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Rush Enterprises, Inc. Reports Second Quarter 2018 Results, Announces First Ever Quarterly Cash Dividend

  • Revenues of $1.35 billion, net income of $29.4 million
  • Company declares initial cash dividend of $0.12 per share of Class A and Class B common stock
  • Earnings per diluted share of $0.72
  • Absorption ratio of 122.8%
  • Growth driven by strong market and continued focus on aftermarket initiatives

SAN ANTONIO, July 24, 2018 (GLOBE NEWSWIRE) -- Rush Enterprises, Inc. (NASDAQ:RUSHA) (NASDAQ:RUSHB), which operates the largest network of commercial vehicle dealerships in North America, today announced that for the quarter ended June 30, 2018, the Company achieved revenues of $1.349 billion and net income of $29.4 million, or $0.72 per diluted share, compared with revenues of $1.204 billion and net income of $22.0 million, or $0.54 per diluted share, in the quarter ended June 30, 2017.  During the second quarter of 2018, the Company incurred an additional pre-tax charge to amortization expense and a charge to selling, general and administrative expense totaling of $10.7 million, or $0.20 per diluted share, associated with the upgrade and replacement of certain components of the Company’s Enterprise Resource Planning software platform (ERP Platform). 

“We are extremely proud of our exceptional performance this quarter and our teams who worked hard to achieve it,” said W.M. “Rusty” Rush, Chairman, Chief Executive Officer and President of Rush Enterprises, Inc.  Rush added, “Additionally, I am pleased to announce the approval of our first ever cash dividend this quarter, which reflects our confidence in the Company’s future performance.  Our strategic initiatives continue to have a positive impact on our financial results, which were further strengthened by widespread activity across the commercial vehicle market and strong general economic conditions.”

“As always, I’d like to thank our employees for their focus on our strategic growth initiatives, which continues to have a direct and positive impact on our financial results,” said Rush.   “Their endless hard work and dedication to our customers has made and kept us successful for more than 53 years and I believe it will keep us successful for many years to come.”

Capital Allocation

In recognition of the Company’s strong cash flow generation and their confidence in the Company’s financial outlook, the Company’s Board of Directors authorized management of the Company to initiate a quarterly cash dividend as part of the Company’s capital allocation strategy, which also uses free cash flow from operations to fund the Company’s strategic growth initiatives and its share repurchase program.  Accordingly, on July 24, 2018, the Company’s Board of Directors declared an initial quarterly cash dividend of $0.12 per share of Class A and Class B Common Stock, to be paid on August 29, 2018, to all shareholders of record as of August 8, 2018.  The Company expects to increase the dividend on an annual basis over time, however, future declarations of dividends are subject to approval by the Company’s Board of Directors and may be adjusted as business needs or market conditions change.

“Initiating a quarterly cash dividend reflects the confidence of both the Company’s Board of Directors and our executive management team in our strategic growth plan, strong balance sheet and our ability to generate positive free cash flow in all truck market cycles.   We believe that issuing a quarterly dividend and continuing our share repurchase program, while continuing to invest in our strategic growth initiatives, strikes an optimal balance between our commitment to long-term growth and to returning capital to shareholders,” said Rush. 

Operations

Aftermarket Solutions
Aftermarket services accounted for approximately 64.8% of the Company's total gross profits, with parts, service and body shop revenues reaching $422.9 million, up 15.4%, as compared to the second quarter of 2017.  The Company achieved a quarterly absorption ratio of 122.8% in the second quarter of 2018. 

“Our strong aftermarket performance was driven by our strategic initiatives, particularly through additions to our aftermarket sales organization, focus on our all-makes and Rig Tough parts growth, and investment in technology and productivity improvements for our Parts operations. Our results were further supported by robust activity across the United States.

“We also added 300 technicians to our organization over the past year, significantly expanding our service capabilities throughout the country.  Mobile technicians make up a significant portion of this growth, illustrating our abilities to serve customers no matter where and when they need us,” he said.

“Throughout our Navistar dealerships, our aftermarket revenues have been hindered for the past two years because there are fewer International trucks in operation,” Rush said. “While we expect those headwinds to continue, we are encouraged by the increased activity we saw in the second quarter,” he added.

“With our aftermarket sales team building momentum and continued growth from our strategic initiatives, we believe our aftermarket results will remain solid through the second half of 2018,” Rush said.

Truck Sales
U.S. Class 8 retail sales were 60,812 units in the second quarter, up 24.7% over the same period last year, according to ACT Research.  The Company sold 3,218 Class 8 trucks in the second quarter and accounted for 5.3% of the U.S. Class 8 truck market.  ACT Research forecasts U.S. retail sales for Class 8 vehicles to be 251,700 units in 2018, a 27.6% increase compared to 2017.

