try to extrapolate your question a little bit.

Or we could move on and maybe Joe can rejoin.

Yes. We'd like to thank everyone for joining the call and thank you, operator.