Rush Enterprises(RUSHB) - 2024 Q4 - Annual Report

Part I Business Rush Enterprises, Inc. is an integrated retailer of commercial vehicles and related services, operating primarily through its Truck Segment via a network of 'Rush Truck Centers' across the United States and Canada - Rush Enterprises operates as a full-service, integrated retailer of commercial vehicles and related services through its network of over 143 Rush Truck Centers in 23 states and Ontario, Canada[26][27] - The company's business strategy focuses on providing integrated solutions through its 'one-stop center' model, expanding product and service offerings, and growing its geographic footprint via acquisitions and new dealership openings[28][36] - As of December 31, 2024, the company's backlog of commercial vehicle orders was approximately $1.51 billion, a significant decrease from $3.73 billion on December 31, 2023, attributed to decreased demand for new Class 8 trucks and the ongoing freight recession[102] - Sales of new Peterbilt commercial vehicles accounted for approximately 34.3% of total revenues in 2024, while sales of new International commercial vehicles accounted for 17.4%[85][86] 2024 Revenue and Gross Profit Contribution | Category | Revenue (2024) | % of Total Revenue | % of Gross Profit | | :--- | :--- | :--- | :--- | | New Commercial Vehicle Sales | $4,553.0 million | 58.3% | N/A | | Aftermarket Products & Services | $2,516.0 million | 32.2% | 60.4% | | Used Commercial Vehicle Sales | $335.8 million | 4.3% | N/A | | Vehicle Leasing and Rental | $354.9 million | 4.5% | N/A | | Finance and Insurance | $22.0 million | 0.3% | N/A | Risk Factors The company faces significant risks related to its business operations, financial condition, and regulatory environment - The company is highly dependent on PACCAR for the supply of Peterbilt trucks and parts, which generate the majority of its revenues, and a negative change in this relationship could materially harm operations[111][112] - Dealership agreements with Peterbilt are terminable if the aggregate voting power of W.M. 'Rusty' Rush and other key executives falls below 22%, posing a significant change of control risk[117] - Long-term technological advances, such as drivetrain electrification and autonomous vehicles, could adversely affect the parts and service business, which currently relies on internal combustion engines[123][124] - The business is subject to economic risks, including periods of decline in commercial vehicle sales during economic downturns, and financial risks such as the need for additional financing and the negative effects of rising interest rates[127][128][134] - Federal and state regulations on engine emissions (e.g., EPA 2027 Low NOx, CARB rules) are complex and subject to change, which could affect product demand and require reliance on manufacturers to supply compliant vehicles[142][144] - The company is controlled by one shareholder, W.M. 'Rusty' Rush, who holds approximately 35.6% of the aggregate voting power, allowing for substantial control over corporate matters[157] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[164] Cybersecurity The company employs an enterprise-wide cybersecurity program based on the Center for Internet Security (CIS) Critical Security Framework - The company's cybersecurity risk management program is based on the Center for Internet Security (CIS) Critical Security Framework to ensure the confidentiality, integrity, and availability of its systems and data[166] - Cybersecurity oversight is managed by the Chief Information Officer (CIO), who reports to the Chief Operating Officer (COO), with the Audit Committee of the Board of Directors having specific oversight responsibility[167] - Although no material breach has been experienced, the company acknowledges its systems are frequent targets of cyberattacks, and a significant disruption could result in material harm to the business[168] Properties The company's corporate headquarters are owned and located in New Braunfels, Texas - The company owns its corporate headquarters in New Braunfels, Texas[169] - As of December 2024, the company owns or leases numerous facilities for its operations across 23 U.S. states and Ontario, Canada[169] - The company owns and operates a 10,950-acre guest ranch near Cotulla, Texas, for client development[169] Legal Proceedings The company is involved in ordinary course of business litigation and maintains liability insurance - The company is involved in litigation arising from its operations in the ordinary course of business and maintains liability insurance[171] - As of December 31, 2024, management believes there are no pending legal proceedings that are reasonably likely to have a material adverse effect on the company's financial position[171] Mine Safety Disclosures This item is not applicable to the company - Not applicable[172] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Rush