“Our new Class 8 truck deliveries were down slightly in the second quarter, primarily due to truck and component manufacturer production constraints.  However, our new Class 8 truck deliveries are up 7.8% year to date as compared to the same time frame last year,” said Rush. “The healthy economy created significant activity in virtually all market segments and especially strong demand from over-the-road, construction and refuse customers,” he said.

“Our used truck unit sales were up 18% over the second quarter of 2017, and we continue to believe our inventory is well-positioned to support the market. The used truck market is strong, due in part to extended lead times for new Class 8 truck deliveries.  We believe this will help stabilize used truck values and help lessen the impact of the large number of used trucks entering the market through the rest of the year,” Rush said.

“We expect our Class 8 vehicle sales will accelerate through the second half of 2018, although manufacturer production capacity limitations could delay some deliveries into 2019,” he added.

The Company sold 3,474 Class 4-7 medium-duty commercial vehicles in the second quarter, an increase of 13% compared to the second quarter of 2017, and accounted for 5.3% of the U.S. Class 4-7 commercial vehicle market.  ACT Research forecasts U.S. retail sales for Class 4-7 vehicles to reach 251,250 units in 2018, a 3.8% increase over 2017. 

“Our medium-duty truck sales significantly outpaced the market in the second quarter, due to the strong activity from the construction sector and our leasing and rental fleet customers,” said Rush.  “Due to our continued ability to support customers with a nationwide inventory of ready-to-roll trucks, we believe our medium-duty sales will remain strong through the rest of the year,” said Rush. “Light-duty truck sales were also strong this quarter,” Rush noted.

Financial Highlights

In the second quarter of 2018, the Company’s gross revenues totaled $1.349 billion, a 12.1% increase from gross revenues of $1.204 billion reported for the quarter ended June 30, 2017.  Net income for the quarter was $29.4 million, or $0.72 per diluted share, compared to net income of $22.0 million, or $0.54 per diluted share, in the quarter ended June 30, 2017.  During the second quarter of 2018, the Company incurred an additional pre-tax charge to amortization expense and selling, general and administrative expense of $10.7 million, or $0.20 per diluted share, associated with the upgrade and replacement of certain components of the Company’s Enterprise Resource Planning software platform (ERP Platform). 

Parts, service and body shop revenues were $422.9 million in the second quarter of 2018, compared to $366.6 million in the second quarter of 2017.  The Company delivered 3,218 new heavy-duty trucks, 3,474 new medium-duty commercial vehicles, 679 new light-duty commercial vehicles and 2,055 used commercial vehicles during the second quarter of 2018, compared to 3,352 new heavy-duty trucks, 3,073 new medium-duty commercial vehicles, 473 new light-duty commercial vehicles and 1,743 used commercial vehicles during the second quarter of 2017.

During the second quarter of 2018, the Company repurchased $8.0 million of its common stock and ended the quarter with $148.3 million in cash and cash equivalents.

“We are confident in our long-term profitability, which is reflected in our decision to announce a cash dividend. We remain well-positioned to invest in our strategic initiatives while returning capital to our shareholders,” Rush added.

Conference Call Information

Rush Enterprises will host its quarterly conference call to discuss earnings for the second quarter on Wednesday July 25, 2018, at 10 a.m. Eastern/9 a.m. Central.  The call can be heard live by dialing 877-638-4557 (Toll Free) or 914-495-8522 (Conference ID 1072067) or via the Internet at http://investor.rushenterprises.com/events.cfm

For those who cannot listen to the live broadcast, the webcast will be available on our website at the above link until October 10, 2018.  Listen to the audio replay until August 1, 2018, by dialing 855-859-2056 (Toll Free) or 404-537-3406 and entering the Conference ID 1072067.

About Rush Enterprises, Inc. 
Rush Enterprises, Inc. is the premier solutions provider to the commercial vehicle industry. The Company owns and operates Rush Truck Centers, the largest network of commercial vehicle dealerships in the United States, with more than 100 dealership locations in 21 states. These vehicle centers, strategically located in high traffic areas on or near major highways throughout the United States, represent truck and bus manufacturers, including Peterbilt, International, Hino, Isuzu, Ford, Mitsubishi, IC Bus and Blue Bird. They offer an integrated approach to meeting customer needs — from sales of new and used vehicles to aftermarket parts, service and body shop operations plus financing, insurance, leasing and rental. Rush Enterprises' operations also provide vehicle upfitting, CNG fuel systems and vehicle telematics products. Additional information about Rush Enterprises’ products and services is available at www.rushenterprises.com. Follow our news on Twitter at @rushtruckcenter and on Facebook at facebook.com/rushtruckcenters.

