What changed in this filing

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Item 1. Financial Statements

2024-05-10 compared with 2023-11-09 · 250 added, 472 removed, 428 unchanged (63% of the section changed)

4 unchanged sentences

(In Thousands, Except Shares)

September 30,

Current assets:

1 unchanged sentence

Accounts receivable, net

Note receivable, affiliate

Inventories, net

5 unchanged sentences

Other assets, net

Liabilities and shareholders ’

Liabilities and shareholders ’ equity

Current liabilities:

Floor plan notes payable

Current maturities of long-term debt

Current maturities of finance lease obligations

9 unchanged sentences

Deferred income taxes, net

Shareholders’

Shareholders’ equity:

Preferred stock, par value $ .01 per share;

12 unchanged sentences

Total Rush Enterprises, Inc.

shareholders’

shareholders’ equity

Noncontrolling interest

Total shareholders’

Total liabilities and shareholders ’

Total shareholders’ equity

Total liabilities and shareholders ’ equity

The accompanying notes are an integral part of these consolidated financial statements.

4 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

New and used commercial vehicle sales

12 unchanged sentences

Operating income

Other income (expense)

Other income, net

Interest expense, net

1 unchanged sentence

Income tax provision

Net income attributable to noncontrolling interest

Net income (loss) attributable to noncontrolling interest

Net income attributable to Rush Enterprises, Inc.

6 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive income (loss), net of tax:

Foreign currency translation

Reclassification of currency translation related to equity method accounting

Other comprehensive income (loss) attributable to Rush Enterprises, Inc.

Comprehensive income

Comprehensive income attributable to noncontrolling interest

Comprehensive income (loss) attributable to noncontrolling interest

Comprehensive income attributable to Rush Enterprises, Inc.

2 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY

(In Thousands)

Comprehensive

Shareholders’

Noncontrolling

Shareholders’

Income (Loss)

9 unchanged sentences

Balance, March 31, 2024

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Vesting of restricted share awards

Common stock repurchases

Cash dividends declared on Class A common stock

Cash dividends declared on Class B common stock

Foreign currency translation adjustment

Balance, June 30, 2023

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Issuance of common stock under employee stock purchase plan

Common stock repurchases

Retirement of treasury shares and par value adjustment

Cash dividends declared on Class A common stock

Cash dividends declared on Class B common stock

Foreign currency translation adjustment

Balance, September 30, 2023

RUSH ENTERPRISES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

EQUITY (continued)

(In Thousands)

Comprehensive

Rush Enterprises, Inc.

Shareholders’

Noncontrolling

Shareholders’

Income (Loss)

5 unchanged sentences

Common stock repurchases

Dividend Class A common stock

––

Dividend Class B common stock

––

Cash dividends declared on Class A common stock

Cash dividends declared on Class B common stock

Foreign currency translation adjustment

Balance, March 31, 2023

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Vesting of restricted share awards

Common stock repurchases

Dividend Class A common stock

––

Dividend Class B common stock

––

Foreign currency translation adjustment

Reclassification of foreign currency translation related to equity method

Noncontrolling interest equity

Balance, June 30, 2022

Stock options exercised and stock awards

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

Vesting of restricted share awards

Issuance of common stock under employee stock purchase plan

Common stock repurchases

Dividend Class A common stock

––

Dividend Class B common stock

––

Foreign currency translation adjustment

Balance, September 30, 2022

The accompanying notes are an integral part of these consolidated financial statements.

3 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

2 unchanged sentences

Gain on sale of property and equipment

Gain on joint venture transaction

Gain on business acquisition

Stock-based compensation expense related to stock options and employee stock purchases

Stock-based compensation expense related to employee stock options and employee stock purchases

Provision for deferred income tax expense

5 unchanged sentences

Change in accrued expenses

Net cash provided by operating activities

Net cash (used) provided by operating activities

Cash flows from investing activities:

1 unchanged sentence

Proceeds from the sale of property and equipment

Business disposition

Business acquisition, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities:

Draws on floor plan notes payable –

non-trade, net

Draws on floor plan notes payable – non-trade, net

Proceeds from long-term debt

1 unchanged sentence

Principal payments on finance lease obligations

Proceeds from issuance of shares relating to employee stock options and employee stock purchases

Proceeds from issuance of shares related to employee stock options and employee stock purchases

Taxes paid related to net share settlement of equity awards

17 unchanged sentences

The interim consolidated financial statements included herein have been prepared by Rush Enterprises, Inc.

and its subsidiaries (collectively referred to as the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

All adjustments have been made to the accompanying interim consolidated financial statements, which, in the opinion of the Company’s management, are necessary for a fair presentation of its operating results.

and its subsidiaries (collectively referred to as the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

All adjustments are of a normal recurring nature.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

It is recommended that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

Restricted Cash

Restricted cash consists of deposits for the statutory restriction on cash related to the Company’s captive insurance company of $ 2.3 million as of September 30, 2023.

On July 25, 2023, the Board of Directors of the Company declared a 3 -for- 2 stock split of the Company’s Class A common stock and Class B common stock, which was effected in the form of a stock dividend.

Restricted cash consists of deposits for the statutory restriction on cash related to the Company’s captive insurance company of $ 3.1 million as of March 31, 2024.

On August 28, 2023, the Company distributed one additional share of stock for every two shares of Class A common stock, par value $ 0.01 per share, and Class B common stock, par value $ 0.01 per share, held by shareholders of record as of August 7, 2023.

All share and per share data in this Form 10-Q have been adjusted and restated to reflect the stock split as if it occurred on the first day of the earliest period presented.

Authorized Shares

On May 16, 2023, the Company’s shareholders approved the Certificate of Amendment to the Restated Articles of Incorporation of the Company to increase the number of authorized shares of Class A Common Stock from 60,000,000 to 105,000,000 and Class B Common Stock from 20,000,000 to 35,000,000 .

Treasury Stock Retirement

During the third quarter of 2023, the Company retired 3,052,899 shares of Class A common stock and 1,445,515 shares of Class B common stock.

The Company recorded the retirement directly against retained earnings based on the Company’s policy election.

The Company accounts for treasury stock using the cost method.

There was no effect on the Company’s overall equity position due to the retirement of the treasury shares.

Foreign Currency Transactions

The functional currency of the Company’s foreign subsidiary, Rush Truck Centres of Canada Limited (“RTC Canada”), is the local currency, the Canadian dollar.

Results of operations for RTC Canada are translated to USD using the average exchange rate on a monthly basis during each quarter.

The assets and liabilities of RTC Canada are translated into USD using the exchange rate in effect on the balance sheet date.

The related translation adjustments are recorded as a separate component of the Company’s Consolidated Statements of Shareholders’

Equity in accumulated other comprehensive income (loss).

The related translation adjustments are recorded as a separate component of the Company’s Consolidated Statements of Shareholders’ Equity in accumulated other comprehensive income (loss).

2 – Commitments and Contingencies

From time to time, the Company is involved in litigation arising out of its operations in the ordinary course of business.

The Company maintains liability insurance, including product liability coverage, in amounts deemed adequate by management.

However, an uninsured or partially insured claim, or claim for which indemnification is not available, could have a material adverse effect on the Company’s financial condition or results of operations.

As of September 30, 2023, the Company believes that there are no pending claims or litigation, individually or in the aggregate, that are reasonably likely to have a material adverse effect on its financial position or results of operations.

However, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations for the fiscal period in which such resolution occurred.

The Company maintains liability insurance, through self-insurance and third-party excess insurance, including product liability coverage, in amounts deemed adequate by management.

As of March 31, 2024, the Company believes that there are no pending claims or litigation, individually or in the aggregate, that are reasonably likely to have a material adverse effect on its financial position or results of operations.

3 – Earnings Per Share

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Numerator for basic and diluted earnings per share –

Net income available to common shareholders

Denominator for basic earnings per share –

weighted average shares outstanding

Effect of dilutive securities –

Numerator for basic and diluted earnings per share – Net income available to common shareholders

Denominator for basic earnings per share – weighted average shares outstanding

Effect of dilutive securities–

Employee and director stock options and restricted share awards

Denominator for diluted earnings per share –

adjusted weighted average shares outstanding and assumed conversions

Denominator for diluted earnings per share – adjusted weighted average shares outstanding and assumed conversions

Basic earnings per common share

Diluted earnings per common share and common share equivalents

Options to purchase shares of common stock that were outstanding for the three months and nine months ended September 30, 2023 and 2022 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows (in thousands):

Options to purchase shares of common stock that were outstanding for the three months ended March 31, 2024 and 2023 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Weighted average anti-dilutive options

1 unchanged sentence

Valuation and Expense Information

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718-10, Compensation –

Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options, restricted stock awards and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values.