Enterprises' Class A (RUSHA) and Class B (RUSHB) common stock trade on the NASDAQ Global Select Market - The company's Class A and Class B common stock are traded on The NASDAQ Global Select Market under the symbols RUSHA and RUSHB, respectively[174] - On December 3, 2024, a new stock repurchase program was approved, authorizing the repurchase of up to $150.0 million of Class A and/or Class B common stock[180] - The company's 5-year cumulative total return was 187.61% (assuming $100 invested on 12/31/2019), outperforming the S&P 500 (97.02%) and a peer group (138.42%)[181][182] 2024 Quarterly Dividends and Stock Price Range | Quarter | Dividend per Share | Class A High | Class A Low | Class B High | Class B Low | | :--- | :--- | :--- | :--- | :--- | :--- | | Q1 | $0.17 | $53.72 | $42.77 | $53.35 | $45.00 | | Q2 | $0.17 | $53.78 | $41.51 | $53.31 | $37.85 | | Q3 | $0.18 | $56.64 | $40.99 | $51.91 | $37.92 | | Q4 | $0.18 | $65.15 | $49.52 | $58.61 | $43.81 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2024, Rush Enterprises experienced a slight 1.5% decrease in gross revenues to $7.8 billion, with a 3.9% drop in gross profit - The company's absorption ratio, a key metric measuring how well aftermarket gross profit covers dealership overhead, was 132.2% in 2024, down from 135.3% in 2023[194] - As of December 31, 2024, the company had working capital of approximately $736.1 million, including $228.1 million in cash, which is considered sufficient to meet operating requirements for the next twelve months[234] Summary of 2024 Performance vs. 2023 | Metric | 2024 | Change vs. 2023 | | :--- | :--- | :--- | | Gross Revenues | $7,804.7 million | -1.5% | | Gross Profit | N/A | -3.9% | | New Class 8 Unit Sales | N/A | -11.4% | | New Class 4-7 Unit Sales | N/A | +5.1% | | Aftermarket Products & Services Revenue | $2,516.0 million | -1.8% | | Absorption Ratio | 132.2% | from 135.3% | 2025 Industry Outlook (A.C.T. Research) | Vehicle Class | 2025 U.S. Retail Sales Forecast | % Change vs. 2024 | | :--- | :--- | :--- | | Class 8 Trucks | 252,000 units | +1.9% | | Class 4-7 Commercial Vehicles | 266,300 units | +5.7% | Results of Operations For the year ended December 31, 2024, total revenues decreased by 1.5% to $7.80 billion compared to 2023 - The decrease in new Class 8 truck sales was attributed to the ongoing freight recession and high interest rates, while the increase in Class 4-7 sales was due to strong demand and increased production[214][215][216] - Gross margins on new Class 8 truck sales decreased to 8.9% in 2024 from 9.7% in 2023, while used vehicle margins increased to 18.9% from 12.4% due to successful sales strategy execution[224][226] Financial Performance (2024 vs. 2023) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $7,804.7M | $7,925.0M | -1.5% | | Gross Profit | $1,531.4M | $1,593.1M | -3.9% | | Gross Margin | 19.6% | 20.1% | -0.5 ppt | | SG&A Expenses | $995.6M | $1,021.7M | -2.6% | | Operating Income | $468.1M | $512.4M | -8.6% | | Net Interest Expense | $70.9M | $52.9M | +33.9% | | Income Before Taxes | $397.8M | $462.1M | -13.9% | Vehicle Unit Sales (2024 vs. 2023) | Vehicle Type | 2024 Units | 2023 Units | % Change | | :--- | :--- | :--- | :--- | | New Heavy-Duty (Class 8) | 15,465 | 17,457 | -11.4% | | New Medium-Duty (Class 4-7) | 13,935 | 13,264 | +5.1% | | New Light-Duty | 2,105 | 1,848 | +13.9% | | Used Vehicles | 7,110 | 7,117 | -0.1% | Liquidity and Capital Resources The company's liquidity remains strong, with $736.1 million in working capital, including $228.1 million in cash, as of December 31, 2024 - The company expects to make capital expenditures of approximately $200.0 million to $250.0 million for its leasing operations and $35.0 million to $40.0 million for recurring items during 2025[238] - In December 2024, the company entered into a new $800.0 million floor plan credit agreement with Paccar Financial Corp. (PFC) and amended its BMO floor plan agreement, reducing the commitment to $675.0 million[255][256] - During 2024, the company paid cash dividends of $55.5 million and repurchased $15.7 million of its common stock[249] Cash Flow Summary (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from Operating Activities | $619,550 | $295,713 | | Net cash used in Investing Activities | ($445,578) | ($387,030) | | Net cash (used in) from Financing Activities | ($129,321) | $73,962 | | Net Increase/(Decrease) in Cash | $44,651 | ($17,319) | Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risk, primarily from interest rate fluctuations on its variable-rate debt, which totaled approximately $1.34 billion as of December 31, 2024 - The company's primary market risk is interest rate risk related to its variable-rate floor plan and lease fleet financing agreements[260][261] - As of December 31, 2024, the company had approximately $1,344.8 million in outstanding borrowings subject to variable interest rates[261] - A 100 basis