Rush Enterprises(US:RUSHA)2023-05-10 17:44markdown [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the quarter ended **March 31, 2023**, show an increase in total assets to **$3.97 billion** from **$3.82 billion** at year-end **2022**. Total revenues for the quarter grew to **$1.91 billion**, up from **$1.56 billion** in the prior-year period, driven by strong commercial vehicle sales. However, net income remained relatively flat at **$90.8 million** compared to **$92.5 million** in Q1 **2022**, with diluted EPS also holding steady at **$1.60**. Cash flow from operations increased significantly to **$92.5 million** [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of **March 31, 2023**, total assets increased to **$3.97 billion**, driven by rises in inventories and property and equipment. Total liabilities also grew to **$2.14 billion**, primarily due to higher floor plan notes payable. Shareholders' equity increased to **$1.83 billion** Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $1,973,952 | $1,867,743 | | Inventories, net | $1,498,948 | $1,429,429 | | **Total Assets** | **$3,969,552** | **$3,821,066** | | **Total Current Liabilities** | $1,513,077 | $1,428,674 | | Floor plan notes payable | $1,015,971 | $933,203 | | **Total Liabilities** | $2,140,016 | $2,058,044 | | **Total Shareholders' Equity** | **$1,829,536** | **$1,763,022** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) For the three months ended **March 31, 2023**, total revenue increased by **22.3%** year-over-year to **$1.91 billion**, primarily due to a **24.2%** rise in new and used commercial vehicle sales. Despite higher revenues, net income attributable to the company was slightly down at **$90.5 million** compared to **$92.5 million** in the prior-year quarter, with diluted EPS remaining unchanged at **$1.60** Consolidated Statements of Income (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenue | $1,911,767 | $1,563,202 | | Gross Profit | $398,769 | $345,440 | | Operating Income | $127,776 | $107,499 | | Net Income | $90,790 | $92,453 | | Net Income attributable to Rush Enterprises, Inc. | $90,455 | $92,453 | | Diluted EPS | $1.60 | $1.60 | | Dividends declared per common share | $0.21 | $0.19 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first quarter of **2023**, net cash provided by operating activities was **$92.5 million**, a significant increase from **$34.6 million** in Q1 **2022**. Net cash used in investing activities rose to **$95.5 million**, mainly for property and equipment acquisitions. Financing activities provided **$28.3 million** in cash, down from **$43.1 million** in the prior year. The company ended the quarter with **$226.3 million** in cash and cash equivalents Consolidated Cash Flows (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $92,466 | $34,585 | | Net cash used in investing activities | ($95,514) | ($16,290) | | Net cash provided by financing activities | $28,294 | $43,085 | | **Net increase in cash and cash equivalents** | **$25,246** | **$61,380** | | **Cash and cash equivalents, end of period** | **$226,292** | **$209,526** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes clarify that the company operates primarily in a single reportable business segment, the Truck Segment. On **May 2, 2022**, the company increased its equity interest in Rush Truck Centres of Canada Limited (RTC Canada) to a controlling **80%**, and its results are now consolidated. Revenue is disaggregated, showing commercial vehicle sales as the largest contributor. The company also details its accounting for leases, credit losses, and acquisitions - The company operates as a **single reportable business segment**, the **Truck Segment**, which includes a network of commercial vehicle dealerships providing sales, aftermarket parts, service, and financial services[33](index=33&type=chunk) - On **May 2, 2022**, the company acquired an additional **30% equity interest** in RTC Canada, bringing its total to an **80% controlling interest**. Consequently, RTC Canada's financial results are consolidated into the company's statements from that date forward[50](index=50&type=chunk)[54](index=54&type=chunk)[60](index=60&type=chunk) Disaggregated Revenue by Source (in thousands) | Revenue Source | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Commercial vehicle sales revenue | $1,161,725 | $935,719 | | Parts revenue | $384,418 | $330,645 | | Commercial vehicle repair service