Market Overview

Rush Enterprises, Inc. Reports Second Quarter 2017 Results

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  • Revenues of $1.204 billion, $22.0 million net income
  • New truck sales increased due to strong vocational demand
  • Used truck market still challenging, but values stabilizing
  • Aftermarket revenues positively impacted by energy, vocational business
  • Absorption ratio increases to record high of 121.8%

SAN ANTONIO, July 26, 2017 (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, 2017, the Company achieved revenues of $1.204 billion and net income of $22.0 million, or $0.54 per diluted share, compared with revenues of $1.026 billion and net income of $10.8 million, or $0.27 per diluted share, in the quarter ended June 30, 2016. During the second quarter of 2016, the Company incurred a restructuring charge of $0.9 million to selling, general and administrative expenses, which reduced earnings per diluted share by $0.01, related to the consolidation of certain dealerships.

"Continued growth in the housing and construction sectors, improvement in the energy sector and general economic improvement across the country contributed to our strong financial performance this quarter," said W.M. "Rusty" Rush, Chairman, Chief Executive Officer and President of Rush Enterprises, Inc. "We remained focused on our long-term growth goals, which include expansion of our all-makes parts business, advanced vehicle technologies, and alternative fuel solutions," he added.   

"It is important that I thank all of our employees for their continued hard work and commitment to providing superior service to our customers. Our financial performance this quarter would not have been possible without their impressive efforts," said Rush. 

Operations

Aftermarket Solutions
Aftermarket services accounted for approximately 64.4% of the Company's total gross profits, with parts, service and body shop revenues up 11.5%, as compared to the second quarter of 2016. The Company achieved a quarterly absorption ratio of 121.8% in the second quarter of 2017. 

"Our increase in aftermarket revenues is primarily attributed to growth in energy sector activity, along with strong vocational business across the country, including continued construction-related growth along both coasts," said Rush. "As we look ahead, we expect our aftermarket services revenues to remain strong in the third quarter," he added.

"With a renewed aftermarket sales management focus, we are beginning to see financial benefit from our growth initiatives, particularly in the area of all-makes parts, and we expect that to continue as we gain more traction in the future," he said. "Further, our Business Process Management group is continuing their efforts to drive efficiencies in a manner that will enable us to increase productivity, decrease expenses and better ensure a consistent experience for both our customers and our employees, while our employees companywide remain focused on managing expenses," Rush noted.

Truck Sales
U.S. Class 8 retail sales were 48,771 units in the second quarter, down 8.2% over the same period last year, according to ACT Research. Rush's Class 8 sales increased 29.3% as compared to the second quarter of 2016 and accounted for 6.9% of the U.S. Class 8 truck market. ACT Research forecasts U.S. retail sales for Class 8 vehicles to be 186,100 units in 2017, a 5.5% decrease compared to 2016, but considerably higher than their original 2017 forecast of 154,000 units.

"Our Class 8 new truck sales in the second quarter reflect an improving energy sector, continued solid vocational demand from construction and refuse customers and continued demand for replacement trucks supporting general freight," said Rush. 

"The over-supply of used trucks available nationwide continues to present challenges to the market, but we believe values have begun to stabilize," said Rush. "Our used truck inventory is well-positioned to support trade activity and new truck sales," he noted.

"Due to increased activity from a wide variety of industries and overall economic improvement, we believe our Class 8 new truck sales in the second half of 2017 will remain strong," Rush said.

Rush's Class 4-7 medium-duty sales increased 10.1% from the second quarter of 2016, accounting for 4.9% of the total U.S. market. U.S. Class 4-7 retail sales were 62,618 units in the second quarter of 2017, up approximately 9.2% over the second quarter of 2016. ACT Research forecasts U.S. retail sales for Class 4-7 vehicles to reach 233,600 units in 2017, a 3.3% increase over 2016. 

"Our medium-duty truck sales were strong in the second quarter, bolstered in part due to the timing of some large fleet deliveries," Rush explained. "Additionally, our inventory of 'ready- to-roll' trucks nationwide allows us to support customers in construction, infrastructure and a wide variety of other industries," said Rush.

"The medium-duty market remains strong, and we expect our Class 4-7 sales for the remainder of the year to be consistent with our first half performance," said Rush. 

