Rush Enterprises, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; it does not provide a standalone fourth-quarter income statement. Rush operates a single reportable Truck Segment, a commercial-vehicle dealership and services network in the U.S. and Ontario, Canada.
Financial performance and position
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $7,101.7 million | $5,126.1 million | +38.5% |
| Gross profit / margin | $1,487.2 million / 20.9% | $1,092.3 million / 21.3% | Gross profit +36.1%; margin down 0.4 percentage points |
| Operating income / margin | $506.1 million / 7.1% | $309.0 million / 6.0% | Operating income +63.8% |
| Net income attributable to Rush | $391.4 million | $241.4 million | +62.1% |
| Diluted EPS | $6.85 | $4.17 | +64.3% |
| Cash from operations | $294.4 million | $422.3 million | Down $127.9 million |
| Cash and working capital at year-end | $201.0 million; $439.1 million | $148.1 million; $321.0 million | Cash and working capital increased |
Revenue mix in 2022 was led by new and used commercial vehicles ($4,351.4 million, 61.3% of revenue) and aftermarket products and services ($2,372.4 million, 33.4%). Aftermarket generated 61.7% of gross profit. New vehicle sales rose substantially, including 51.8% growth in new heavy-duty unit sales; used unit sales fell 6.0%, although used-vehicle revenue rose 28.5%.
Cash from operations was pressured by a $324.5 million inventory increase and a $74.6 million increase in receivables. Investing activities used $240.9 million, including $243.1 million in capital expenditures, of which $168.5 million was for lease and rental vehicles; acquisition-related cash outflow was $20.8 million. Cash increased $52.9 million overall.
Year-end reported obligations included $933.2 million of floor-plan notes, $275.4 million of long-term debt and $122.7 million of finance lease obligations. Floor-plan debt increased from $630.7 million in 2021, while long-term debt declined from $334.9 million. The company also reported $104.0 million of operating lease obligations. Its $20 million secured line of credit had no advances outstanding; $5.9 million remained available after letters of credit. Management stated liquidity was sufficient for at least 12 months and the company was in compliance with debt covenants.
Material changes and notable items
- Revenue and earnings growth reflected strong demand, the December 2021 Summit Truck Group acquisition, and consolidation of RTC Canada from May 2, 2022, after Rush increased its ownership to 80%.
- Gross margin declined as lower-margin vehicle sales grew as a share of revenue. Used-vehicle gross margin fell to 9.9% from 18.7%, reflecting declining used-vehicle values; aftermarket gross margin improved to 38.6% from 38.1%.
- Net interest expense rose to $19.1 million from $1.8 million, driven by higher inventory financing and rising variable interest rates.
- Unusual income included a $12.5 million gain on the sale of a 50% interest in Momentum Fuel Technologies to Cummins, creating a joint venture, and a $7.0 million gain from remeasuring Rush’s previously held RTC Canada interest upon gaining control.
- Commercial-vehicle order backlog was $4,216 million at year-end, up from $3,267 million. The increase reflected acquisitions, Canadian consolidation and manufacturer production constraints. Orders may be cancelled, and the company warned that slower delivery, lower spot rates and higher interest rates could increase cancellation risk.
- Rush declared $0.80 per share in 2022 dividends and authorized a new $150 million share-repurchase program in December 2022. It repurchased $93.7 million of shares during 2022.
Outlook, management commentary and risks
For 2023, management expected U.S. new Class 8 market sales to decline and projected Rush’s U.S. Class 8 share at 6.0%–6.5%, or approximately 15,300–16,500 units, plus about 1,000 units in Canada. It projected U.S. Class 4–7 share of 4.2%–4.7%, or approximately 10,750–11,900 units, plus about 250 units in Canada; 1,800–2,000 light-duty units; and 7,000–7,200 used commercial vehicles.
Management forecast 2023 lease and rental revenue growth of 9%–11% and aftermarket revenue growth of 9%–12%. It expected aftermarket gross margins of 37.5%–38.5%, new heavy-duty margins of 8.8%–9.9%, medium-duty margins of 7.5%–8.5%, used-vehicle margins of 8%–10%, lease and rental margins of 28%–31%, and SG&A at 13%–14% of revenue. These projections depend on vehicle availability, manufacturer allocations, supply chains, demand and interest rates. Management also expected higher 2023 net interest expense.
Key risks include dependence on Peterbilt/PACCAR and Navistar supply and franchise agreements; vehicle-production and parts constraints; cyclical demand and higher financing costs; backlog cancellations; competition for skilled technicians; potential impacts of emissions rules and the transition to alternative-fuel vehicles; environmental liabilities, cybersecurity incidents, severe weather, and uninsured claims. A 100-basis-point change in relevant benchmark rates was estimated to change annual interest expense by approximately $12.1 million. Management reported no pending litigation expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification checklist
- Check how much of revenue and earnings growth came from acquisitions and consolidation versus organic performance.
- Track backlog deliveries, cancellations and conversion to revenue, alongside production constraints and truck demand indicators.
- Monitor inventory levels, floor-plan borrowings, interest expense and cash conversion as rates and vehicle availability change.
- Compare 2023 guidance with actual unit sales, margins, aftermarket growth and lease-fleet utilization.
- Review the final RTC Canada purchase-price allocation, used-inventory valuation and reserve assumptions, and the terms and usage of the repurchase authorization.
- Assess OEM franchise renewals and concentration, especially Peterbilt agreements scheduled to expire in May 2023, as well as technician retention and regulatory developments.