Press Release Details
Rush Enterprises, Inc. Reports Second Quarter 2020 Results, Announces $0.14 per Share Dividend
- Revenues of
$1.0 billion, net income of $16.8 million
- Earnings per diluted share of
- Absorption ratio 110.2%
- Board declares cash dividend of
$0.14per share of Class A and Class B common stock, increasing dividend by 7.7% over prior quarterly dividend
- Company to resume purchases under its stock repurchase plan
- Revenues continue to be negatively impacted by the COVID-19 pandemic and industry downturn
- Expense reductions allowed Company to maintain profitability
“As expected, the COVID-19 pandemic and resulting shutdown orders that forced many businesses to close, combined with the previously expected industry downturn in new commercial vehicle sales, and the unexpected energy price war and precipitous drop in oil prices, had a significant negative impact on our financial results in the second quarter,” said W.M. “Rusty” Rush, Chairman, Chief Executive Officer and President of Rush Enterprises, Inc. “To address the challenging market conditions, we expeditiously implemented steps to appropriately reduce and manage expenses in order to maintain profitability,” he said.
“Based on current market conditions, we believe the worst is behind us. We will continue to carefully monitor the pandemic and its impact on our customers and the general economy. We believe any recovery will be gradual and intermittent over the next few quarters,” Rush said.
“Despite challenging market conditions and in recognition of management’s ability to effectively manage costs while also delivering superior customer service, our Board of Directors approved a
“As always, but especially now, I am sincerely thankful for our dedicated employees across the country. They remain focused on what’s important: protecting the health and safety of themselves and those around them while helping keep our customers up and running. Our employees are a vital part of our nation’s economic recovery and they are helping ensure that medical equipment, food and supplies get where it is needed. And in these difficult times, our employees are keeping their spirits up, which inspires me every day,” said Rush.
Our Response to the COVID-19 Pandemic and Its Impact on Our Business and Outlook
“As anticipated, following the limited effects of the COVID-19 pandemic on our revenues in the first quarter of 2020, we experienced significant revenue declines in the second quarter. We expect our business to be negatively impacted by COVID-19 for the foreseeable future, but we are cautiously optimistic that we will not see any further declines in revenues. With the expense reductions we have put in place over the past two quarters, we feel we are rightsized to meet the demands of the market while ensuring our Company’s long-term financial strength,” said Rush.
“It should be noted that our first and foremost concern remains the health and safety of our employees, customers and communities. Accordingly, we have implemented appropriate policies and procedures to ensure that our locations are operating in as safe a manner as possible,” Rush added.
Supporting Essential Functions While Focusing on Health and Safety
Classified as “essential businesses,” Rush Truck Centers have remained fully operational across the Company’s dealership network, though some hours of operation remain modified to accommodate previous staffing reductions and frequent cleaning and sanitizing of locations. The Company continues to provide curbside parts pick-up, online parts ordering and web-based vehicle service communications.
“We continue to stress the importance of compliance with CDC guidelines and all applicable federal, state and local executive orders for limiting the spread of COVID-19. In addition, we are frequently communicating with employees regarding our mandatory COVID-19 policies and procedures. Even in states or cities in which face coverings are not required, our employees are required to wear face coverings at all of our locations,” said Rush.
Liquidity and Expense Reduction
In the second quarter, the Company continued the expense reduction measures initiated in the first quarter to help navigate the challenging economic and industry conditions. “Our expense reduction measures were widespread, came from all areas of the business, and barring any major unforeseen event, we don’t anticipate making any further expense reductions at this time,” said Rush.
