Rush Enterprises(RUSHA) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Rush Enterprises, Inc. as of June 30, 2021, and for the three and six-month periods then ended Consolidated Balance Sheets The Consolidated Balance Sheet as of June 30, 2021, shows a slight decrease in total assets to $2.91 billion from $2.99 billion at year-end 2020, primarily due to lower inventories and current debt. Total shareholders' equity increased to $1.36 billion from $1.27 billion, driven by retained earnings Balance Sheet Summary | Balance Sheet Items (In Thousands) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,306,280 | $1,357,726 | | Inventories, net | $813,773 | $858,291 | | Total Assets | $2,912,124 | $2,985,393 | | Total Current Liabilities | $928,811 | $1,026,794 | | Floor plan notes payable | $470,877 | $511,786 | | Total Liabilities | $1,551,925 | $1,717,356 | | Total Shareholders' Equity | $1,360,199 | $1,268,037 | Consolidated Statements of Income and Comprehensive Income The company reported significant year-over-year growth for the three and six months ended June 30, 2021. For the second quarter, total revenue increased by 31.3% to $1.32 billion, and net income more than tripled to $58.0 million. Diluted EPS for the quarter rose to $1.00 from $0.30 in the prior-year period Income Statement Summary | Income Statement (In Thousands, Except Per Share) | Q2 2021 | Q2 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,316,015 | $1,002,512 | +31.3% | | Gross Profit | $270,782 | $192,331 | +40.8% | | Operating Income | $72,791 | $23,001 | +216.5% | | Net Income | $58,044 | $16,816 | +245.2% | | Diluted EPS | $1.00 | $0.30 | +233.3% | Income Statement Summary | Income Statement (In Thousands, Except Per Share) | H1 2021 | H1 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $2,547,821 | $2,289,175 | +11.3% | | Gross Profit | $515,596 | $426,832 | +20.8% | | Operating Income | $129,016 | $58,198 | +121.7% | | Net Income | $103,377 | $39,923 | +159.0% | | Diluted EPS | $1.79 | $0.72 | +148.6% | Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash provided by operating activities was $237.7 million, a decrease from $418.2 million in the prior-year period, primarily due to a smaller decrease in inventories. Net cash used in financing activities also decreased significantly to $151.0 million from $309.9 million, mainly due to lower net payments on floor plan notes payable Cash Flow Summary | Cash Flows (In Thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $237,703 | $418,210 | | Net cash used in investing activities | ($82,879) | ($74,379) | | Net cash used in financing activities | ($150,961) | ($309,895) | | Net increase in cash and cash equivalents | $3,863 | $33,936 | | Cash and cash equivalents, end of period | $315,911 | $215,556 | Notes to Consolidated Financial Statements The notes detail the basis of presentation, accounting policies, and segment information, with commercial vehicle sales as the largest revenue contributor - The company operates under a single reportable business segment, the Truck Segment, which includes a nationwide network of commercial vehicle dealerships providing integrated sales, aftermarket parts and service, and financial services[41] Disaggregated Revenue | Disaggregated Revenue (In Thousands) | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Commercial vehicle sales revenue | $797,269 | $559,062 | | Parts revenue | $263,491 | $211,804 | | Commercial vehicle repair service revenue | $182,035 | $165,749 | | Total (excluding lease/rental) | $1,254,619 | $945,222 | - On September 15, 2020, the company's Board of Directors declared a 3-for-2 stock split, which has been retroactively applied to all share and per-share data presented in this report[23] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a significant recovery from the COVID-19 pandemic and strong demand for commercial vehicles and aftermarket services Outlook The company provides a positive outlook for 2021, citing strong demand for new commercial vehicles. A.C.T. Research forecasts a 32.4% increase in U.S. Class 8 retail truck sales and an 11.0% increase for Class 4-7 vehicles. Rush anticipates growth in its Aftermarket Products and Services (8-10%) and lease and rental revenue (6-9%), though component supply chain issues could delay new vehicle deliveries into 2022 2021 Forecasts | 2021 Forecasts | Metric | Value/Range | | :--- | :--- | :--- | | Industry Sales (A.C.T.) | U.S. Class 8 Retail Sales | 259,000 units (+32.4% YoY) | | | U.S. Class 4-7 Retail Sales | 257,500 units (+11.0% YoY) | | Company Market Share | New Class 8 Trucks | 4.8% - 5.3% | | | New Class 4-7 Vehicles | 4.3% - 5.0% | | Company Revenue Growth | Aftermarket Products & Services | 8% - 10% YoY | | | Lease and Rental | 6% - 9% YoY | - Management believes that while demand for new commercial vehicles is strong, component supply chain issues could push