Certain statements contained herein, including those concerning current and projected market conditions, sales forecasts, market share forecasts, demand for the Company’s services and the impact of strategic initiatives are “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, competitive factors, general U.S. economic conditions, economic conditions in the new and used commercial vehicle markets, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, product introductions and acceptance, changes in industry practices, one-time events and other factors described herein and in filings made by the Company with the Securities and Exchange Commission.In addition, the declaration and payment of cash dividends under the newly initiated quarterly cash dividend program remains at the sole discretion of the Company’s Board of Directors and the issuance of future dividends will depend upon the Company’s financial results, cash requirements, future prospects, applicable law and other factors that may be deemed relevant by the Company’s Board of Directors.
                       
-Tables and Additional Information to Follow-

RUSH ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares and Per Share Amounts)
  June 30,   December 31,
    2018       2017  
  (Unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 148,316     $ 124,541  
Accounts receivable, net   201,197       183,875  
Note receivable affiliate   17,368       11,914  
Inventories, net   1,126,613       1,033,294  
Prepaid expenses and other   12,494       11,969  
Assets held for sale   6,622       9,505  
Total current assets   1,512,610       1,375,098  
Investments   6,025       6,375  
Property and equipment, net   1,166,814       1,159,595  
Goodwill, net   291,391       291,391  
Other assets, net   39,623       57,680  
Total assets $ 3,016,463     $ 2,890,139  
       
Liabilities and shareholders’ equity      
Current liabilities:      
Floor plan notes payable $ 867,992     $ 778,561  
Current maturities of long-term debt   155,743       145,139  
Current maturities of capital lease obligations   17,137       17,119  
Trade accounts payable   150,904       107,906  
Customer deposits   32,036       27,350  
Accrued expenses   88,677       96,132  
Total current liabilities   1,312,489       1,172,207  
Long-term debt, net of current maturities   434,743       466,389  
Capital lease obligations, net of current maturities   57,548       66,022  
Other long-term liabilities   11,544       9,837  
Deferred income taxes, net   140,061       135,311  
Shareholders’ equity:      
Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2018 and 2017          
Common stock, par value $.01 per share; 60,000,000 Class A shares and 20,000,000 Class B shares authorized; 30,647,051 Class A shares and 8,430,123 Class B shares outstanding in 2018; and 31,345,116 Class A shares and 8,469,427 Class B shares outstanding in 2017   457       454  
Additional paid-in capital   363,440       348,044  
Treasury stock, at cost: 1,768,354 class A shares and 4,890,941 class B
  shares in 2018 and 934,171 class A shares and  4,625,181 class B
  shares in 2017
  (166,804 )     (120,682 )
Retained earnings   862,985       812,557  
Total shareholders’ equity   1,060,078       1,040,373  
Total liabilities and shareholders’ equity $ 3,016,463     $ 2,890,139  
               



RUSH ENTERPRISES, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018     2017     2018     2017  
               
Revenues:              
New and used commercial vehicle sales $ 857,025   $ 775,988   $ 1,630,125   $ 1,411,941  
Parts and service sales   422,940     366,599     823,235     716,705  
Lease and rental   58,993     53,048     116,517     104,292  
Finance and insurance   5,492     4,392     10,233     8,321  
Other   4,381     3,496     9,502     7,061  
Total revenue   1,348,831     1,203,523     2,589,612     2,248,320  
Cost of products sold:              
New and used commercial vehicle sales   791,608     718,253     1,502,522     1,306,373  
Parts and service sales   265,183     231,992     519,627     456,458  
Lease and rental   48,663     44,206     97,091     88,510  
Total cost of products sold   1,105,454     994,451     2,119,240     1,851,341  
Gross profit   243,377     209,072     470,372     396,979  
Selling, general and administrative expense   178,654     159,353     350,324     309,756  
Depreciation and amortization expense   21,693     12,444     44,601     24,936  
Gain (loss) on sale of assets   396     132     368     (31 )
Operating income    43,426     37,407     75,815     62,256  
Interest expense, net   4,494     2,824     8,800     5,615  
Income before taxes   38,932     34,583     67,015     56,641  
Provision for income taxes   9,543     12,584     16,587     20,163  
Net income $ 29,389   $ 21,999   $ 50,428   $ 36,478  
               
Earnings per common share:              
Basic $ .75   $ .55   $ 1.27   $ .92  
Diluted $ .72   $ .54   $ 1.23   $ .90  
               
Weighted average shares outstanding:              
Basic   39,399     39,642     39,567     39,493  
Diluted   40,690     40,839     40,967     40,737  
               

This press release and the attached financial tables contain certain non-GAAP financial measures as defined under SEC rules, such as Adjusted total debt, Adjusted net (cash) debt, EBITDA, Adjusted EBITDA, Free cash flow, Adjusted free cash flow and Adjusted invested capital, which exclude certain items disclosed in the attached financial tables.  The Company provides reconciliations of these measures to the most directly comparable GAAP measures. 