“It is also important to note that, despite our cost containment efforts, in early July we announced an increase to the minimum wage that we pay our hourly employees. All of our hourly employees now make a minimum of
“While none of us have experienced a global pandemic before, we have gone through numerous other economic downturns and crises, and we used the lessons learned and experiences gained from those times to take swift action to manage expenses based on our expectations of future market conditions,” said Rush. “Our balance sheet and cash position are strong, even in this challenging market, and we believe we are well positioned to navigate through the downturn,” said Rush. The Company ended the second quarter with
Aftermarket Products and Services
Aftermarket products and services accounted for approximately 73% of the Company’s total gross profit in the second quarter of 2020, with parts, service and collision center revenues reaching
“Our second quarter aftermarket revenue declined 15.8% compared to the second quarter of last year, due to declines across the country in almost every market segment we support, which is consistent with what is happening across the industry,” said Rush. “Activity from the energy sector remains the most severely impacted. Global pricing actions have negatively affected rig counts and the number of energy vehicles in service, and this segment is not expected to improve in the near term,” he added.
“Early in the second quarter, we saw the negative impact of COVID-19 on parts sales. However, as the quarter progressed the decline in demand for vehicle upfitting, reduced pre-delivery inspections as a result of fewer new truck sales and a reduction of our service technician workforce caused service revenues to lag behind parts revenues.
“Looking ahead, there is still tremendous uncertainty about the strength of our overall economy. We expect that any recovery will be gradual, and that COVID-19 will continue to impact our aftermarket revenues for the foreseeable future,” Rush said. “That said, we will continue to execute our strategy and invest with discipline, especially in the technologies that are helping us support customers safely during the pandemic. For example, our RushCare Call Centers are fully equipped to handle customer phone calls within seconds, Parts Connect offers online ordering and Service Connect offers 24/7 real-time communications. Each of these technologies enable our customers to transact business with us safely, efficiently and conveniently, no matter where they need us. We plan to expand and enhance these types of product offerings in the future,” Rush said.
Commercial Vehicle Sales
“Our Class 8 new truck sales in the second quarter were down significantly from the same time period in 2019, as we expected they would be, due to the anticipated industry downturn in new Class 8 truck sales and the COVID-19 pandemic. New truck sales were further impacted by production shutdowns in the beginning of the quarter by the truck manufacturers we represent. It is worth noting that ACT Research’s current estimate of 159,000 new
“In the second quarter, we experienced overall declines in demand for new Class 8 vehicles from all customer segments. While we are beginning to see quoting activity increase, we believe customers remain hesitant to purchase new vehicles due to uncertainty regarding the COVID-19 pandemic, the economy and the upcoming presidential election. Our truck sales professionals remain focused on understanding the needs of our customers and are positioned to support them during these challenging times. Additionally, most of the truck manufacturers we represent are offering favorable financing terms to support customers and stimulate new truck sales,” Rush added.
New U.S. Class 4 through 7 retail commercial vehicle sales were 50,287 units in the second quarter of 2020, down 28% over the same time period last year, according to ACT Research. The Company sold 2,333 new Class 4-7 medium-duty commercial vehicles in the second quarter of 2020, a decrease of 39.7% compared to the second quarter of 2019, and accounted for 4.6% of the
“Similar to our Class 8 new truck sales, our second quarter Class 4 through 7 new commercial vehicle sales were significantly impacted by the COVID-19 pandemic and overall industry downturn,” said Rush. “Uncertainty about our economy remains a concern for our medium-duty customers, as many are small businesses. Though we have seen some cancellations of Class 4 through 7 new truck orders, those cancellations are not as prevalent as we expected,” he said. “We believe our medium-duty truck sales will continue to be negatively impacted by the pandemic and overall weakness of the economy,” said Rush.
The Company sold 1,768 used commercial trucks in the second quarter of 2020, a decrease of 15.8% over the second quarter of 2019. “In anticipation of a decline in used truck sales resulting from the pandemic, we took aggressive action to reduce inventory and used truck pricing. Following a significant decline in sales in April and May, used truck sales began to stabilize in June, and we expect used truck sales to remain steady moving forward. A bright spot in the market is that spot freight rates are healthy, which is encouraging more new businesses to enter the market, and those new business usually begin by purchasing used trucks,” Rush said.