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options, and included in selling, general and administrative expense, was $ 6.3 million for the three months ended September 30, 2023, and $ 3.6 million for the three months ended September 30, 2022.

Stock-based compensation expense was $ 25.3 million for the nine months ended September 30, 2023, and $ 21.5 million for the nine months ended September 30, 2022.

As of September 30, 2023, the Company had $ 13.4 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.3 years and $ 15.6 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.4 years.

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718-10, Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options, restricted stock awards and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values.

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options, and included in selling, general and administrative expense, was $ 14.1 million for the three months ended March 31, 2024, and $ 13.1 million for the three months ended March 31, 2023.

As of March 31, 2024, the Company had $ 17.6 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.5 years and $ 22.8 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.6 years.

5 – Financial Instruments and Fair Value

1 unchanged sentence

Financial instruments consist primarily of cash, accounts receivable, accounts payable and floor plan notes payable.

The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates.

Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of September 30, 2023, and December 31, 2022.

The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates.

Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of March 31, 2024, and December 31, 2023.

The carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.

The fair value of the Company’s long-term debt is based on secondary market indicators.

Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, variable interest rate, credit rating, collateral and liquidity.

Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and the Company’s current credit standing.

The fair value of the Company’s long-term debt is based on secondary market indicators.

Thus, the carrying amount of such debt approximates fair value.

1 unchanged sentence

The Company currently has one reportable business segment - the Truck Segment.

The Truck Segment includes the Company’s operation of a network of commercial vehicle dealerships throughout the United States and Ontario, Canada that provide an integrated one-stop source for the commercial vehicle needs of its customers, including retail sales of new and used commercial vehicles;

aftermarket parts, service and collision center facilities;

1 unchanged sentence

The commercial vehicle dealerships are deemed a single reporting unit because they have similar economic characteristics.

The Company’s chief operating decision maker considers the entire Truck Segment, not individual dealerships or departments within its dealerships, when making decisions about resources to be allocated to the segment and assessing its performance.

The Company also has revenues attributable to three other operating segments.

3 unchanged sentences

The Company evaluates performance based on income before income taxes, not including extraordinary items.

The following table contains summarized information about reportable segment revenues, segment income or loss from continuing operations and segment assets for the periods ended September 30, 2023 and 2022 (in thousands):

As of and for the three months ended September 30, 2023

As of and for the three months ended March 31, 2024

Revenues from external customers

Segment operating income

Segment income before taxes

Segment operating income (loss)

Segment income (loss) before taxes

Segment assets

For the nine months ended September 30, 2023

Revenues from external customers

Segment operating income

Segment income before taxes

As of and for the three months ended September 30, 2022

As of and for the three months ended March 31, 2023

Revenues from external customers

2 unchanged sentences

Segment assets

For the nine months ended September 30, 2022

Revenues from external customers

Segment operating income

Segment income before taxes

The Company had unrecognized income tax benefits totaling $ 5.3 million as a component of accrued liabilities as of September 30, 2023 and December 31, 2022, the total of which, if recognized, would impact the Company’s effective tax rate.

7 – Income Taxes

The Company had unrecognized income tax benefits totaling $ 6.7 million as a component of accrued liabilities as of March 31, 2024 and December 31, 2023, the total of which, if recognized, would impact the Company’s effective tax rate.

An unfavorable settlement would require a charge to income tax expense and a favorable resolution would be recognized as a reduction to income tax expense.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense.

The Company had approximately $ 302,000 accrued for the payment of interest as of September 30, 2023 and December 31, 2022.

The Company had approximately $ 389,000 accrued for the payment of interest as of March 31, 2024 and December 31, 2023.

No amounts were accrued for penalties.

The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next 12 months.

As of September 30, 2023, the tax years ended December 31, 2019 through 2022, remained subject to audit by federal tax authorities, and the tax years ended December 31, 2018 through 2022, remained subject to audit by state tax authorities.

The Company’s non-lease and rental revenues are primarily generated from the sale of finished products to customers.

As of December 31, 2023, the tax years ended December 31, 2020 through 2023 remained subject to audit by federal tax authorities and the tax years ended December 31, 2019 through 2023, remained subject to audit by state tax authorities.

The Company’s non-lease and rental revenues are primarily generated from the sale of finished products to customers.

Those sales predominantly contain a single delivery element and revenue from such sales is recognized when the customer obtains control, which is typically when the finished product is delivered to the customer.

The Company’s material revenue streams have been identified as the following:

the sale of new and used commercial vehicles, the arrangement of associated commercial vehicle financing and insurance contracts, the performance of commercial vehicle repair services and the sale of commercial vehicle parts.

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the three months and nine months ended September 30, 2023 and 2022 (in thousands):

The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Commercial vehicle sales revenue

5 unchanged sentences

All of the Company's performance obligations and associated revenues are generally transferred to customers at a point in time.

The Company did not have any material contract assets or contract liabilities on the balance sheet as of September 30, 2023.

Revenues related to commercial vehicle sales, parts sales, commercial vehicle repair service, finance and the majority of other revenues are related to the Truck Segment.

The Company did not have any material contract assets or contract liabilities on the balance sheet as of March 31, 2024.

Revenues related to commercial vehicle sales, parts sales, commercial vehicle repair service, finance and most other revenues are related to the Truck Segment.

Lease of Vehicles as Lessor

4 unchanged sentences

Some leases contain an option for the lessee to purchase the commercial vehicle at the end of the lease term.

The Company’s policy is to depreciate its lease and rental fleet using a straight-line method over each customer’s contractual lease term.

The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term.

This policy results in the Company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.

Lease and rental income during the three and nine months ended September 30, 2023 and September 30, 2022 consisted of the following (in thousands):

Lease and rental income during the three months ended March 31, 2024 and March 31, 2023 consisted of the following (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Minimum rental payments

5 unchanged sentences

Balance as of March 31, 2024

Foreign currency translation adjustment

Balance as of June 30, 2023

Foreign currency translation adjustment

Balance as of September 30, 2023

The functional currency of the Company’s foreign subsidiary, RTC Canada, is its local currency.

Results of operations of RTC Canada are translated into USD using the average exchange rates on a monthly basis during the year.

The functional currency of the Company’s foreign subsidiary, RTC Canada, is its local currency.

Results of operations of RTC Canada are translated into USD using the average exchange rates monthly during the year.

The assets and liabilities of RTC Canada are translated into USD using the exchange rates in effect on the balance sheet date.

3 unchanged sentences

Under Accounting Standards Update No.

2016-13, Financial Instruments —

Credit Losses (Topic 326):

2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , the Company is required to remeasure expected credit losses for financial instruments held on the reporting date based on historical experience, current conditions, and reasonable forecasts.

Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’

receivables and leasing, parts and service sales receivables and other trade receivables.

Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’ receivables and leasing, parts and service sales receivables and other trade receivables.

The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions.

3 unchanged sentences

Provision For

September 30,

Commercial vehicle receivables

Manufacturers’

Manufacturers’ receivables

Leasing, parts and service receivables

Other receivables

On May 2, 2022, the Company completed the acquisition of an additional 30 % equity interest in RTC Canada, resulting in an 80 % controlling interest in RTC Canada.

The acquisition was accounted for as an acquisition achieved in stages under ASC 805, Business Combinations .

The acquisition-date fair value of the previous 50 % equity interest was $ 44.7 million, resulting in a gain of $ 7.0 million included in the line item Other income (expense) on the Consolidated Statements of Income for the nine months ended September 30, 2022.

The Company also recognized a reversal of deferred tax liabilities of $ 2.2 million and $ 0.6 million related to reclassification of the foreign currency translation adjustment related to the remeasurement of the Company’s previous equity method investment in RTC Canada Income for the nine months ended September 30, 2022.

As of May 2, 2022, the Company established a noncontrolling interest related to the minority holders.

The fair value of the 20 % noncontrolling interest in RTC Canada is estimated to be $ 17.8 million.

The fair value of the noncontrolling interest was estimated using a combination of the income approach and a market approach.

Since RTC Canada is a private company, the fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement as defined in ASC 820, Fair Value Measurement .

