Rush Enterprises, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results. Rush operates a nationwide commercial-vehicle dealership network; its sole reportable segment is Truck.
Financial performance
Amounts are in millions of dollars except per-share data and where noted.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,266.5 | $1,178.6 | $3,814.3 | $3,467.7 |
| Gross profit | $282.3 | $212.5 | $797.9 | $639.3 |
| Gross margin | 22.3% | 18.0% | 20.9% | 18.4% |
| Operating income | $90.2 | $42.9 | $219.2 | $101.1 |
| Net income | $69.4 | $33.9 | $172.8 | $73.9 |
| Diluted EPS | $1.20 | $0.60 | $2.99 | $1.32 |
| Operating cash flow | Not reported by quarter | $438.6 | $590.5 |
- Q3 revenue increased 7.5% year over year; nine-month revenue rose 10.0%. Aftermarket products and services revenue grew 15.7% in Q3 and 9.8% for the nine-month period. Q3 commercial-vehicle sales revenue increased 2.5%.
- Q3 net income more than doubled, while nine-month net income increased 134%. Gross margin gains reflected stronger margins across operations, including used trucks and aftermarket sales.
- For the nine months, selling, general and administrative expense rose 8.6% to $539.6 million, slower than revenue growth; depreciation and amortization expense declined 6.9% to $40.3 million.
- Cash from operations was lower year over year despite higher earnings, principally because inventory reductions generated less cash than in 2020. Investing used $121.4 million, including $122.3 million in property and equipment purchases. Financing used $369.6 million, including debt and floor-plan repayments, dividends and share repurchases.
Liquidity, debt and capital
- At September 30, cash was $259.7 million, down from $312.0 million at year-end 2020. Working capital was approximately $405.3 million; current assets were $1,178.0 million and current liabilities $772.7 million.
- Floor-plan notes payable were $354.3 million. Long-term debt, including current maturities, totaled approximately $373.9 million, compared with $529.7 million at December 31, 2020. Finance-lease obligations totaled $115.7 million.
- Management said available funds and expected operating cash flow should meet operating requirements for at least 12 months. The company reported compliance with debt covenants and did not anticipate a foreseeable breach.
- Cash dividends paid in the first nine months were $30.5 million; the board declared a further $0.19-per-share dividend for payment in December 2021. The company repurchased $21.7 million of stock in the first nine months.
- New revolving facilities include a Wells Fargo commitment of up to $250 million for lease/rental fleet purchases and working capital, and a PACCAR Leasing commitment of up to $300 million for PacLease fleet and equipment purchases. Interest on these facilities is recorded in interest expense rather than cost of sales, increasing reported gross margins without changing the underlying financing cost.
Outlook, risks and notable items
- Management cited strong demand but ongoing component shortages that constrained new-truck production and could delay deliveries into 2022. Parts availability and service completion could also be affected. COVID-19 conditions had improved from 2020, but the pandemic’s future effects remained uncertain.
- For 2021, management expected aftermarket revenue growth of 10%–12%, lease and rental revenue growth of 5%–7%, SG&A of 13%–14% of revenue, and an effective tax rate of approximately 23%–24%. It expected new Class 8 truck gross margins of 8%–9%, medium-duty margins of 6.5%–7.5%, and used-truck margins of 12%–16% for the remainder of 2021.
- Management’s industry-based 2021 estimates included 228,500 U.S. Class 8 retail sales and 251,000 Class 4–7 sales. It expected Rush market shares of 5.0%–5.2% for Class 8 and 4.0%–4.3% for Class 4–7; these are forecasts, not company revenue or earnings guidance.
- Backlog was approximately $2.72 billion, versus $1.07 billion a year earlier. It includes confirmed orders that may be cancelled, and management said supply-chain delays made delivery timing uncertain.
- Rush agreed to acquire Summit Truck Group dealerships and Idealease franchises for an estimated $223 million, excluding approximately $60 million of anticipated real estate purchases; about $114 million of the purchase price was expected to be financed. The transaction was expected to close in December 2021, subject to approvals and other conditions. Rush did not expect to retain the Oklahoma or Mississippi dealerships.
- Other risks include economic and truck-market cyclicality, interest-rate exposure, environmental compliance and potential liabilities, litigation, tax uncertainties, and possible impairment of goodwill or franchise rights. The filing reported no pending litigation expected to have a material adverse effect and no franchise-right impairment in the period.
Important facts for investors to verify
- Whether production constraints ease and whether the large order backlog converts into deliveries and revenue on expected timelines.
- Whether elevated used-truck prices and margins, parts-related margins and the reported gross-margin improvement are sustainable.
- Final Summit purchase terms, real-estate purchases, financing, approvals and the dealerships Rush ultimately retains.
- Utilization and borrowing under the Wells Fargo and PACCAR facilities, related interest costs, covenant headroom and the effect of the accounting presentation change on reported margins.
- Cash conversion, inventory and floor-plan financing trends, capital spending, and the company’s ability to maintain dividends and repurchases while funding acquisitions and fleet growth.