revenue | $263,808 | $212,618 | | Finance revenue | $3,508 | $4,462 | | Insurance revenue | $3,063 | $3,063 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a strong Q1 **2023** with a **22.3%** revenue increase driven by robust demand for new commercial vehicles and the consolidation of RTC Canada. The company forecasts continued growth in aftermarket services and lease/rental revenues for **2023**. Gross profit margins decreased slightly due to a shift in sales mix towards lower-margin vehicle sales. The company maintains a solid liquidity position with **$460.9 million** in working capital and is actively managing capital allocation through facility investments, dividends, and stock repurchases. The order backlog remains high at **$4.2 billion**, though it carries cancellation risk [Outlook](index=17&type=section&id=Outlook) The company projects stable U.S. Class 8 truck sales for **2023**, while Class 4-7 sales are expected to increase by **8.6%**. Management anticipates growth in both Aftermarket Products and Services revenue (**9-12%**) and Lease and Rental revenue (**9-11%**), supported by strong demand and the consolidation of RTC Canada. Projections are subject to risks from manufacturer supply chains, inflation, and rising interest rates 2023 Full Year Outlook | Metric | Forecast | YoY Change vs 2022 | | :--- | :--- | :--- | | U.S. Class 8 Truck Sales (A.C.T. Research) | 259,018 units | -0.1% | | U.S. Class 4-7 Vehicle Sales (A.C.T. Research) | 253,600 units | +8.6% | | Company Aftermarket Revenue Growth | 9% to 12% | N/A | | Company Lease and Rental Revenue Growth | 9% to 11% | N/A | - The company expects its U.S. market share for new Class 8 trucks to be between **6.2%** and **6.8%** and for new Class 4-7 vehicles to be between **4.5%** and **5.1%** in **2023**[62](index=62&type=chunk)[63](index=63&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) In Q1 **2023**, total revenues rose **22.3%** to **$1.91 billion**, driven by a **28.6%** increase in new vehicle unit sales. Aftermarket revenues also grew **19.3%**. However, used vehicle unit sales declined **29.7%**. Gross profit increased **15.4%** to **$53.3 million**, but the gross margin percentage fell from **22.1%** to **20.9%** due to a higher mix of lower-margin vehicle sales. A significant **801%** increase in net interest expense, driven by higher rates and inventory levels, contributed to a slight decrease in income before taxes Vehicle Unit Sales - Q1 2023 vs Q1 2022 | Vehicle Type | Q1 2023 Units | Q1 2022 Units | % Change | | :--- | :--- | :--- | :--- | | New heavy-duty vehicles | 4,365 | 3,528 | 23.7% | | New medium-duty vehicles | 3,038 | 2,141 | 41.9% | | Total new vehicle unit sales | 7,907 | 6,150 | 28.6% | | Used vehicles | 1,684 | 2,395 | (29.7%) | - Total revenues increased by **$348.6 million (22.3%)** in Q1 **2023**, primarily due to strong demand for new commercial vehicles and the consolidation of RTC Canada[74](index=74&type=chunk) - Gross profit as a percentage of sales decreased to **20.9%** from **22.1%** YoY, as lower-margin commercial vehicle sales grew as a percentage of total revenues[84](index=84&type=chunk) - Net interest expense increased by **$9.8 million (801.0%)** in Q1 **2023** compared to Q1 **2022**, due to higher inventory levels and rising interest rates on variable-rate debt[94](index=94&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) The company ended Q1 **2023** with a strong liquidity position, holding **$460.9 million** in working capital, including **$226.3 million** in cash. Capital allocation plans for **2023** include **$170-180 million** for leasing operations and **$35-40 million** for recurring capital expenditures. The company continues its capital return program, paying a **$0.21 per share** dividend in Q2 **2023** and repurchasing **$31.1 million** of stock under its **$150 million** authorization as of **March 31, 2023** - As of **March 31, 2023**, the company had working capital of approximately **$460.9 million**, including **$226.3 million** in cash[98](index=98&type=chunk) - Planned capital expenditures for **2023** include **$170.0 million to $180.0 million** for leasing operations and **$35.0 million to $40.0 million** for recurring items[102](index=102&type=chunk) - A new stock repurchase program authorizing up to **$150.0 million** was approved on **December 2, 2022**. As of **March 31, 2023**, **$31.1 million** had been repurchased[105](index=105&type=chunk) - The