The fair value estimates are based on:

(i) a discount rate of 11 %;

(ii) a terminal value based on a long-term sustainable growth rate of 3%;

(iii) financial multiples of companies in the same industry as RTC Canada;

and (iv) adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in RTC Canada.

The purchase price was allocated based on the fair values of the assets and liabilities at the date of acquisition as follows (in thousands):

Accounts receivable

Property and equipment, including real estate

Floor plan notes payable

Trade payables

Customer deposits

Accrued liabilities

Notes payable

Franchise rights

Equity investment in RTC Canada

Noncontrolling interest

Gain on equity method investment

The goodwill of $ 44.2 million for the RTC Canada acquisition was primarily attributable to the synergies expected to arise after the Company obtained a controlling interest in the entity.

Prior to May 2, 2022, the Company accounted for its 50 % equity interest in RTC Canada as an equity-method investment.

Subsequent to the Company’s acquisition of the additional 30 % equity interest on May 2, 2022, operations of RTC Canada are included in the accompanying consolidated financial statements.

Subsequent Event

On November 1, 2023, the Company entered into that certain Second Amended and Restated Inventory Financing and Purchase Money Security Agreement with PACCAR Leasing Company (“PLC”), a division of PACCAR Financial Corp.

(the “PLC Amended and Restated Agreement”).

Pursuant to the terms of the PLC Amended and Restated Agreement, PLC agreed to make up to $ 300.0 million of revolving credit loans to finance certain of the Company’s capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through its PacLease franchises.

The Company may borrow, repay and reborrow amounts pursuant to the PLC Amended and Restated Agreement from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the borrowing base.

The PLC Amended and Restated Agreement requires the Company to maintain a minimum balance threshold of $ 190,000,000 .

Advances under the PLC Amended and Restated Agreement bear interest per annum, payable on the fifth day of the following month, at our option, at either (A) the prime rate, minus 1.95 %, provided that the floating rate of interest is subject to a floor of 0 %, or (B) a fixed rate, to be determined between the Company and PLC in each instance of borrowing at a fixed rate.

The PLC Amended and Restated Agreement expires on December 1, 2025, although either party has the right to terminate the PLC Amended and Restated Agreement at any time upon 180 days written notice.

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements contained in this Form 10-Q (or otherwise made by the Company or on the Company ’

s behalf from time to time in other reports, filings with the Securities and Exchange Commission ( “

), news releases, conferences, website postings or otherwise) that are not statements of historical fact constitute “

forward-looking statements ”

within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “

Securities Act ”

), and Section 21E of the Exchange Act of 1934, as amended (the “

Exchange Act ”

), notwithstanding that such statements are not specifically identified.

Forward-looking statements include statements about the Company ’

s financial position, business strategy and plans and objectives of management of the Company for future operations.

These forward-looking statements reflect the best judgments of the Company about the future events and trends based on the beliefs of the Company ’

s management as well as assumptions made by and information currently available to the Company ’

s management.

Use of the words “

may, ”

should, ”

continue, ”

plan, ”

potential, ”

anticipate, ”

believe, ”

estimate, ”

expect ”

intend ”

and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

12 – Acquisition

The following acquisition, unless otherwise noted, was considered a business combination accounted for under ASC 805 “Business Combinations.” Pro forma information is not included in accordance with ASC 805 since the acquisition was not considered material.

On December 4, 2023, the Company acquired certain assets of Freeway Ford Truck Sales, Inc., which included real estate and a Ford commercial vehicle franchise in Chicago, Illinois, along with commercial vehicle and parts inventory.

The transaction was valued at approximately $ 16.3 million, with the purchase price paid in cash.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements contained in this Form 10-Q (or otherwise made by the Company or on the Company ’ s behalf from time to time in other reports, filings with the Securities and Exchange Commission ( “ SEC ” ), news releases, conferences, website postings or otherwise) that are not statements of historical fact constitute “ forward-looking statements ” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “ Securities Act ” ), and Section 21E of the Exchange Act of 1934, as amended (the “ Exchange Act ” ), notwithstanding that such statements are not specifically identified.

Forward-looking statements include statements about the Company ’ s financial position, business strategy and plans and objectives of management of the Company for future operations.

These forward-looking statements reflect the best judgments of the Company about the future events and trends based on the beliefs of the Company ’ s management as well as assumptions made by and information currently available to the Company ’ s management.

Use of the words “ may, ” “ should, ” “ continue, ” “ plan, ” “ potential, ” “ anticipate, ” “ believe, ” “ estimate, ” “ expect ” and “ intend ” and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements reflect our current view of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements.

Please read Item 1A.

Risk Factors ”

in the Company ’

s Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of certain of those risks.

“ Risk Factors ” in the Company ’ s Annual Report on Form 10-K for the year ended December 31, 2023, for a discussion of certain of those risks.

Other unknown or unpredictable factors could also have a material adverse effect on future results.

1 unchanged sentence

The Company does not intend to update or revise any forward-looking statements unless securities laws require it to do so, and the Company undertakes no obligation to publicly release any revisions to forward-looking statements, whether because of new information, future events or otherwise.

The following comments should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Note Regarding Trademarks Commonly Used in the Company ’

Peterbilt ®

is a registered trademark of Peterbilt Motors Company.

PACCAR ®

is a registered trademark of PACCAR, Inc.

PacLease ®

is a registered trademark of PACCAR Leasing Corporation.

Navistar ®

is a registered trademark of Navistar International, Inc.

International ®

is a registered trademark of Navistar, Inc.

The following comments should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Note Regarding Trademarks Commonly Used in the Company ’ s Filings

Peterbilt ® is a registered trademark of Peterbilt Motors Company.

PACCAR ® is a registered trademark of PACCAR, Inc.

PacLease ® is a registered trademark of PACCAR Leasing Corporation.

Navistar ® is a registered trademark of Navistar International, Inc.

International ® is a registered trademark of Navistar, Inc.

Idealease is a registered trademark of Idealease, Inc.

aka Idealease of North America, Inc.

Blue Bird ®

is a registered trademark of Blue Bird Investment Corporation.

IC Bus ®

is a registered trademark of IC Bus, LLC.

is a registered trademark of Hino Motors, Ltd.

is a registered trademark of Isuzu Motors Limited.

is a registered trademark of Ford Motor Company.

Dennis Eagle ®

is a registered trademark of Dennis Eagle Limited.

Cummins ®

is a registered trademark of Cummins, Inc.

Blue Bird ® is a registered trademark of Blue Bird Investment Corporation.

IC Bus ® is a registered trademark of IC Bus, LLC.

Hino ® is a registered trademark of Hino Motors, Ltd.

Isuzu ® is a registered trademark of Isuzu Motors Limited.

Ford ® is a registered trademark of Ford Motor Company.

Dennis Eagle ® is a registered trademark of Dennis Eagle Limited.

Cummins ® is a registered trademark of Cummins, Inc.

This report contains additional trade names or trademarks of other companies.

4 unchanged sentences

We are a full-service, integrated retailer of commercial vehicles and related services.

The Truck Segment includes our operation of a network of commercial vehicle dealerships under the name “Rush Truck Centers.”

Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, Dennis Eagle, IC Bus and Blue Bird.

The Truck Segment includes our operation of a network of commercial vehicle dealerships under the name “Rush Truck Centers.” Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, IC Bus, Blue Bird and Dennis Eagle.

Through our strategically located network of Rush Truck Centers, we provide one-stop service for the needs of our commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products.

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Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 125 franchised Rush Truck Centers in 22 states.

In 2019, we purchased a 50% equity interest in an entity in Canada, Rush Truck Centres of Canada Limited (“RTC Canada”) and on May 2, 2022, we purchased an additional 30% equity interest in RTC Canada that increased our equity interest to 80%.

RTC Canada currently owns and operates 14 International dealership locations in Ontario.

Prior to acquiring the additional 30%, we accounted for the equity interest in RTC Canada using the equity method of accounting.

Now, the operating results of RTC Canada are consolidated in the Consolidated Statements of Operations, the Statements of Comprehensive Income, the Consolidated Balance Sheets and commercial vehicle unit sales data as of May 2, 2022. 

Our business strategy consists of providing solutions to the commercial vehicle industry through our network of commercial vehicle dealerships.

We offer an integrated approach to meeting customer needs by providing service, parts and collision repairs in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems through our joint venture with Cummins and vehicle telematics products. We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers as we expand our product offerings and extend our dealership network through strategic acquisitions of new locations and opening new dealerships in our existing areas of operation to enable us to better serve our customers.