point (1.0%) increase or decrease in the underlying interest rates (prime, SOFR, CORRA) would cause a corresponding change in annual interest expense of approximately $13.4 million[261] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the fiscal year ended December 31, 2024, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Shareholders' Equity, and Cash Flows, along with the accompanying Notes to Consolidated Financial Statements - The independent auditor, Ernst & Young LLP, provided an unqualified opinion, stating the financial statements are presented fairly in all material respects in conformity with U.S. GAAP[266] - A critical audit matter identified was the estimation of commercial vehicle inventory reserves, which involves subjective judgment regarding future demand and sales prices[271][272] Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Total Assets | $4,617,547 | $4,364,241 | | Total Liabilities | $2,455,644 | $2,473,825 | | Total Shareholders' Equity | $2,161,903 | $1,890,416 | Consolidated Statement of Income Highlights (Year Ended Dec 31) | Account | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $7,804,746 | $7,925,024 | | Gross Profit | $1,531,416 | $1,593,090 | | Operating Income | $468,090 | $512,381 | | Net Income Attributable to Rush | $304,153 | $347,055 | | Diluted EPS | $3.72 | $4.15 | Notes to Consolidated Financial Statements The notes provide detailed information supplementing the consolidated financial statements - Sales of new Peterbilt commercial vehicles, purchased from PACCAR, accounted for approximately 58.8% of the company's new vehicle sales revenue in 2024[347] - The company has one reportable business segment: the Truck Segment, which includes its network of commercial vehicle dealerships and related services[428] - In July 2024, the company acquired Nebraska Peterbilt for approximately $16.5 million, and in May 2022, it acquired an additional 30% of RTC Canada for approximately $20.0 million, bringing its interest to 80% and resulting in consolidation[419][422] - The company's effective tax rate was 23.3% in 2024, compared to 24.7% in 2023[411] Future Minimum Lease Payments (as of Dec 31, 2024, in thousands) | Year | Finance Leases | Operating Leases | | :--- | :--- | :--- | | 2025 | $43,603 | $21,082 | | 2026 | $32,510 | $20,345 | | 2027 | $24,226 | $19,536 | | 2028 | $19,998 | $17,399 | | 2029 | $13,978 | $15,074 | | Thereafter | $11,647 | $49,538 | | Total | $145,962 | $142,974 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports that there were no changes in or disagreements with its accountants on accounting and financial disclosure - None[447] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2024 - The company's CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2024[448] - Management assessed internal control over financial reporting based on the COSO 2013 framework and concluded it was effective as of December 31, 2024[451] - Ernst & Young LLP, the independent auditor, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2024[452][454] Other Information The company reports no other information for this item - None[462] Part III Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders - The information for this item is incorporated by reference from the Company's Proxy Statement for the 2025 Annual Meeting of Shareholders[464] Executive Compensation Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders - The information for this item is incorporated by reference from the Company's Proxy Statement for the 2025 Annual Meeting of Shareholders[465] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders - The information for this item is incorporated by reference from the Company's Proxy Statement for the 2025 Annual Meeting of Shareholders[467] Certain Relationships and Related Transactions, and Director Independence Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders - The information for this item is incorporated by reference from the Company's Proxy Statement for the 2025 Annual Meeting of Shareholders[468] Principal Accountant Fees and Services Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Shareholders - The information for this item is incorporated by reference from the Company's Proxy Statement for the 2025 Annual Meeting of Shareholders[469] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements included in Item 8 and provides an index of all exhibits filed with the Form 10-K - This item lists the financial statements contained in Part II, Item 8 of the report[472] - Financial statement schedules are omitted as the required information is inapplicable or already presented in the consolidated financial statements or notes[473] - An index of exhibits is provided, including key corporate governance documents, credit agreements, and management compensation plans[474] Form 10-K Summary This section was intentionally left blank in the report - Intentionally left blank[484]