Management believes the presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current and past periods.  Management believes that investors should have the same information available to them that management uses to assess the Company’s operating performance and capital structure.  These non-GAAP financial measures should not be considered in isolation or as a substitute for the most comparable GAAP financial measures.  Investors are cautioned that non-GAAP financial measures utilized by the Company may not be comparable to similarly titled non-GAAP financial measures used by other companies. 

    Three Months Ended
Vehicle Sales Revenue  (in thousands)   June 30, 2018   June 30, 2017
New heavy-duty vehicles   $ 474,368     $ 468,317  
New medium-duty vehicles (including bus sales revenue)     257,012       213,192  
New light-duty vehicles     27,397       18,216  
Used vehicles     92,753       72,194  
Other vehicles     5,495       4,069  
         
Absorption Ratio     122.8%       121.8%  

Absorption Ratio
Management uses several performance metrics to evaluate the performance of its commercial vehicle dealerships and considers Rush Truck Centers’ “absorption ratio” to be of critical importance.  Absorption ratio is calculated by dividing the gross profit from the parts, service and body shop departments by the overhead expenses of all of a dealership’s departments, except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory.  When 100% absorption is achieved, then gross profit from the sale of a commercial vehicle, after sales commissions and inventory carrying costs, directly impacts operating profit.

Debt Analysis    (in thousands)    June 30, 2018 June 30, 2017
Floor plan notes payable   $ 867,992   $ 692,125  
Current maturities of long-term debt     155,743     137,320  
Current maturities of capital lease obligations     17,137     15,443  
Long-term debt, net of current maturities     434,743     443,465  
Capital lease obligations, net of current maturities     57,548     66,313  
Total Debt (GAAP)     1,533,163     1,354,666  
Adjustments:      
Debt related to lease & rental fleet     (579,434)     (560,380)  
Floor plan notes payable     (867,992)     (692,125)  
Adjusted Total Debt (Non-GAAP)     85,737     102,161  
Adjustment:      
Cash and cash equivalents     (148,316)     (123,807)  
Adjusted Net Debt (Cash) (Non-GAAP)   $ (62,579)   $ (21,646)  

Management uses “Adjusted Total Debt” to reflect the Company’s estimated financial obligations less debt related to lease and rental fleet (L&RFD) and floor plan notes payable (FPNP), and “Adjusted Net (Cash) Debt” to present the amount of Adjusted Total Debt net of cash and cash equivalents on the Company’s balance sheet.  The FPNP is used to finance the Company’s new and used inventory, with its principal balance changing daily as vehicles are purchased and sold and the sale proceeds are used to repay the notes.  Consequently, in managing the business, management views the FPNP as interest bearing accounts payable, representing the cost of acquiring the vehicle that is then repaid when the vehicle is sold, as the Company’s credit agreements require it to repay loans used to purchase vehicles when such vehicles are sold.  The Company’s lease & rental fleet are fully financed and are either (i) leased to customers under long-term lease arrangements or (ii), to a lesser extent, dedicated to the Company’s rental business.  In both cases, the lease and rental payments received fully cover the capital costs of the lease & rental fleet (i.e., the interest expense on the borrowings used to acquire the vehicles and the depreciation expense associated with the vehicles), plus a profit margin for the Company. The Company believes excluding the FPNP and L&RFD from the Company’s total debt for this purpose provides management with supplemental information regarding the Company’s capital structure and leverage profile and assists investors in performing analysis that is consistent with financial models developed by Company management and research analysts.  “Adjusted Total Debt” and “Adjusted Net (Cash) Debt” are both non-GAAP financial measures and should be considered in addition to, and not as a substitute for, the Company’s debt obligations, as reported in the Company’s consolidated balance sheet in accordance with U.S. GAAP.  Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies.