Research Co., LLC (“A.

Research”), a commercial vehicle industry data and forecasting service provider, currently forecasts new U.S.

Class 8 retail truck sales to be 278,000 units in 2023, which would represent a 7.2% increase compared to 2022.

We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers as we expand our product offerings and extend our dealership network through strategic acquisitions of new locations and opening new dealerships in our existing areas of operation to enable us to better serve our customers.

Research Co., LLC (“A.C.T.

Research”), a commercial vehicle industry data and forecasting service provider, currently forecasts new U.S.

Class 8 retail truck sales to be 228,000 units in 2024, which would represent a 16.0% decrease compared to 2023.

As anticipated, our Class 8 new truck sales in the first quarter were down significantly from the same time period in 2023, due to the previously anticipated industry downturn in new Class 8 truck sales caused by new truck production having caught up to the pent-up market demand and persistent low freight rates and high interest rates.

We expect our new Class 8 truck sales in the second quarter to be better than our results in the first quarter.

However, we also expect that new U.S.

Class 8 retail truck sales in the second half of 2024 will be less than in the first half of the year.

We expect our U.S.

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This market share percentage would result in the sale of approximately 13,500 to 14,500 new Class 8 trucks in 2024.

Additionally, we expect to sell approximately 600 new Class 8 trucks in Canada in 2023.

We expect to sell approximately 550 new Class 8 trucks in Canada in 2024.

With respect to new U.S.

Class 4 through 7 retail commercial vehicle sales, A.C.T.

Research currently forecasts sales to be 253,500 units in 2023, which would represent an 8.5% increase compared to 2022. 

Research currently forecasts sales to be 262,000 units in 2024, which would represent a 3.7% increase compared to 2023.

As we look forward, new Class 4 through 7 commercial vehicle production is still somewhat constrained, but we believe it will continue to improve, and we expect demand to remain steady as customers replace older equipment with new vehicles.

Currently, we believe Class 4 through 7 commercial vehicle sales will improve in the second quarter compared to the first quarter and remain strong for the remainder of the year.

We expect our U.S.

market share of new Class 4 through 7 commercial vehicle sales to range between 5.2% and 5.5% in 2024.

This market share percentage would result in the sale of approximately 11,500 to 13,000 new Class 4 through 7 commercial vehicles in 2023.

Additionally, we expect to sell approximately 400 new Class 5 through 7 commercial vehicles in Canada in 2023.

We expect to sell approximately 1,800 to 2,000 light-duty vehicles and approximately 6,700 to 7,300 used commercial vehicles in 2023.

We expect lease and rental revenue to increase 10% to 15% during 2023, compared to 2022.

This projected increase in lease and rental revenue is primarily related to strong demand for lease commercial vehicles and the consolidation of RTC Canada into our operating results.

With respect to Aftermarket Products and Services, growth in our aftermarket revenues moderated in the third quarter of 2023 compared to earlier in the year, and we expect that challenging economic conditions that are currently affecting many of our customers, including high interest rates and low freight rates, will continue to negatively impact our Aftermarket Product and Services revenues going forward.

In addition, we believe that the industry may experience some deflation with respect to the prices of certain commodity parts due to softening demand.

However, despite a challenging operating environment, we believe that the diversity of our customer base, as well as our focus on operational excellence, mobile service and supporting large national fleets, will allow us to offset some of the current industry challenges, and that our results will continue to outpace the industry.

The above projections for new commercial vehicle sales will depend on our ability to obtain commercial vehicles from the manufacturers we represent and such projections could be negatively impacted by manufacturer allocation decisions, supply chain issues affecting manufacturers’

production and delivery delays by truck body upfitters due to supply issues, which are primarily affecting medium-duty truck deliveries.

In addition, we continue to monitor inflation, interest rates and freight rates, which may negatively impact consumer spending and capital expenditures across a variety of industries we support.

This market share percentage would result in the sale of approximately 13,500 to 14,500 new Class 4 through 7 commercial vehicles in 2024.

We expect to sell approximately 500 new Class 5 through 7 commercial vehicles in Canada in 2024.

We expect to sell approximately 1,800 to 2,000 light-duty vehicles and approximately 6,500 to 7,500 used commercial vehicles in 2024, and we expect lease and rental revenue to increase approximately 3% during 2024, compared to 2023.

With respect to our parts, service, and collision center (collectively referred to herein as “Aftermarket Products and Services”) operations, we expect that the sluggish freight market, persistent inflation and high interest rates will continue to negatively impact our over-the-road customers, including both small carriers and larger fleets.

In the second quarter of 2024, we expect demand for Aftermarket Parts and Services will remain consistent with the first quarter.

We believe that the current freight recession will continue to negatively impact our customers until at least late 2024.

Despite the challenging operating environment, we believe that the strategic decisions we made several years ago to diversify our customer base and focus on supporting large national fleets, along with our current efforts to reduce expenses across all areas of the company, will allow us to successfully navigate this difficult market cycle.

We also believe that our Aftermarket Products and Services revenues will increase between 1% and 5% in 2024, compared to 2023.

Critical Accounting Policies and Estimates

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Results of Operations

The following discussion and analysis includes our historical results of operations for the three months and nine months ended September 30, 2023 and 2022.

The following discussion and analysis include our historical results of operations for the three months ended March 31, 2024, and 2023.

The following table sets forth certain financial data as a percentage of total revenues for the periods indicated:

Three Months Ended

September 30,

Nine Months Ended

September 30,

New and used commercial vehicle sales

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Gross Profit:

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Vehicle unit sales:

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Absorption Ratio

Management uses several performance metrics to evaluate the performance of our commercial vehicle dealerships and considers Rush Truck Centers’

“absorption ratio”

to be of critical importance.

Our absorption ratio is calculated by dividing the gross profit from our Aftermarket Products and Services 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.

Management uses several performance metrics to evaluate the performance of our commercial vehicle dealerships and considers Rush Truck Centers’ “absorption ratio” to be of critical importance.

When 100% absorption is achieved, all of the gross profit from the sale of a commercial vehicle, after sales commissions and inventory carrying costs, directly impacts operating profit.

Our commercial vehicle dealerships achieved a 132.8% absorption ratio for the third quarter of 2023 compared to a 136.2% absorption ratio for the third quarter of 2022.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Total revenues increased $116.5 million, or 6.2%, in the third quarter of 2023, compared to the third quarter of 2022.

This increase was primarily the result of strong demand for new commercial vehicles and increased production of commercial vehicles from the manufacturers we represent.

Our Aftermarket Products and Services revenues totaled $643.6 million in the third quarter of 2023, up 3.5% from the third quarter of 2022.

The slight increase in Aftermarket Parts and Services revenues was related to the continued stabilization of parts pricing and economic pressures that are negatively affecting our over-the-road customers.

Revenues from sales of new and used commercial vehicles increased $93.6 million, or 8.2%, in the third quarter of 2023, compared to the third quarter of 2022.

The increase in new commercial vehicle revenues was primarily a result of strong demand and increased production of commercial vehicles from the manufacturers we represent.

We sold 4,326 new Class 8 trucks in the third quarter of 2023, a 3.0% increase compared to 4,200 new Class 8 trucks sold in the third quarter of 2022.

The increase in new Class 8 truck sales was primarily a result of strong demand and increased production of commercial vehicles from the manufacturers we represent.

Class 8 retail truck sales totaled 68,010 units in the third quarter of 2023, an increase of 0.1% compared to the third quarter of 2022, according to ACT Research.

We sold 3,244 new Class 4 through 7 medium-duty commercial vehicles, including 422 buses, in the third quarter of 2023, a 0.7% increase compared to 3,223 new medium-duty commercial vehicles, including 537 buses, in the third quarter of 2022.

Our new Class 4 through 7 commercial vehicle sales were flat on a year-over-year basis primarily due to allocation decisions from the manufacturers we represent.

We are still experiencing limited production of medium-duty commercial vehicles from the manufacturers we represent.

New U.S. Class 4 through 7 retail commercial vehicle sales totaled 65,683 units in the third quarter of 2023, up 9.1% compared to the third quarter of 2022, according to ACT Research.

We sold 425 light-duty vehicles in the third quarter of 2023, a 30.1% decrease compared to 608 light-duty vehicles sold in the third quarter of 2022.

