RUSH ENTERPRISES INC annual report, FY2021

Rush Enterprises, Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow summary.

Business context

Rush is a full-service commercial-vehicle retailer operating one reportable segment, the Truck Segment. Its Rush Truck Centers sell new and used vehicles and provide parts, service, collision repair, leasing and rental, financing, insurance and related offerings. The company operates more than 125 centers across 23 U.S. states and holds a 50% interest in Rush Truck Centres of Canada.

Financial and operating highlights

Metric	FY2021	FY2020	Change
Revenue	$5,126.1 million	$4,735.9 million	+8.2%
Gross profit	$1,092.3 million	$875.5 million	+24.8%
Gross margin	21.3%	18.5%	+2.8 percentage points
Operating income	$309.0 million	$154.6 million	+99.9%
Net income	$241.4 million	$114.9 million	+110.1%
Diluted EPS	$4.17	$2.04	+104.4%
Operating cash flow	$422.3 million	$763.0 million	−44.6%

Aftermarket products and services generated $1,793.4 million in revenue, up 12.1%, and 62.7% of gross profit. New and used vehicle sales generated $3,040.0 million; lease and rental revenue was $247.2 million.
Aftermarket gross margin rose to 38.1% from 36.5%; new Class 8 truck margin rose to 9.0% from 8.2%; and used-vehicle margin rose to 18.7% from 9.9%. Management attributed the used-vehicle improvement to strong demand and higher used-truck values.
SG&A increased 9.9% to $731.3 million. SG&A was 14.3% of revenue versus 14.0% in 2020.
Cash and cash equivalents were $148.1 million at year-end, down from $312.0 million. Working capital was $321.0 million. Cash declined $163.9 million during the year.
Investing activities used $432.9 million, including $269.3 million for acquisitions and $167.2 million in capital expenditures, of which $164.6 million related to lease and rental vehicles.
Year-end balance-sheet amounts included $630.7 million of floor plan notes payable, $334.9 million of long-term debt and $116.5 million of finance lease obligations. The filing separately reports approximately $549.0 million outstanding under the BMO floor plan credit agreement; investors should reconcile this amount with total floor plan notes payable.
Reported total assets were $3,120.0 million and shareholders’ equity was $1,466.7 million. The company reported $1,020.1 million of inventory.

Material changes and notable items

Performance improved substantially from 2020, when pandemic-related conditions and weak early-year used-truck demand weighed on results. FY2021 growth was supported by economic recovery, freight demand, higher used-truck prices, aftermarket growth and improved margins.
New-vehicle production constraints limited sales: new Class 8 units increased 3.6%, while medium-duty units fell 7.3%. New Class 8 market share decreased to about 4.9% from 5.5%; Class 4–7 share fell to 4.2% from 4.9%.
Operating cash flow decreased from 2020, which benefited from a $536.7 million inventory reduction. In 2021, cash was used for acquisitions, fleet investment and increased inventory.
Acquisitions included Summit Truck Group locations and franchises, acquired in December for approximately $205.3 million excluding real estate; certain Summit real estate was purchased for approximately $57.0 million. The purchase-price allocation was preliminary at year-end. The company also acquired a Hino/Isuzu dealership in Illinois and a Peterbilt dealership operation in California.
In January 2022, Rush sold 50% of Momentum Fuel Technologies to Cummins and began operating it as a joint venture. This post-year-end transaction is not reflected as a FY2021 sale.
Net interest expense fell to $1.8 million from $9.0 million, primarily due to lower floor plan balances, inventory mix and reduced real-estate debt. Management noted that lease-fleet financing arrangements shifted related interest from cost of sales to interest expense, affecting reported lease and rental gross margins.

Outlook, risks and contingencies

Management expected 2022 revenue growth in aftermarket products and services of 15%–20% and lease and rental revenue growth of 25%–30%, with acquisitions and manufacturer parts-price increases contributing. It projected aftermarket gross margins of 37.5%–38.5%, new Class 8 margins of 8%–9%, medium-duty margins of 7%–8%, and used-vehicle margins gradually returning to 8%–10% by year-end.
Management forecast 2022 new Class 8 market share of 5.5%–5.9% and Class 4–7 share of 4.6%–4.9%, with vehicle unit-sales expectations also disclosed. These expectations depend on industry forecasts and vehicle allocations; management cited continuing component and supply-chain constraints. The filing does not give a consolidated revenue or earnings forecast.
Management expected 2022 SG&A at 13%–14% of revenue, an effective tax rate of 23%–24%, and net interest expense to rise, depending on inventory, rates and cash used to pay down floor plan borrowings. Planned 2022 spending included $150–$170 million for lease/rental vehicles and $30–$35 million for recurring capital expenditures.
The company reported a $3,267.0 million commercial-vehicle order backlog at year-end, up from $1,247.2 million. Management expected to fill most orders during 2022, but orders may be cancelled and backlog is not a guarantee of revenue or earnings.
Principal risks include dependence on PACCAR/Peterbilt and Navistar/International supply and franchise agreements; production and parts constraints; economic and interest-rate sensitivity; technician recruitment and retention; acquisition execution; possible used-truck value normalization; environmental and zero-emission regulation; cyber incidents; and litigation or insurance exposure.
Peterbilt agreements had terms expiring between March and September 2022. The agreements are nonexclusive, and certain ownership or control changes could give Peterbilt termination rights. The company said management expected renewals or extensions, subject to compliance with agreement terms.
At year-end the company reported compliance with debt covenants and stated it believed liquidity would be adequate for at least the next 12 months. Its $15 million secured line had $14.3 million pledged for letters of credit, leaving $0.7 million available. A 100-basis-point rate movement was estimated to change annual interest expense by approximately $9.7 million on the specified variable-rate borrowings.
No material pending litigation was identified by management. The company reported no material environmental liabilities known at the time, while noting known soil or groundwater impacts at some dealerships and potential acquisition-related or future compliance costs.
The financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting. The Summit acquired operations were excluded from management’s and the auditor’s internal-control assessment, though included in the consolidated financial statements.

Key facts for investors to verify

Whether supply constraints ease as expected, and whether backlog converts to delivered vehicles, revenue and cash without significant cancellations.
Whether used-truck prices and margins normalize as management projected, and how that affects earnings and inventory valuation.
The composition and reconciliation of floor plan borrowings, lease-fleet debt and finance lease obligations, plus interest-rate sensitivity and covenant headroom.
Summit integration, final acquisition accounting and the realized contribution of acquired locations to 2022 results and cash flows.
Execution of the 2022 aftermarket and lease/rental growth targets, including technician availability, parts supply and gross-margin assumptions.
Renewal status of near-term Peterbilt franchise agreements and any effects of manufacturer ownership or control provisions.
Dividend and repurchase activity against acquisition, fleet-investment and liquidity needs; future dividends and repurchases are discretionary.