Board of Directors declared a quarterly cash dividend of **$0.21 per share**, payable on **June 9, 2023**[104](index=104&type=chunk) [Backlog](index=26&type=section&id=Backlog) The company's backlog of commercial vehicle orders increased to approximately **$4.2 billion** as of **March 31, 2023**, up from **$3.4 billion** a year prior. This increase reflects strong demand and manufacturer production constraints. Management notes that while orders are confirmed, they are subject to cancellation, and the extended fulfillment time increases this risk, especially given potential industry headwinds - The backlog of commercial vehicle orders was approximately **$4,209.9 million** on **March 31, 2023**, compared to **$3,441.4 million** on **March 31, 2022**[122](index=122&type=chunk) - Management cautions that the longer it takes to fill the backlog, the greater the risk that a significant number of orders could be cancelled due to potential industry headwinds like lower spot rates and higher interest rates[122](index=122&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to market risk from interest rate fluctuations on its variable-rate debt, including floor plan financing and credit agreements. As of **March 31, 2023**, the company had **$1.28 billion** in such borrowings. A hypothetical **100 basis point (1%)** change in interest rates would result in an approximate **$12.8 million** change in annual interest expense - The company's primary market risk is interest rate changes affecting its variable-rate debt, which is based on LIBOR, CDOR, SOFR, and the prime rate[134](index=134&type=chunk) - As of **March 31, 2023**, with **$1,278.4 million** in outstanding variable-rate borrowings, a **100 basis point (1%)** change in interest rates would impact annual interest expense by approximately **$12.8 million**[134](index=134&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of **March 31, 2023**. There were no material changes to the company's 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 **March 31, 2023**[135](index=135&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[136](index=136&type=chunk) [PART II. OTHER INFORMATION](index=28&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course of business litigation from time to time. Management believes there are no pending claims or litigation as of **March 31, 2023**, that are reasonably likely to have a material adverse effect on its financial position or results of operations - As of **March 31, 2023**, the company believes there are no pending legal proceedings that are reasonably likely to have a material adverse effect on its financial position or results[137](index=137&type=chunk) [Item 1A. Risk Factors](index=28&type=page&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended **December 31, 2022** - There has been no material change in the company's risk factors from those disclosed in the **2022** Annual Report on Form 10-K[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not make any unregistered sales of equity securities in Q1 **2023**. Under its stock repurchase program, the company repurchased a total of **471,018 shares** for approximately **$25.5 million** during the quarter. As of **March 31, 2023**, approximately **$118.9 million** remained available for future repurchases under the program Stock Repurchase Activity - Q1 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (Approx.) | | :--- | :--- | :--- | :--- | | Jan 2023 | 133,505 | $52.02 | $6.9M | | Feb 2023 | 49,843 | $56.78 | $2.8M | | Mar 2023 | 287,670 | $53.85 | $15.5M | | **Total** | **471,018** | **N/A** | **$25.2M** | - As of **March 31, 2023**, approximately **$118.9 million** remained available for repurchase under the company's stock repurchase program[142](index=142&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, CEO and CFO certifications as required by the **Sarbanes-Oxley Act**, and XBRL data files - The report includes CEO and CFO certifications pursuant to **Sections 302 and 906** of the **Sarbanes-Oxley Act**[144](index=144&type=chunk) [Signatures](index=31&type=section&id=SIGNATURES) The report is duly signed and authorized by W.M. "Rusty" Rush, President, CEO, and Chairman of the Board, and Steven L. Keller, Chief Financial Officer and Treasurer, on **May 10, 2023** - The report was signed on **May 10, 2023**, by the company's Principal Executive Officer and Principal Financial Officer[148](index=148&type=chunk)