In the second quarter of 2020, the Company’s gross revenues totaled
Aftermarket products and services revenues were
The Company’s lease and rental revenues decreased by 7.0% in the second quarter of 2020, compared to the second quarter of 2019.
The Company paid a cash dividend of
Conference Call Information
For those who cannot listen to the live broadcast, the webcast will be available on our website at the above link until
Certain statements contained in this release, including those concerning current and projected market conditions, sales forecasts, market share forecasts, demand for the Company’s services, the effects the COVID-19 pandemic may have on our business and financial results, including future issuances of cash dividends and future repurchases of the Company’s common stock, are “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Such forward-looking statements only speak as of the date of this release and the Company assumes no obligation to update the information included in this release. 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
-Tables and Additional Information to Follow-
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares and Per Share Amounts)
|Cash and cash equivalents||$||215,556||$||181,620|
|Accounts receivable, net of allowance||162,677||183,704|
|Prepaid expenses and other||15,482||20,728|
|Assets held for sale||–||419|
|Total current assets||1,398,339||1,712,551|
|Property and equipment, net||1,251,876||1,279,931|
|Operating lease right-of-use assets, net||57,266||57,197|
|Other assets, net||64,978||65,508|
|Liabilities and shareholders’ equity|
|Floor plan notes payable||$||724,946||$||996,336|
|Current maturities of long-term debt||177,742||189,265|
|Current maturities of finance lease obligations||24,223||22,892|
|Current maturities of operating lease obligations||9,939||10,114|
|Trade accounts payable||98,011||133,697|
|Total current liabilities||1,163,653||1,507,389|
|Long-term debt, net of current maturities||408,580||438,413|
|Finance lease obligations, net of current maturities||82,145||69,478|
|Operating lease obligations, net of current maturities||47,922||47,555|
|Other long-term liabilities||21,881||20,704|
|Deferred income taxes, net||153,860||164,297|
|Preferred stock, par value
|Common stock, par value
|Additional paid-in capital||414,812||397,267|
shares in 2020 and 5,055,783 Class A shares and 5,306,341 Class B
shares in 2019
|Accumulated other comprehensive (loss) income||(668)||337|
|Total shareholders’ equity||1,186,560||1,159,493|
|Total liabilities and shareholders’ equity||$||3,064,601||$||3,407,329|
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
|Three Months Ended
||Six Months Ended
|New and used commercial vehicle sales||$||559,062||$||1,024,801||$||1,348,616||$||1,863,084|
|Parts and service sales||377,553||448,166||805,531||886,520|
|Lease and rental||57,290||61,591||118,071||121,024|
|Finance and insurance||4,960||6,401||9,427||13,011|
|Cost of products sold|
|New and used commercial vehicle sales||521,494||951,121||1,250,033||1,719,538|
|Parts and service sales||237,196||272,636||508,611||545,825|
|Lease and rental||51,491||51,298||103,699||101,093|
|Total cost of products sold||810,181||1,275,055||1,862,343||2,366,456|
|Selling, general and administrative expense||156,195||193,981||341,269||381,162|
|Depreciation and amortization expense||14,516||13,594||28,846||26,519|
|Gain (loss) on sale of assets||1,381||(139)||1,481||(82)|
|Equity in earnings of unconsolidated entities||1,720||690||2,961||739|
|Interest expense, net||2,209||8,072||6,978||15,430|
|Income before taxes||22,512||54,410||54,181||103,968|
|Provision for income taxes||5,696||12,789||14,258||25,243|
|Earnings per common share:|
|Weighted average shares outstanding:|
This press release and the attached financial tables contain certain non-GAAP financial measures as defined under
Management believes the presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current and past periods. Management believes that investors should have the same information available to them that management uses to assess the Company’s operating performance and capital structure. These non-GAAP financial measures should not be considered in isolation or as a substitute for the most comparable GAAP financial measures. Investors are cautioned that non-GAAP financial measures utilized by the Company may not be comparable to similarly titled non-GAAP financial measures used by other companies.