We sold 1,797 used commercial vehicles in the third quarter of 2023, a 1.9% increase compared to 1,763 used commercial vehicles in the third quarter of 2022.

We expect used commercial vehicle demand and values to remain low through 2023 due to new commercial vehicle production continuing to increase, high interest rates and anticipated low freight rates.

Commercial vehicle lease and rental revenues increased $3.8 million, or 4.4%, in the third quarter of 2023, compared to the third quarter of 2022.

This increase in commercial vehicle lease and rental revenues was primarily a result of strong demand for lease commercial vehicles.

Finance and insurance revenues decreased $1.3 million, or 17.3%, in the third quarter of 2023, compared to the third quarter of 2022.

This decrease is primarily due to the mix of purchasers of commercial vehicles. 

During the third quarter of 2023, most of our sales were to larger fleets, which usually arrange their own financing.

We are more likely to provide financing to owner-operators and smaller fleets, which comprised a smaller percentage of commercial vehicle sales during the third quarter of 2023.

Our commercial vehicle dealerships achieved a 130.1% absorption ratio for the first quarter of 2024, compared to a 136.5% absorption ratio for the first quarter of 2023.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Total revenues decreased $39.8 million, or 2.1%, in the first quarter of 2024, compared to the first quarter of 2023.

This decrease was primarily the result of decreased demand for new Class 8 trucks and high interest rates and low freight rates that are negatively impacting our over-the-road customers, our largest customer segment.

Our Aftermarket Products and Services revenues totaled $649.2 million in the first quarter of 2024, up 0.1% from the first quarter of 2023.

The slight increase in Aftermarket Parts and Services revenues was related to the continued moderating of inflation and challenging economic conditions that are negatively impacting our over-the-road customers.

Revenues from sales of new and used commercial vehicles decreased $38.4 million, or 3.3%, in the first quarter of 2024, compared to the first quarter of 2023.

The decrease in new commercial vehicle revenues was primarily a result of decreased demand for new Class 8 trucks caused by high interest rates and production recently catching up to the pent-up demand experienced over the last couple of years.

We sold 3,494 new Class 8 trucks in the first quarter of 2024, a 20.0% decrease compared to 4,365 new Class 8 trucks sold in the first quarter of 2023.

The decrease in new Class 8 truck sales was primarily related to delayed deliveries to certain large fleet customers due to delays associated with body companies and decreased demand caused by high interest rates and production recently catching up to the pent-up demand experienced over the last couple of years.

Class 8 retail truck sales totaled 57,181 units in the first quarter of 2024, a decrease of 13.1% compared to the first quarter of 2023, according to ACT Research.

We sold 3,331 new Class 4 through 7 medium-duty commercial vehicles, including 386 buses, in the first quarter of 2024, a 9.6% increase compared to 3,038 new medium-duty commercial vehicles, including 332 buses, in the first quarter of 2023.

The increase in our new Class 4 through 7 commercial vehicle sales in the first quarter was primarily related to increased production of medium-duty commercial vehicles by the manufacturers we represent.

Class 4 through 7 retail commercial vehicle sales totaled 59,786 units in the first quarter of 2024, up 6.5% compared to the first quarter of 2023, according to ACT Research.

We sold 456 light-duty vehicles in the first quarter of 2024, a 9.5% decrease compared to 504 light-duty vehicles sold in the first quarter of 2023.

We sold 1,818 used commercial vehicles in the first quarter of 2024, an 8.0% increase compared to 1,684 used commercial vehicles in the first quarter of 2023.

We expect used commercial vehicle demand and values to remain low through 2024 due to high interest rates and anticipated low freight rates.

Commercial vehicle lease and rental revenues increased $1.2 million, or 1.4%, in the first quarter of 2024, compared to the first quarter of 2023.

The slight increase in commercial vehicle lease and rental revenues was primarily due to the delivery of new leased vehicles, as manufacturers were able to increase production, which was partially offset by a slight decrease in rental utilization.

Finance and insurance revenues decreased $1.2 million, or 17.9%, in the first quarter of 2024, compared to the first quarter of 2023.

This decrease is primarily due to the mix of purchasers of commercial vehicles.

During the first quarter of 2024, most of our sales were to larger fleets, which usually arrange their own financing.

We are more likely to provide financing to owner-operators and smaller fleets, which comprised a smaller percentage of commercial vehicle sales during the first quarter of 2024.

Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of our operating profits.

Gross profit increased $13.0 million, or 3.4%, in the third quarter of 2023, compared to the third quarter of 2022.

Gross profit as a percentage of sales decreased to 19.9% in the third quarter of 2023, from 20.5% in the third quarter of 2022.

This decrease in gross profit as a percentage of sales is a result of a change in our product sales mix.

Commercial vehicle sales, a lower margin revenue item, increased as a percentage of total revenues to 62.4% in the third quarter of 2023, from 61.3% in the third quarter of 2022.

Aftermarket Products and Services revenues, a higher margin revenue item, decreased as a percentage of total revenues to 32.5% in the third quarter of 2023, from 33.4% in the third quarter of 2022.

Gross margins from our Aftermarket Products and Services operations decreased to 36.2% in the third quarter of 2023, from 39.1% in the third quarter of 2022.

Gross profit for the Aftermarket Products and Services departments decreased to $232.7 million in the third quarter of 2023, from $243.4 million in the third quarter of 2022.

This decrease is primarily related to continued stabilization of parts pricing and softening demand due to difficult economic conditions impacting many of our customers.

Gross profit decreased $8.9 million, or 2.2%, in the first quarter of 2024, compared to the first quarter of 2023.

Gross profit as a percentage of sales decreased to 20.8% in the first quarter of 2024, from 20.9% in the first quarter of 2023.

Gross margins from our Aftermarket Products and Services operations decreased to 36.5% in the first quarter of 2024, from 38.0% in the first quarter of 2023.

Gross profit for the Aftermarket Products and Services departments decreased to $236.9 million in the first quarter of 2024, from $246.1 million in the first quarter of 2023.

This decrease is primarily related to continued moderating of inflation and softening demand due to difficult economic conditions impacting many of our customers.

Historically, gross margins on parts sales range from 28% to 30% and gross margins on service and collision center operations range from 66% to 68%.

Gross profits from parts sales represented 58.4% of total gross profit for Aftermarket Products and Services operations in the third quarter of 2023 and 62.8% in the third quarter of 2022.

Service and collision center operations represented 41.6% of total gross profit for Aftermarket Products and Services operations in the third quarter of 2023 and 37.2% in the third quarter of 2022.

Gross profits from parts sales represented 57.5% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2024 and 61.4% in the first quarter of 2023.

Service and collision center operations represented 42.5% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2024 and 38.6% in the first quarter of 2023.

We expect blended gross margins on Aftermarket Products and Services operations to range from 36.0% to 38.0% in 2024.

Gross margins on new Class 8 truck sales remained flat at 9.9% in the third quarter of 2023 and the third quarter of 2022.

Gross margins on new Class 8 truck sales decreased to 9.7% in the first quarter of 2024, from 9.8% in the first quarter of 2023.

In 2024, we expect overall gross margins from new heavy-duty truck sales of approximately 8.5% to 9.5%.

Gross margins on new Class 4 through 7 commercial vehicle sales increased to 9.2% in the third quarter of 2023, from 7.9% in the third quarter of 2022.

This increase was primarily due to the mix of purchasers during the third quarter of 2023.

Gross margins on new Class 4 through 7 commercial vehicle sales increased to 9.3% in the first quarter of 2024, from 8.8% in the first quarter of 2023.

This increase was primarily due to the mix of purchasers during the first quarter of 2024.

For 2024, we expect overall gross margins from new medium-duty commercial vehicle sales of approximately 8.0% to 9.0%, but this will largely depend upon the mix of purchasers and types of vehicles sold.

Gross margins on used commercial vehicle sales increased to 11.3% in the third quarter of 2023, from 1.6% in the third quarter of 2022.

This increase was primarily due to strategic inventory management of our used commercial vehicle inventory.

Gross margins on used commercial vehicle sales increased to 21.6% in the first quarter of 2024, from 9.0% in the first quarter of 2023.

This increase was primarily due to successful execution on our used truck inventory and sales strategy.

We expect margins on used commercial vehicles to range between 15.0% and 20.0% in 2024.

Gross margins from truck lease and rental sales decreased to 30.6% in the third quarter of 2023, from 31.8% in the third quarter of 2022.