the timing of deliveries into 2022, potentially impacting industry sales forecasts for 2021[69] Results of Operations The company's results show significant improvement driven by the economic recovery. For Q2 2021, total revenues grew 31.3% YoY, with new and used vehicle sales up 42.6%. Gross profit margin expanded to 20.6% from 19.2%. The dealership absorption ratio, a key performance metric, improved to 129.1% from 110.2% in Q2 2020, indicating that aftermarket gross profit more than covered fixed overhead costs Vehicle Unit Sales | Vehicle Unit Sales | Q2 2021 | Q2 2020 | YoY Change | | :--- | :--- | :--- | :--- | | New heavy-duty vehicles | 2,954 | 1,866 | +58.3% | | New medium-duty vehicles | 2,825 | 2,333 | +21.1% | | Used vehicles | 2,094 | 1,768 | +18.4% | - The dealership absorption ratio, a key performance indicator, increased to 129.1% in Q2 2021 from 110.2% in Q2 2020. This means gross profit from Aftermarket Products and Services covered all dealership overhead (excluding vehicle sales commissions and inventory costs)[95] Gross Margins by Product | Gross Margins by Product | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Aftermarket Products & Services | 37.8% | 37.2% | | New Class 8 truck sales | 9.1% | 7.3% | | New Class 4-7 vehicle sales | 7.4% | 6.1% | | Used commercial vehicle sales | 17.4% | 5.4% | | Truck lease and rental sales | 21.2% | 10.1% | Liquidity and Capital Resources As of June 30, 2021, the company had strong liquidity with $377.5 million in working capital, including $315.9 million in cash. Total available liquidity was approximately $421.5 million. The company plans capital expenditures of $180-$215 million in 2021, primarily for its leasing operations and facility improvements. It also continues its shareholder return programs, including a quarterly dividend and a $100 million stock repurchase plan - Total net liquidity was approximately $421.5 million as of June 30, 2021, comprising $315.9 million in cash and $105.6 million available under credit agreements[68][131] - The company expects to purchase commercial vehicles worth $150.0 to $180.0 million for its leasing operations and make recurring capital expenditures of $30.0 to $35.0 million during 2021[135] - A stock repurchase program authorizing up to $100.0 million was approved in December 2020. As of June 30, 2021, $12.5 million of shares had been repurchased under this program[137] Backlog The company's backlog of commercial vehicle orders more than doubled year-over-year, indicating strong future demand. As of June 30, 2021, the backlog stood at approximately $2.26 billion, compared to $1.06 billion on the same date in 2020. These orders are expected to be filled during the remainder of 2021 and into 2022 Commercial Vehicle Backlog | Backlog of Commercial Vehicle Orders | Value | | :--- | :--- | | June 30, 2021 | $2,258.9 million | | June 30, 2020 | $1,057.1 million | | YoY Change | +113.7% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rates, particularly related to its floor plan financing agreements which are largely based on LIBOR. A hypothetical 100 basis point (1%) change in LIBOR would impact annual interest expense by approximately $4.7 million - The company is exposed to interest rate risk on its floor plan borrowings of approximately $470.9 million. A 100 basis point increase or decrease in LIBOR would result in a corresponding change in annual interest expense of about $4.7 million[160] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021. There were no material changes to internal control over financial reporting during the quarter - The principal executive officer and chief financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[161] - No changes in internal control over financial reporting occurred during the second quarter of 2021 that materially affected, or are reasonably likely to materially affect, internal controls[162] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course litigation from time to time but believes there are no pending claims that could have a material adverse effect on its financial position or results of operations - The company states that it is not aware of any pending litigation that would have a material adverse effect on its financial position or results of operations[163] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the filing of its 2020 Annual Report on Form 10-K[165] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not make any unregistered sales of equity securities in Q2 2021. It repurchased 98,975 shares of its Class B Common Stock during the quarter for a total of approximately $4.2 million under its publicly announced repurchase program Stock Repurchase Activity | Stock Repurchase Activity | Q2 2021 | | :--- | :--- | | Total Shares Purchased | 98,975 (Class B) | | Total Cost | ~$4.2 million | | Remaining Authorization (as of June 30, 2021) | $87,463,235 |