Financial Highlights

In the second quarter of 2017, the Company's gross revenues totaled $1.204 billion, a 17.2% increase from gross revenues of $1.026 billion reported for the quarter ended June 30, 2016. Net income for the quarter was $22.0 million, or $0.54 per diluted share, compared to net income of $10.8 million, or $0.27 per diluted share, in the quarter ended June 30, 2016. During the second quarter of 2016, the Company incurred a non-recurring restructuring charge of $0.9 million to selling, general and administrative expenses, which reduced earnings per diluted share by $0.01, related to the consolidation of certain dealerships.

Parts, service and body shop revenues were $366.6 million in the second quarter of 2017, compared to $328.7 million in the second quarter of 2016. The Company delivered 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, compared to 2,592 new heavy-duty trucks, 2,792 new medium-duty commercial vehicles, 386 new light-duty commercial vehicles and 1,750 used commercial vehicles during the second quarter of 2016.

During the second quarter of 2017, the Company repurchased $18.6 million of its common stock and ended the quarter with $123.8 million in cash and cash equivalents, an increase of $34.7 million from March 31, 2017. 

Conference Call Information

Rush Enterprises will host its quarterly conference call to discuss earnings for the second quarter on Thursday, July 27, 2017, 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 48405952) 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, 2017. Listen to the audio replay until August 3, 2017, by dialing 855-859-2056 (Toll Free) or 404-537-3406 and entering the Conference ID 48405952.

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 CNG fuel systems, telematics products and other vehicle technologies, as well as vehicle up-fitting, chrome accessories and tires. 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.

-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,
    2017       2016  
  (Unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 123,807     $ 82,026  
Accounts receivable, net   142,556       156,199  
Note receivable affiliate   16,742       10,166  
Inventories, net   916,601       840,304  
Prepaid expenses and other   9,557       8,798  
Assets held for sale   11,714       13,955  
Total current assets   1,220,977       1,111,448  
Investments   6,375       6,231  
Property and equipment, net   1,118,758       1,135,805  
Goodwill, net   290,191       290,191  
Other assets, net   55,498       59,372  
Total assets $ 2,691,799     $ 2,603,047  
       
Liabilities and shareholders' equity      
Current liabilities:      
Floor plan notes payable $ 692,125     $ 646,945  
Current maturities of long-term debt   137,320        130,717  
Current maturities of capital lease obligations   15,443         14,449  
Liabilities directly associated with assets held for sale         783  
Trade accounts payable      114,148       97,844  
Customer deposits   29,748       18,418  
Accrued expenses   88,951       83,974  
Total current liabilities   1,077,735        993,130  
Long-term debt, net of current maturities   443,465       472,503  
Capital lease obligations, net of current maturities   66,313       70,044  
Other long-term liabilities   9,298       7,214  
Deferred income taxes, net   200,108       197,331  
Shareholders' equity:      
Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2017 and 2016    –        –  
Common stock, par value $.01 per share; 60,000,000 Class A shares and 20,000,000 Class B shares authorized; 30,793,032 Class A shares and 8,637,855 Class B shares outstanding in 2017; and 30,007,088 Class A shares and 9,245,447 Class B shares outstanding in 2016      448       438  
Additional paid-in capital   330,617       309,127  
Treasury stock, at cost: 934,171 class A shares and 4,456,753 class B shares in 2017 and 934,171 class A shares and 3,650,491 class B shares in 2016   (113,091 )     (86,882 )
Retained earnings   676,906       640,428  
Accumulated other comprehensive loss, net of tax    –       (286 )
Total shareholders' equity   894,880       862,825  
Total liabilities and shareholders' equity $ 2,691,799     $ 2,603,047  
               


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,
      2017       2016         2017         2016
               