This decrease is primarily related to a decrease in rental utilization rates.

Gross margins from truck lease and rental sales decreased to 27.5% in the first quarter of 2024, from 30.2% in the first quarter of 2023.

This decrease is primarily related to a decrease in rental utilization rates, which have returned to historical levels as new commercial vehicle production has normalized and rental customers have purchased or leased new commercial vehicles.

We expect gross margins from lease and rental sales of approximately 28.0% to 30.0% during 2024.

Our policy is to depreciate our lease and rental fleet using a straight-line method over each customer’s contractual lease term.

The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term.

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Selling, General and Administrative Expenses

Selling, General and Administrative (“SG&A”) expenses increased $14.5 million, or 6.0%, in the third quarter of 2023, compared to the third quarter of 2022.

This increase primarily resulted from increased personnel expense, increased selling expense and other increased costs due to inflation, compared to the third quarter of 2022.

SG&A expenses as a percentage of total revenues remained constant at 13.0% in the third quarter of 2023 and 2022.

Selling, General and Administrative (“SG&A”) expenses increased $6.9 million, or 2.7%, in the first quarter of 2024, compared to the first quarter of 2023.

This increase primarily resulted from increased personnel expense and other increased costs due to inflation, compared to the first quarter of 2023.

SG&A expenses as a percentage of total revenues increased to 14.1% in the first quarter of 2024, from 13.4% in the first quarter of 2023.

Annual SG&A expenses as a percentage of total revenues have ranged from approximately 12.4% to 14.4% over the last five years.

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Interest Expense, Net

Net interest expense increased $7.9 million, or 126.2%, in the third quarter of 2023, compared to the third quarter of 2022.

This increase in interest expense is a result of the increase in inventory levels and rising interest rates on our variable rate debt compared to 2022.

We expect net interest expense in 2023, compared to 2022, to increase due to interest related to our working capital lines of credit and floor plan debt, but the amount of the increase will depend on inventory levels, interest rate fluctuations and the amount of cash available to make prepayments on our floor plan arrangements.

Net interest expense increased $7.0 million, or 63.6%, in the first quarter of 2024, compared to the first quarter of 2023.

This increase in interest expense is a result of the increase in inventory levels and rising interest rates on our variable rate debt compared to the first quarter of 2023.

We expect net interest expense in 2024 to increase compared to 2023, primarily due to increased borrowings under our credit facilities and the interest related thereto, but the amount of the increase will depend on inventory levels, interest rate fluctuations and the amount of cash available to make prepayments on our floor plan arrangements.

We expect that the amount of borrowings on our credit facilities will decline during the remainder of 2024 and that the net interest expense associated therewith will subside.

Income before Income Taxes

As a result of the factors described above, income before income taxes decreased $13.0 million, or 10.8%, in the third quarter of 2023, compared to the third quarter of 2022.

Income taxes decreased $3.0 million, or 9.9%, in the third quarter of 2023, compared to the third quarter of 2022.

We provided for taxes at a 25.0% effective rate in the third quarter of 2023 and 24.79% in the third quarter of 2022.

As a result of the factors described above, income before income taxes decreased $26.3 million, or 22.1%, in the first quarter of 2024, compared to the first quarter of 2023.

Income taxes decreased $7.0 million, or 24.8%, in the first quarter of 2024, compared to the first quarter of 2023.

We provided for taxes at a 23.0% effective rate in the first quarter of 2024 and 23.8% in the first quarter of 2023.

We expect our effective tax rate to be approximately 24.0% to 25.0% of pretax income in 2024.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Unless otherwise stated below, our variance explanations and future expectations with regard to the items discussed in this section are set forth in the discussion of the Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022.

Total revenues increased $676.8 million, or 13.0%, in the first nine months of 2023, compared to the first nine months of 2022.

This increase was primarily the result of strong demand for new commercial vehicles, increased production of commercial vehicles from the manufacturers we represent and the consolidation of RTC Canada into our operating results as of May 2022.

Aftermarket Products and Services revenues increased $179.3 million, or 10.2%, in the first nine months of 2023, compared to the first nine months of 2022.

The increase in Aftermarket Parts and Services revenues was related to healthy demand during the first six months of 2023 and the consolidation of RTC Canada into our operating results.

Revenues from the sales of new and used commercial vehicles increased $472.1 million, or 14.9%, in the first nine months of 2023, compared to the first nine months of 2022.

The increase in new commercial vehicle revenues was primarily a result of strong demand, increased production of commercial vehicles from the manufacturers we represent and the consolidation of RTC Canada into our operating results.

We sold 12,991 new Class 8 heavy-duty trucks during the first nine months of 2023, a 9.2% increase compared to 11,896 new Class 8 heavy-duty trucks in the first nine months of 2022.

According to A.C.T.

Research, new U.S.

Class 8 truck sales increased 12.9% in the first nine months of 2023, compared to the first nine months of 2022.

We sold 9,757 new Class 4 through 7 medium-duty commercial vehicles, including 1,232 buses, during the first nine months of 2023, a 19.3% increase compared to 8,179 new Class 4 through 7 medium-duty commercial vehicles, including 1,041 buses, in the first nine months of 2022.

Research estimates that unit sales of new Class 4 through 7 commercial vehicles, including buses, in the U.S increased approximately 9.2% in the first nine months of 2023, compared to the first nine months of 2022.

We sold 1,381 new light-duty commercial vehicles during the first nine months of 2023, a 7.7% decrease compared to 1,497 light-duty commercial vehicles in the first nine months of 2022.

We sold 5,350 used commercial vehicles during the first nine months of 2023, a 7.6% decrease compared to 5,787 used commercial vehicles in the first nine months of 2022.

Truck lease and rental revenues increased $27.1 million, or 11.4%, in the first nine months of 2023, compared to the first nine months of 2022.

This increase in commercial vehicle lease and rental revenues was primarily a result of strong demand for lease commercial vehicles and the consolidation of RTC Canada into our operating results.

Finance and insurance revenues decreased $3.8 million, or 16.8%, in the first nine months of 2023, compared to the first nine months of 2022.

Gross profit increased $106.0 million, or 9.6%, in the first nine months of 2023, compared to the first nine months of 2022.

Gross profit as a percentage of sales decreased to 20.5% in the first nine months of 2023, from 21.1% in the first nine months of 2022.

Gross margins from our Aftermarket Products and Services operations decreased to 37.4% in the first nine months of 2023, from 38.8% in the first nine months of 2022.

Gross profit for the Aftermarket Products and Services departments was $726.5 million in the first nine months of 2023, compared to $683.5 million in the first nine months of 2022.

This increase is primarily related to the consolidation of RTC Canada into our operating results and strong parts and service demand in the first six months of 2023.

Gross profits from parts sales represented 60.1% of total gross profit for Aftermarket Products and Services operations in the first nine months of 2023 and 63.0% in the first nine months of 2022.

Service and collision center operations represented 39.9% of total gross profit for Aftermarket Products and Services operations in the first nine months of 2023 and 37.0% in the first nine months of 2022.

Gross margins on new Class 8 truck sales increased to 10.0% in the first nine months of 2023, from 9.9% in the first nine months of 2022.

Gross margins on new Class 4 through 7 medium-duty commercial vehicle sales increased to 8.9% in the first nine months of 2023, from 7.9% in the first nine months of 2022.

Gross margins on used commercial vehicle sales increased to 10.8% in the first nine months of 2023, from 10.2% in the first nine months of 2022.

Gross margins from truck lease and rental sales decreased to 30.4% in the first nine months of 2023, from 31.6% in the first nine months of 2022.

Selling, General and Administrative Expenses

SG&A expenses increased $78.2 million, or 11.3%, in the first nine months of 2023, compared to the first nine months of 2022.

SG&A expenses equaled 13.1% of total revenue in the first nine months of 2023, and 13.3% in the first nine months of 2022.

This increase primarily resulted from increased personnel expense, increased selling expense and other increased costs due to inflation, compared to the first nine months of 2022, and in addition, increased general and administrative expense associated with consolidation of RTC Canada into our operating results.

Interest Expense, Net

Net interest expense increased $26.8 million, or 250.9%, in the first nine months of 2023, compared to the first nine months of 2022.

Income before Income Taxes

Income before income taxes decreased $23.9 million, or 6.3%, in the first nine months of 2023, compared to the first nine months of 2022.

Provision for Income Taxes

Income taxes remained flat in the first nine months of 2023, compared to the first nine months of 2022.

