Rush Enterprises, Inc. — FY2023 Form 10-K
Business and reporting period. This annual report covers the fiscal year ended December 31, 2023, not Q4 alone. Rush operates one reportable segment, a network of commercial-vehicle dealerships in the U.S. and Ontario, Canada, selling new and used vehicles and providing parts, service, leasing, rental, financing and insurance. RTC Canada was consolidated for all of 2023; it had been consolidated only from May 2 in 2022, affecting comparability. The 2023 statements received an unqualified audit opinion.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $7.925 billion | $7.102 billion |
| Gross profit; gross margin | $1.593 billion; 20.1% | $1.487 billion; 20.9% |
| Operating income; operating margin | $512.4 million; 6.5% | $506.1 million; 7.1% |
| Net income attributable to Rush; diluted EPS | $347.1 million; $4.15 | $391.4 million; $4.57 |
| Net interest expense | $52.9 million | $19.1 million |
| Operating cash flow | $295.7 million | $294.4 million |
Revenue mix. New and used vehicle sales were $4.958 billion; aftermarket products and services were $2.562 billion; lease and rental revenue was $353.8 million; finance and insurance revenue was $24.3 million. Aftermarket products and services supplied 59.5% of gross profit, supporting the company’s emphasis on recurring service and parts activity.
Balance sheet and liquidity. At year-end, cash and restricted cash were $183.7 million, working capital was $587.0 million, inventories were $1.801 billion and total assets were $4.364 billion. Floor-plan notes payable were $1.140 billion; long-term debt was $414.0 million; finance-lease obligations totaled $133.7 million. The company reported covenant compliance and said available funds and expected operating cash flows should cover requirements for at least 12 months. Only $2.1 million remained available on its $20 million secured line after letters of credit.
Cash flow and capital allocation. Investing activities used $387.0 million, including $368.9 million of capital expenditures, of which $263.9 million funded lease and rental vehicles. Financing activities provided $74.0 million net; the company paid $50.6 million in dividends and repurchased $211.8 million of shares. Cash declined $17.3 million during the year.
Changes versus 2022
- Revenue rose 11.6%, driven mainly by higher new-vehicle sales and a full year of RTC Canada consolidation. New-vehicle unit sales increased 9.1%; used-vehicle units were up 0.6%.
- Gross profit increased 7.1%, but gross margin fell from 20.9% to 20.1% as lower-margin vehicle sales grew as a share of revenue and aftermarket margins eased.
- Operating income rose slightly, but pretax income fell 9.3% and Rush-attributable net income declined 11.3%. Net interest expense increased 176.7%, reflecting higher inventory and interest rates.
- Inventory increased $372.0 million year over year, with new commercial vehicles rising to $1.389 billion from $955.5 million. Operating cash flow was largely offset by working-capital investment, including a $297.7 million inventory cash outflow.
- Aftermarket revenue increased 8.0% and lease and rental revenue increased 9.8%. Aftermarket gross margin declined to 37.2% from 38.6%; management cited parts-price stabilization and softer customer demand.
Outlook, risks and notable items
2024 outlook. Management expects U.S. Class 8 retail sales to decline 21.1% to 214,300 units, and forecasts Rush U.S. Class 8 share of 6.3%–6.8% (about 13,500–14,500 units), plus approximately 650 units in Canada. It expects 12,200–13,400 U.S. Class 4–7 sales, 350 additional Canadian Class 5–7 sales, 1,800–2,000 light-duty vehicles and 6,500–7,500 used vehicles. Lease and rental revenue is expected to grow about 3%; aftermarket revenue is expected to increase 1%–5%. Expected 2024 gross-margin ranges: aftermarket 36%–38%, new heavy-duty 8.5%–9.5%, new medium-duty 8%–9%, used vehicles 8%–10%, and lease and rental 29%–31%. Management expects net interest expense to increase, with the amount dependent on inventory, rates and available cash.
Management cited high interest rates, low freight rates and challenging customer conditions as near-term headwinds; it hopes freight conditions may improve by late summer 2024. It also expects 2024 capital spending of $35–$40 million for recurring items and $200–$225 million of vehicle purchases or leases for rental operations.
- Backlog: Confirmed vehicle orders totaled $3.733 billion at year-end, down from $4.216 billion. Orders can be canceled; management expects to fill most during 2024 but flags cancellation risk from high rates, low freight rates, delays and uncertainty around California emissions rules.
- Interest-rate exposure: Variable-rate floor-plan and fleet financing creates earnings sensitivity. Management estimates a 100-basis-point rate move could change annual interest expense by approximately $15.5 million.
- Supplier and franchise concentration: Peterbilt/PACCAR and Navistar are important suppliers. Peterbilt agreements were due to expire in July 2024; other agreements also have scheduled expirations and renewal, change-of-control and ownership provisions.
- Regulatory and operating risks: CARB emissions requirements and related legal challenges could affect vehicle availability, customer orders and compliance costs. Other disclosed risks include economic cyclicality, inventory valuation, technician retention, cybersecurity, environmental exposure, uninsured losses and alternative vehicle technologies.
- Other items: The company acquired a Chicago Ford truck dealership’s assets for approximately $16.3 million. It declared $0.62 per share in 2023 dividends and authorized a new $150 million share-repurchase program. No pending litigation was identified as reasonably likely to have a material adverse effect; goodwill impairment was not recorded. Used-vehicle inventory reserves were identified as the audit’s critical audit matter.
Investor facts to verify
- Whether backlog converts to deliveries and revenue, and how cancellations and vehicle production schedules develop.
- Whether margins stabilize, particularly in aftermarket, used vehicles and rental operations, as sales mix and customer demand change.
- How higher interest rates and elevated inventory affect interest expense, cash generation and floor-plan borrowings.
- Progress on 2024 market-share, unit-sales and revenue expectations, including management’s assumptions on freight and customer demand.
- Renewal and compliance status of key manufacturer franchises, and the practical effects of emissions rules on California orders and vehicle supply.
- Inventory levels, used-vehicle reserve assumptions, capital spending, share repurchases and dividend decisions.