Revenues:              
New and used commercial vehicle sales $   775,988   $   636,853     $   1,411,941     $    1,305,398
Parts and service sales   366,599     328,665       716,705       670,604
Lease and rental   53,048     52,152       104,292       103,039
Finance and insurance   4,392     4,837       8,321       9,336
Other   3,496     3,955       7,061       8,925
Total revenue   1,203,523     1,026,462       2,248,320       2,097,302
Cost of products sold:              
New and used commercial vehicle sales   718,253     591,331       1,306,373       1,214,991
Parts and service sales   231,992     209,519       456,458       427,762
Lease and rental   44,206     45,134       88,510       90,801
Total cost of products sold   994,451     845,984       1,851,341       1,733,554
Gross profit   209,072     180,478       396,979       363,748
Selling, general and administrative expense   159,353     146,080       309,756       308,532
Depreciation and amortization expense   12,444     12,821       24,936       25,468
Gain (loss) on sale of assets   132     (5 )     (31 )     5
Operating income    37,407     21,572       62,256       29,753
Interest expense, net   2,824     3,763       5,615       8,002
Income before taxes   34,583     17,809       56,641       21,751
Provision for income taxes   12,584     6,992       20,163       8,539
Net income $   21,999   $   10,817     $   36,478     $   13,212
               
Earnings per common share:              
Basic $  .55   $  .27   $   .92   $   .33
Diluted $  .54   $  .27   $  .90   $  .32
               
Weighted average shares outstanding:              
Basic   39,642     40,250       39,493       40,402
Diluted   40,839     40,778       40,737       40,914
               

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, 2017   June 30, 2016
  New heavy-duty vehicles   $   468,317     $   346,617  
  New medium-duty vehicles (including bus sales revenue)       213,192         198,364  
  New light-duty vehicles     18,216        14,353   
  Used vehicles       72,194         70,920  
  Other vehicles     4,069       6,599  
         
  Absorption Ratio     121.8 %     110.3 %

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, 2017 June 30, 2016
Floor plan notes payable   $   692,125   $   830,092  
Current maturities of long-term debt     137,320     134,830  
Current maturities of capital lease obligations     15,443     14,303  
Liabilities directly associated with asset held for sale         1,196  
Long-term debt, net of current maturities     443,465     496,658  
Capital lease obligations, net of current maturities     66,313     69,628  
Total Debt (GAAP)     1,354,666     1,546,707  
  Adjustments:      
  Debt related to lease & rental fleet     (560,380 )   (599,073 )
  Floor plan notes payable     (692,125 )   (830,092 )
Adjusted Total Debt (Non-GAAP)     102,161     117,542  
  Adjustment:      
  Cash and cash equivalents     (123,807 )   (92,664 )
Adjusted Net Debt (Cash) (Non-GAAP)   $   (21,646 ) $   24,878  

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 fully cover the capital costs of the lease & rental fleet (i.e., the principal repayments and 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, 2017  June 30, 2016
Net Income (GAAP)   $    63,848   $    42,908  
Provision for income taxes     37,491     27,296  
Interest expense     11,892     14,936  
Depreciation and amortization     50,729     48,504  
(Gain) loss on sale of assets     (1,719 )   (68 )
EBITDA  (Non-GAAP)     162,241     133,576  
  Adjustments:      
  Interest expense associated with FPNP     (9,747 )   (13,870 )
  Restructuring and impairment charges     8,930  
Adjusted EBITDA (Non-GAAP)   $   152,494   $   128,636  

The Company presents EBITDA and Adjusted EBITDA 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. Management recorded a charge to selling, general and administrative expense during the first and second quarters of 2016 related to the closing of certain dealerships and the disposition of excess real estate. Management believes adding back this charge to EBITDA provides both the investors and management with supplemental information regarding the Company's core operating results. "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, 2017  June 30, 2016
Net cash provided by operations (GAAP)   $   428,976   $   387,859  
Acquisition of property and equipment     (161,269 )   (318,855 )
Free cash flow (Non-GAAP)     267,707     69,004  
  Adjustments:      
  Draws (payments) on floor plan financing, net     (151,966 )   (43,850 )
  Proceeds from L&RFD     103,806     146,128  
  Principal payments on L&RFD     (159,665 )   (157,734 )
  Non-maintenance capital expenditures     34,142     117,213  
Adjusted Free Cash Flow (Non-GAAP)   $   94,024   $   130,761  

"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, 2017 June 30, 2016
Total Shareholders' equity (GAAP)   $    894,880   $   846,007
Adjusted net debt (cash) (Non-GAAP)     (21,646 )   24,878
Adjusted Invested Capital (Non-GAAP)   $   873,234   $   870,885

"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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