We provided for taxes at a 24.4% rate in the first nine months of 2023 and a 22.9% rate in the first nine months of 2022.

Liquidity and Capital Resources

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Historically, these cash requirements have been met through the retention of profits, borrowings under our floor plan arrangements and bank financings.

As of September 30, 2023, we had working capital of approximately $425.7 million, including $192.0 million in cash, available to fund our operations.

As of March 31, 2024, we had working capital of approximately $758.8 million, including $155.9 million in cash, available to fund our operations.

We believe that these funds, together with expected cash flows from operations, are sufficient to meet our operating requirements for at least the next twelve months.

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The resulting interest earned on the floor plan credit agreement with BMO Harris Bank N.A.

(“BMO Harris”) (the “Floor Plan Credit Agreement”) is recognized as an offset to our interest expense.

We continually evaluate our liquidity and capital resources based upon:

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We have a secured line of credit that provides for a maximum borrowing of $20.0 million.

There were no advances outstanding under this secured line of credit on September 30, 2023, however, $18.0 million was pledged to secure various letters of credit related to self-insurance products, leaving $2.0 million available for future borrowings as of September 30, 2023.

Our long-term debt, floor plan financing agreements and the credit agreement with Wells Fargo Bank, National Association the (“WF Credit Agreement”) require us to satisfy various financial ratios such as the leverage ratio, the asset coverage ratio and the fixed charge coverage ratio.

As of September 30, 2023, we were in compliance with all debt covenants related to debt secured by lease and rental units, our floor plan credit agreements and the WF Credit Agreement.

We do not anticipate any breach of the covenants in the foreseeable future.

There were no advances outstanding under this secured line of credit on March 31, 2024, however, $18.9 million was pledged to secure various letters of credit related to self-insurance products, leaving $1.1 million available for future borrowings as of March 31, 2024.

Our floor plan financing agreements and the credit agreement with Wells Fargo Bank, National Association the (“WF Credit Agreement”) require us to satisfy various financial ratios such as the leverage ratio, the asset coverage ratio and the fixed charge coverage ratio.

As of March 31, 2024, we were in compliance with all debt covenants related to debt secured by lease and rental units, our floor plan credit agreements and the WF Credit Agreement.

We do not anticipate any breach of these covenants in the foreseeable future.

We expect to purchase or lease commercial vehicles worth approximately $200.0 million to $225.0 million for our leasing operations during 2024, depending on customer demand.

We also expect to make capital expenditures for the purchase of recurring items such as computers, shop tools and equipment and company vehicles of approximately $35.0 million to $40.0 million during 2024.

We are currently under contract to construct a new facility in the St.

Louis, Missouri area at an estimated cost of $13.9 million.

During the third quarter of 2023, we paid a cash dividend of $13.7 million.

On July 25, 2023, the Company’s Board of Directors declared a three-for-two stock split with respect to both the Company’s Class A and Class B common stock.

The stock split was effected in the form of a stock dividend paid on August 28, 2023, to shareholders of record as of August 7, 2023.

Holders of the Company’s common stock received an additional one-half share for each share of common stock held as of the record date.

Additionally, on October 24, 2023, our Board of Directors declared a cash dividend of $0.17 per share of Class A and Class B common stock, to be paid on December 12, 2023, to all shareholders of record as of November 9, 2023.

During the first quarter of 2024, we paid a cash dividend of $13.9 million.

Additionally, on April 23, 2024, our Board of Directors declared a cash dividend of $0.17 per share of Class A and Class B common stock, to be paid on June 10, 2024, to all shareholders of record as of May 9, 2024.

The total dividend disbursement is estimated at approximately $13.4 million.

We expect to continue paying cash dividends on a quarterly basis.

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The actual timing, number of shares and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including market conditions, stock price and other factors.

As of September 30, 2023, we had repurchased $114.9 million of our shares of common stock under the current stock repurchase program, excluding federal excise tax.

As of March 31, 2024, we had repurchased $73.2 million of our shares of common stock under the current stock repurchase program, excluding federal excise tax.

The current stock repurchase program expires on December 31, 2024, and may be suspended or discontinued at any time.

The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. 

We have reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased. 

The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022.

We have reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased.

We anticipate funding the capital expenditures for the improvement and expansion of existing facilities and recurring expenses through our operating cash flows.

We have the ability to fund the construction or purchase of new facilities through our operating cash flows or by financing.

We have no other material commitments for capital expenditures as of September 30, 2023.

We can fund the construction or purchase of new facilities through our operating cash flows or by financing.

We have no other material commitments for capital expenditures as of March 31, 2024.

However, we will continue to purchase vehicles for our lease and rental operations and authorize capital expenditures for the improvement or expansion of our existing dealership facilities and construction or purchase of new facilities based on market opportunities.

Cash, cash equivalents and restricted cash decreased by $9.1 million during the nine months ended September 30, 2023 and increased by $71.4 million during the nine months ended September 30, 2022.

The major components of these changes are discussed below.

The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net (decrease) increase in cash

Cash Flows from Operating Activities

Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital.

During the first nine months of 2023, operating activities resulted in net cash provided by operations of $211.1 million.

Net cash provided by operating activities primarily consisted of $269.9 million in net income, as well as non-cash adjustments related to depreciation and amortization of $165.1 million, gain on sale of property and equipment of $0.6 million, stock-based compensation of $25.3 million and the benefit for deferred income tax expense of $3.5 million.

Cash used by operating activities included an aggregate of $252.2 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were cash inflows of $4.5 million from the increase in accounts payable, which was offset primarily by cash outflows of $193.7 million from the increase in inventories, $42.8 million from the increase in accounts receivable, $13.3 million from the decrease in customer deposits and $4.1 million from the decrease in accrued expenses.

The majority of our commercial vehicle inventory is financed through our floor plan credit agreements.

During the first nine months of 2022, operating activities resulted in net cash provided by operations of $183.3 million.

Net cash provided by operating activities primarily consisted of $293.8 million in net income, as well as non-cash adjustments related to depreciation and amortization of $146.5 million, gain on sale of property and equipment, gain on joint venture and gain on business acquisition of $21.9 million, stock-based compensation of $21.6 million and the benefit for deferred income tax expense of $7.9 million.

During the first quarter of 2024, operating activities resulted in net cash used in by operations of $155.1 million.

Net cash provided by operating activities primarily consisted of $71.5 million in net income, as well as non-cash adjustments related to depreciation and amortization of $56.8 million, and stock-based compensation of $14.1 million.

Cash used by operating activities included an aggregate of $297.4 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were cash inflows of $44.1 million from the increase in accounts payable, $9.7 million from the increase in customer deposits and $25.5 million from the increase in accrued expenses, which was offset primarily by cash outflows of $264.7 million from the increase in inventories and $75.1 million from the increase in accounts receivable.

Included in the net change in operating assets and liabilities were cash inflows of $17.4 million from the increase in accounts payable, which was offset primarily by cash outflows of $215.5 million from the increase in inventories, $49.9 million from the increase in accounts receivable, $17.7 million from the decrease in customer deposits and $26.9 million from the increase in accrued expenses.

Most of our commercial vehicle inventory is financed through our floor plan credit agreements.

During the first quarter of 2023, operating activities resulted in net cash provided by operations of $92.5 million.

Net cash provided by operating activities primarily consisted of $90.8 million in net income, as well as non-cash adjustments related to depreciation and amortization of $53.9 million, deferred income tax provision of $3.2 million and stock-based compensation of $13.1 million.

Cash provided by operating activities included an aggregate of $65.2 million net change in operating assets and liabilities.

Included in the net change in operating assets and liabilities were primarily cash outflows of $9.0 million from the increase in accounts receivable, $52.8 million from the increase in inventory, $15.9 million from the decrease in customer deposits and $11.5 million from the decrease in accrued expenses, which were offset by cash inflows of $27.1 million from the net increase in accounts payable.

Cash Flows from Investing Activities

During the first nine months of 2023, cash used in investing activities was $291.0 million.

During the first quarter of 2024, cash used in investing activities was $69.2 million.

Cash flows used in investing activities consist primarily of cash used for the acquisition of property and equipment.

Acquisition of property and equipment totaled $289.1 million during the first six months of 2023 and consisted primarily of purchases of machine and shop equipment, furniture and fixtures, real estate and facilities, improvements to our existing dealership facilities and $210.5 million for purchases of rental and lease vehicles for our rental and leasing operations.