    Twelve Months Ended
EBITDA  (in thousands)    June 30, 2018  June 30, 2017
Net Income (GAAP)   $ 186,079   $ 63,848  
(Benefit) provision for income taxes     (39,306)     37,491  
Interest expense     15,495     11,892  
Depreciation and amortization     69,734     50,729  
(Gain) loss on sale of assets     (294)     (1,719)  
EBITDA  (Non-GAAP)     231,708     162,241  
Adjustments:      
Interest expense associated with FPNP     (13,513)     (9,747)  
Adjusted EBITDA (Non-GAAP)   $ 218,195   $ 152,494  

The Company presents EBITDA and Adjusted EBITDA, for the twelve months ended each period presented, as additional information about its operating results.  The presentation of Adjusted EBITDA that excludes the addition of interest expense associated with FPNP to EBITDA is consistent with management’s presentation of Adjusted Total Debt, in each case reflecting management’s view of interest expense associated with the FPNP as an operating expense of the Company, and to provide management with supplemental information regarding operating results and to assist investors in performing analysis that is consistent with financial models developed by management and research analyst.  “EBITDA” and “Adjusted EBITDA” are both non-GAAP financial measures and should be considered in addition to, and not as a substitute for, net income of the Company, as reported in the Company’s consolidated statements of income in accordance with U.S. GAAP.  Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies.

    Twelve Months Ended
Free Cash Flow  (in thousands)    June 30, 2018  June 30, 2017
Net cash provided by operations (GAAP)   $ 211,998   $ 428,976  
Acquisition of property and equipment     (246,563)     (161,269)  
Free cash flow (Non-GAAP)     (34,565)     267,707  
Adjustments:      
Draws (payments) on floor plan financing, net     106,203     (151,966)  
Proceeds from L&RFD     169,723     103,806  
Principal payments on L&RFD     (155,884)     (159,665)  
Non-maintenance capital expenditures     33,613     34,142  
Adjusted Free Cash Flow (Non-GAAP)   $ 119,090   $ 94,024  

“Free Cash Flow” and “Adjusted Free Cash Flow” are key financial measures of the Company’s ability to generate cash from operating its business.  Free Cash Flow is calculated by subtracting the acquisition of property and equipment included in the Cash flows from investing activities from Net cash provided by (used in) operating activities.  For purposes of deriving Adjusted Free Cash Flow from the Company’s operating cash flow, Company management makes the following adjustments: (i) adds back draws (or subtracts payments) on the floor plan financing that are included in Cash flows from financing activities as their purpose is to finance the vehicle inventory that is included in Cash flows from operating activities; (ii) adds back proceeds from notes payable related specifically to the financing of the lease and rental fleet that are reflected in Cash flows from financing activities; (iii) subtracts draws on floor plan financing, net and proceeds from L&RFD related to business acquisition assets that are included in Cash flows from investing activities; (iv) subtracts principal payments on notes payable related specifically to the financing of the lease and rental fleet that are included in Cash flows from financing activities; and (v) adds back non-maintenance capital expenditures that are for growth and expansion (i.e. building of new dealership facilities) that are not considered necessary to maintain the current level of cash generated by the business.  “Free Cash Flow” and “Adjusted Free Cash Flow” are both presented so that investors have the same financial data that management uses in evaluating the Company’s cash flows from operating activities.  “Free Cash Flow” and “Adjusted Free Cash Flow” are both non-GAAP financial measures and should be considered in addition to, and not as a substitute for, net cash provided by (used in) operations of the Company, as reported in the Company’s consolidated statement of cash flows in accordance with U.S. GAAP.  Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies. 

Invested Capital  (in thousands)    June 30, 2018 June 30, 2017
Total Shareholders' equity (GAAP)   $ 1,060,078   $ 894,880  
Adjusted net debt (cash) (Non-GAAP)     (62,579)     (21,646)  
Adjusted Invested Capital (Non-GAAP)   $ 997,499   $ 873,234  

“Adjusted Invested Capital” is a key financial measure used by the Company to calculate its return on invested capital.  For purposes of this analysis, management excludes L&RFD, FPNP, and cash and cash equivalents, for the reasons provided in the debt analysis above and uses Adjusted Net Debt in the calculation.  The Company believes this approach provides management a more accurate picture of the Company’s leverage profile and capital structure, and assists investors in performing analysis that is consistent with financial models developed by Company management and research analysts.  “Adjusted Net (Cash) Debt” and “Adjusted Invested Capital” are both non-GAAP financial measures.  Additionally, these non-GAAP measures may vary among companies and may not be comparable to similarly titled non-GAAP measures used by other companies.

Contact:
Rush Enterprises, Inc., San Antonio 
Steven L. Keller, 830-302-5226

 

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Source: Rush Enterprises, Inc.