Rush Enterprises, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited consolidated results; financial statement amounts below are in U.S. dollars. The company operates a nationwide commercial-vehicle dealership network, primarily through its Truck Segment.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,316.0m | $1,002.5m | $2,547.8m | $2,289.2m |
| Gross profit | $270.8m | $192.3m | $515.6m | $426.8m |
| Operating income | $72.8m | $23.0m | $129.0m | $58.2m |
| Net income | $58.0m | $16.8m | $103.4m | $39.9m |
| Diluted EPS | $1.00 | $0.30 | $1.79 | $0.72 |
| Gross margin | 20.6% | 19.2% | 20.2% | 18.6% |
| Operating cash flow | Not stated quarterly | Not stated quarterly | $237.7m | $418.2m |
Revenue mix and activity: Q2 new and used commercial-vehicle sales rose 42.6% to $797.3m; aftermarket products and services revenue increased 18.0% to $445.5m. New vehicle unit sales rose 40.4% and used vehicle units rose 18.4%. Dealership absorption ratio improved to 129.1% from 110.2%.
Cash flow and investment: Six-month cash from operations was $237.7m; capital expenditures were $84.4m, including $64.7m for rental and leasing fleet units. Cash increased $3.9m to $315.9m. Operating cash flow was lower than the prior-year period, which benefited substantially from a $358.9m inventory reduction, versus $76.8m in 2021.
Liquidity and debt: Working capital was $377.5m. Management reported net liquidity of approximately $421.5m, comprising $315.9m cash and $105.6m available under credit agreements, excluding floor-plan facilities. No borrowings were outstanding on the $100m working capital facility. Balance-sheet floor-plan notes payable were $470.9m; long-term debt including current maturities totaled $452.8m. The filing separately reports $388.6m outstanding under the BMO floor-plan agreement. The company paid off approximately $40m of remaining real-estate debt in April and stated it was compliant with debt covenants.
Changes and management commentary
- Q2 revenue increased 31.3%, gross profit 40.8%, and operating income $49.8m versus Q2 2020. Management attributed the improvement to economic recovery, stronger vehicle demand and pricing/margins, and higher rental utilization. The prior-year quarter was affected by the pandemic and weak used-truck demand.
- Q2 used-vehicle gross margin rose to 17.4% from 5.4%; new Class 8 truck margin was 9.1% versus 7.3%. Management cautioned that used-truck values could fall as new production recovers.
- Net interest expense fell sharply; Q2 interest was net income of $0.2m versus $2.2m expense a year earlier. Lower floor-plan balances, favorable manufacturer financing terms, and real-estate debt repayment contributed.
- COVID-19 conditions had improved, and most businesses were back to pre-pandemic levels, but commercial vehicle service remained below those levels. Component shortages continued to constrain new vehicle availability and parts supply.
Outlook, risks and contingencies
- For 2021, management expected new Class 8 sales market share of 4.8%–5.3% (about 12,500–13,800 units), Class 4–7 share of 4.3%–5.0% (about 11,000–12,800 units), approximately 1,600 light-duty vehicles and 7,000–7,500 used commercial vehicles.
- Management forecast lease and rental revenue growth of 6%–9% and aftermarket revenue growth of 8%–10% for 2021. Expected margins: aftermarket 37%–38%; new heavy-duty 8%–9%; new medium-duty 6.5%–7.5%; used vehicles about 12%–16% for the remainder of the year. These forecasts were subject to supply, demand and vehicle-mix risks.
- Industry forecaster A.C.T. Research projected 2021 U.S. retail sales of 259,000 Class 8 trucks and 257,500 Class 4–7 vehicles. Rush warned component shortages could defer deliveries into 2022.
- Commercial vehicle order backlog was $2,258.9m at June 30, 2021, compared with $1,057.1m a year earlier. Orders may be cancelled and are not guaranteed revenue.
- Interest-rate exposure: the filing estimated that a 100-basis-point LIBOR change could change annual interest expense by approximately $4.7m. LIBOR-based facilities also create reference-rate transition risk.
- Ordinary-course litigation was not considered likely to have a material adverse effect, though outcomes remain uncertain. The company disclosed potential environmental liabilities, including known soil or groundwater impacts at some dealerships, and tax benefits under review; unrecognized tax benefits were $3.3m.
Important facts for investors to verify
- Whether component shortages delay backlog conversion or materially constrain new vehicle deliveries and aftermarket sales.
- The composition and reconciliation of reported floor-plan balances, including the $470.9m balance-sheet amount and $388.6m outstanding under the BMO facility.
- Whether unusually strong used-vehicle margins and values persist as new-truck production recovers.
- Operating cash generation and working-capital movements, given lower year-over-year operating cash flow and the prior period’s large inventory-driven cash inflow.
- Progress on the 2021 sales, revenue and margin outlook, and the effects of interest rates, environmental rules, litigation and tax examinations.