|Three Months Ended|
|Vehicle Sales Revenue (in thousands)|
|New heavy-duty vehicles||$||287,721||$||611,198|
|New medium-duty vehicles (including bus sales revenue)||191,760||288,003|
|New light-duty vehicles||11,212||28,894|
Management uses several performance metrics to evaluate the performance of its commercial vehicle dealerships and considers Rush Truck Centers’ “absorption ratio” to be of critical importance. Absorption ratio is calculated by dividing the gross profit from the parts, service and collision center departments by the overhead expenses of all of a dealership’s departments, except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory. When 100% absorption is achieved, then gross profit from the sale of a commercial vehicle, after sales commissions and inventory carrying costs, directly impacts operating profit.
|Debt Analysis (in thousands)||June 30, 2020|
|Floor plan notes payable||$||724,946||$||1,190,136|
|Line of credit||−||60,000|
|Current maturities of long-term debt||177,742||149,743|
|Current maturities of finance lease obligations||24,223||20,326|
|Long-term debt, net of current maturities||408,580||457,531|
|Finance lease obligations, net of current maturities||82,145||53,357|
|Total Debt (GAAP)||1,417,636||1,931,093|
|Debt related to lease & rental fleet||(633,543)||(638,513)|
|Floor plan notes payable||(724,946)||(1,190,136)|
|Adjusted Total Debt (Non-GAAP)||59,147||102,444|
|Cash and cash equivalents||(215,556)||(111,346)|
|Adjusted Net Debt (Cash) (Non-GAAP)||$||(156,409)||$||(8,902)|
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
|Twelve Months Ended|
|EBITDA (in thousands)||June 30, 2020||June 30, 2019|
|Net Income (GAAP)||$||102,781||$||167,359|
|Provision for income taxes||36,955||52,763|
|Depreciation and amortization||57,699||52,407|
|(Gain) loss on sale of assets||(1,461)||153|
|Interest expense associated with FPNP||(19,682)||(24,631)|
|Adjusted EBITDA (Non-GAAP)||$||196,647||$||274,363|
The Company presents EBITDA and Adjusted EBITDA, for the twelve months ended each period presented, as additional information about its operating results. The presentation of Adjusted EBITDA that excludes the addition of interest expense associated with FPNP to EBITDA is consistent with management’s presentation of Adjusted Total Debt, in each case reflecting management’s view of interest expense associated with the FPNP as an operating expense of the Company, and to provide management with supplemental information regarding operating results and to assist investors in performing analysis that is consistent with financial models developed by management and research analyst. “EBITDA” and “Adjusted EBITDA” are both non-GAAP financial measures and should be considered in addition to, and not as a substitute for, net income of the Company, as reported in the Company’s consolidated statements of income in accordance with
|Twelve Months Ended|
|Free Cash Flow (in thousands)||June 30, 2020||June 30, 2019|
|Net cash (used in) provided by operations (GAAP)||$||871,425||$||(6,562)|
|Acquisition of property and equipment||(222,656)||(275,115)|
|Free cash flow (Non-GAAP)||648,769||(281,677)|
|(Payments) draws on floor plan financing, net||(415,803)||326,602|
|Proceeds from L&RFD||154,488||194,563|
|Principal payments on L&RFD||(177,548)||(164,701)|
|Non-maintenance capital expenditures||32,143||44,823|
|Adjusted Free Cash Flow (Non-GAAP)||$||242,049||$||119,610|
“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
|June 30, 2020|
|Total Shareholders' equity (GAAP)||$||1,186,560||$||1,113,524|
|Adjusted net debt (cash) (Non-GAAP)||(156,409)||(8,902)|
“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.
Source: Rush Enterprises, Inc.