Rush Enterprises(RUSHA) - 2023 Q2 - Quarterly Report

Part I Item 1. Financial Statements This section presents Rush Enterprises, Inc.'s unaudited consolidated financial statements for Q2 and H1 2023, encompassing balance sheets, income statements, comprehensive income, shareholders' equity, and cash flows Consolidated Balance Sheets The balance sheet as of June 30, 2023, shows total assets increased to $4.13 billion from $3.82 billion, with liabilities rising to $2.24 billion from $2.06 billion, and shareholders' equity growing to $1.89 billion from $1.76 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $2,087,795 | $1,867,743 | | Inventories, net | $1,637,321 | $1,429,429 | | Total Assets | $4,126,321 | $3,821,066 | | Total Current Liabilities | $1,620,845 | $1,428,674 | | Floor plan notes payable | $1,125,373 | $933,203 | | Total Liabilities | $2,239,036 | $2,058,044 | | Total Shareholders' Equity | $1,887,285 | $1,763,022 | Consolidated Statements of Income Q2 2023 total revenues increased to $2.00 billion from $1.79 billion, but net income attributable to the company decreased to $98.3 million from $110.2 million, with diluted EPS falling to $1.75 from $1.92 Q2 & H1 2023 Financial Performance (in thousands, except per share amounts) | Metric | Q2 2023 | Q2 2022 | Y/Y Change | H1 2023 | H1 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2,003,052 | $1,791,241 | +11.8% | $3,914,819 | $3,354,443 | +16.7% | | Gross Profit | $413,848 | $374,216 | +10.6% | $812,617 | $719,656 | +12.9% | | Operating Income | $142,859 | $135,023 | +5.8% | $270,635 | $242,522 | +11.6% | | Net Income (to Co.) | $98,275 | $110,227 | -10.8% | $188,730 | $202,680 | -6.9% | | Diluted EPS | $1.75 | $1.92 | -8.9% | $3.35 | $3.52 | -4.8% | Consolidated Statements of Cash Flows For H1 2023, net cash from operating activities significantly increased to $114.0 million, while cash used in investing activities rose to $188.9 million, and cash from financing activities decreased to $65.7 million, resulting in a $9.2 million overall decrease in cash Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $114,016 | $58,179 | | Net cash used in investing activities | ($188,946) | ($94,194) | | Net cash provided by financing activities | $65,704 | $104,563 | | Net (decrease) increase in cash | ($9,226) | $68,548 | Notes to Consolidated Financial Statements This section details accounting policies and financial statement items, including the company's single "Truck Segment" operation, increased authorized shares, and a subsequent three-for-two stock split declared in July 2023 - The company operates as a single reportable business segment, the Truck Segment, providing an integrated one-stop source for commercial vehicle needs[37] - On May 16, 2023, shareholders approved an increase in authorized shares of Class A Common Stock to 105,000,000 and Class B Common Stock to 35,000,000[26] - On July 25, 2023, the Board of Directors declared a three-for-two stock split, payable as a stock dividend on August 28, 2023[56] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 2023 revenue growth to $2.0 billion driven by commercial vehicle sales, despite a net income decline, while maintaining a positive 2023 outlook with strong liquidity and an increased order backlog Outlook Management forecasts a 5.2% increase in U.S. Class 8 truck sales and 6.2% increase for Class 4-7 vehicles in 2023, projecting 16,500-18,000 new Class 8 truck sales and 10-15% lease and rental revenue growth, despite softening aftermarket demand - A.C.T. Research forecasts U.S. Class 8 retail truck sales to be 272,600 units in 2023, a 5.2% increase from 2022[64] - The company expects to sell approximately 16,500 to 18,000 new Class 8 trucks in the U.S. and 11,500 to 13,000 new Class 4-7 commercial vehicles in 2023[64][65] - Lease and rental revenue is projected to increase by 10% to 15% in 2023 compared to 2022[66] Results of Operations Q2 2023 revenues rose 11.8% to $2.0 billion, driven by vehicle and aftermarket sales, with gross profit up 10.6%, though income before taxes fell 6.9% due to a prior-year gain, and the absorption ratio improved to 139.7% Q2 2023 vs Q2 2022 Revenue Breakdown (in millions) | Revenue Source | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | New and used commercial vehicle sales | $1,250.8 | $1,098.3 | +13.9% | | Aftermarket products and services sales | $651.1 | $598.3 | +8.8% | | Lease and rental sales | $88.5 | $80.5 | +9.9% | | Total revenues | $2,003.1 | $1,791.2 | +11.8% | Vehicle Unit Sales (Q2 2023 vs Q2 2022) | Vehicle Type | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | New heavy-duty (Class 8) | 4,300 | 4,168 | +3.2% | | New medium-duty (Class 4-7) | 3,477 | 2,815 | +23.5% | | Used vehicles | 1,869 | 1,629 | +14.7% | - The dealership absorption ratio, a key performance metric, improved to 139.7% in Q2 2023 from 136.4% in Q2 2022[74] - Net interest expense increased by 286.3% in Q2 2023 compared to Q2 2022, driven by higher inventory levels and rising interest rates on variable-rate debt[93] Liquidity and Capital Resources As of June 30, 2023, the company had $467.0 million in working capital, including $191.9 million cash, supported by various credit facilities, and is executing a $150 million stock repurchase program and capital expenditures - The company had working capital of approximately $467.0 million, including $191.9 million in cash, as of June 30, 2023[110] - A stock repurchase program authorizing up to $150.0 million was approved in December 2022, with $71.4 million of shares repurchased under this program as of June 30, 2023[116] - On July 25, 2023, the Board declared a three-for-two stock split and a quarterly cash dividend of $0.17 per share on a post-split basis, a 21.4% increase[115] Backlog The commercial vehicle order backlog increased to approximately $4.04 billion as of June 30, 2023, up from $3.68 billion year-over-year, driven by strong demand and production constraints, with a risk of cancellation for extended fulfillment times - The backlog of commercial vehicle orders was approximately $4,041.6 million on June 30, 2023, an increase from $3,682.9 million on June 30, 2022[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on $1.37 billion of variable-rate debt as of June 30, 2023, where a 100-basis-point change could impact annual interest expense by approximately $13.7 million - The company is exposed to interest rate risk on $1,370.7 million of variable-rate debt as of June 30, 2023[143] - A 100 basis point (1%) change in interest rates (SOFR, CDOR, or prime rate) would result in an approximate $13.7 million change in annual interest expense[143] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of quarter-end, with no material changes to internal control over financial reporting during Q2 2023 - The principal executive officer and chief financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[144] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[145] Part II Item 1. Legal Proceedings The company is involved in ordinary course litigation, but management believes no pending claims are reasonably likely to have a material adverse effect on its financial position or results of operations - The company believes no pending litigation will have a material adverse effect on its financial position or results of operations[146] Item 1A. Risk Factors There have been no material changes to the company's risk factors as previously disclosed in its 2022 Annual Report on Form 10-K - There has been no material change in the company's risk factors as disclosed in the 2022 Annual Report on Form 10-K[148] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company made no unregistered equity sales in Q2 2023, repurchasing 721,981 shares of common stock, with approximately $78.6 million remaining available under the current repurchase program as of June 30, 2023 Stock Repurchase Activity (Q2 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Dollar Value Remaining in Plan | | :--- | :--- | :--- | :--- | | April 2023 | 196,525 | $54.62 | $108,179,816 | | May 2023 | 306,752 | $53.00 | $91,912,675 | | June 2023 | 218,704 | $60.77 | $78,614,929 | | Total Q2 | 721,981 | - | $78,614,929 | Item 5. Other Information No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during Q2 2023 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[152]