During the first nine months of 2022, cash used in investing activities was $168.2 million.

Acquisition of property and equipment totaled $79.1 million during the first three months of 2024 and consisted primarily of purchases of machinery and shop equipment, furniture and fixtures, real estate and facilities, improvements to our existing dealership facilities and $52.1 million for purchases of rental and lease vehicles for our rental and leasing operations.

During the first quarter of 2023, cash used in investing activities totaled $95.5 million.

Cash flows used in investing activities consist primarily of cash used for the acquisition of property and equipment.

Acquisition of property and equipment totaled $175.2 million during the first nine months of 2022 and consisted primarily of purchases of machine and shop equipment, furniture and fixtures, real estate and facilities, improvements to our existing dealership facilities and $122.3 million for purchases of rental and lease vehicles for our rental and leasing operations.

Capital expenditures totaled $90.4 million during the first quarter of 2023 and consisted primarily of purchases of property and equipment, improvements to our existing dealership facilities and $75.2 million for purchases of rental and lease vehicles for the rental and leasing operations.

Cash Flows from Financing Activities

Cash flows from financing activities include borrowings and repayments of long-term debt and net proceeds of floor plan notes payable, non-trade.

During the first nine months of 2023, financing activities resulted in net cash provided by financing activities of $70.8 million, primarily related to $188.4 million from net draws on floor plan notes payable, non-trade, $995.1 million from borrowings of long-term debt and $14.7 million from the issuance of shares related to equity compensation plans.

These cash inflows were offset by cash outflows of $976.2 million used for principal repayments of long-term debt and capital lease obligations, $107.0 million used for repurchases of common stock, $7.0 million for taxes paid related to net share settlement of equity awards and $37.1 million used for payment of cash dividends.

During the first nine months of 2022, financing activities resulted in net cash provided by financing activities of $56.6 million, primarily related to $277.3 million from net draws on floor plan notes payable, non-trade, $695.2 million from borrowings of long-term debt and $11.1 million from the issuance of shares related to equity compensation plans.

These cash inflows were offset by cash outflows of $799.8 million used for principal repayments of long-term debt and capital lease obligations, $52.3 million used for repurchases of common stock, $8.7 million for taxes paid related to net share settlement of equity awards and $33.1 million used for payment of cash dividends.

On September 14, 2021, we entered into the WF Credit Agreement with the lenders signatory thereto (the “WF Lenders”) and Wells Fargo Bank, National Association (“WF”), as Administrative Agent (in such capacity, the “WF Agent”) which was amended effective November 30, 2022.

Pursuant to the terms of the WF Credit Agreement (as amended), the WF Lenders have agreed to make up to $175.0 million of revolving credit loans for certain of our capital expenditures, including commercial vehicle purchases for our Idealease leasing and rental fleet, and general working capital needs.

During the first quarter of 2024, financing activities resulted in net cash provided by financing activities of $196.5 million, primarily related to $110.2 million from net draws on floor plan notes payable, non-trade, $698.8 million from borrowings of long-term debt and $9.4 million from the issuance of shares related to equity compensation plans.

These cash inflows were offset by cash outflows of $592.9 million used for principal repayments of long-term debt and finance lease obligations, $5.6 million used for repurchases of common stock, $9.5 million for taxes paid related to net share settlement of equity awards and $13.9 million used for payment of cash dividends.

During the first quarter of 2023, financing activities provided $28.3 million in net cash flow.

Cash outflows were primarily related to $275.3 million used for principal repayments of long-term debt and finance lease obligations, $24.0 million used for the repurchase of our common stock and $12.1 million used for the payment of cash dividends.

These cash outflows were offset by cash inflows related to borrowings of $257.7 million of long-term debt and $82.6 million used for net draws on floor plan (non-trade).

Pursuant to the terms of the WF Credit Agreement (as amended), the WF Lenders have agreed to make up to $175.0 million of revolving credit loans for certain of our capital expenditures, including commercial vehicle purchases for our Idealease leasing and rental fleet, and general working capital needs.

We expect to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for our Idealease lease and rental fleet.

We may borrow, repay and reborrow amounts pursuant to the WF Credit Agreement from time to time until the maturity date.

Borrowings under the WF Credit Agreement bear interest per annum, payable on each interest payment date, as defined in the WF Credit Agreement, at (A) the daily simple, secured overnight financing rate (“SOFR”) plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio or (B) on or after the term SOFR transition date, the term SOFR plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio.

Borrowings under the WF Credit Agreement bear interest per annum, payable on each interest payment date, as defined in the WF Credit Agreement, at (A) the daily SOFR plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio or (B) on or after the term SOFR transition date, the term SOFR plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio.

The WF Credit Agreement expires on September 14, 2026, although, upon the occurrence and during the continuance of an event of default, the WF Agent has the right to, or upon the request of the required lenders must, terminate the commitments and declare all outstanding principal and interest due and payable.

We may terminate the commitments at any time.

On September 30, 2023, we had approximately $104.8 million outstanding under the WF Credit Agreement.

On October 1, 2021, we entered into that certain Amended and Restated Inventory Financing and Purchase Money Security Agreement with PACCAR Leasing Company (“PLC”), a division of PACCAR Financial Corp.

(the “PLC Agreement”).

On March 31, 2024, we had approximately $174.7 million outstanding under the WF Credit Agreement.

On November 1, 2023, the Company entered into that certain Amended and Restated Inventory Financing and Purchase Money Security Agreement with PACCAR Leasing Company (“PLC”), a division of PACCAR Financial Corp.

(the “PLC Agreement”).

Pursuant to the terms of the PLC Agreement, PLC agreed to make up to $300.0 million of revolving credit loans to finance certain of our capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through our PacLease franchises.

On April 9, 2024, the PLC agreement was amended to increase the total loan commitment to $375.0 million.

We may borrow, repay and reborrow amounts pursuant to the PLC Agreement from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the borrowing base.

In addition, we must maintain a minimum balance of $190.0 million.

Advances under the PLC Agreement bear interest per annum, payable on the fifth day of the following month, at our option, at either (A) the prime rate, minus 1.95%, provided that the floating rate of interest is subject to a floor of 0%, or (B) a fixed rate, to be determined between us and PLC in each instance of borrowing at a fixed rate.

The PLC Agreement expires on October 1, 2025, although either party has the right to terminate the PLC Agreement at any time upon 180 days written notice.

If we terminate the PLC Agreement prior to October 1, 2025, then all payments will be deemed to be voluntary prepayments subject to a potential prepayment premium.

On September 30, 2023, we had approximately $150.0 million outstanding under the PLC Agreement.

The PLC Agreement expires on December 1, 2025, although either party has the right to terminate the PLC Agreement at any time upon 180 days written notice.

On March 31, 2024, we had approximately $300.0 million outstanding under the PLC Agreement.

Most of our commercial vehicle purchases are made on terms requiring payment to the manufacturer within 15 to 60 days or less from the date the commercial vehicles are invoiced from the factory.

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This interest-free period is generally 15 to 60 days.

If the commercial vehicle is not sold within the interest-free period, we then finance the commercial vehicle under the Floor Plan Credit Agreement.

On September 14, 2021, we entered into Floor Plan Credit Agreement with BMO Harris and the lenders signatory thereto.

If the commercial vehicle is not sold within the interest-free period, we finance the commercial vehicle under the Floor Plan Credit Agreement.

On September 14, 2021, we entered into the Floor Plan Credit Agreement with BMO Harris and the lenders signatory thereto.

The Floor Plan Credit Agreement includes an aggregate loan commitment of $1.0 billion.

Prior to June 1, 2023, borrowings under the Floor Plan Credit Agreement bore interest at an annual rate equal to (A) the greater of (i) zero and (ii) one month London Interbank Offered Rate (“LIBOR”), determined on the last day of the prior month, plus (B) 1.10% and were payable monthly.

On May 31, 2023, we entered into the First Amendment to the Floor Plan Credit Agreement that changed the benchmark interest rate to Term SOFR, as defined by the First Amendment.

Effective June 1, 2023, borrowings under the Floor Plan Credit Agreement now bear interest per annum, payable monthly, at (A) the greater of (i) zero and (ii) Term SOFR, plus (B) 1.20%.

Prior to June 1, 2023, borrowings under the Floor Plan Credit Agreement bore interest at an annual rate equal to (A) the greater of (i) zero and (ii) one month LIBOR, determined on the last day of the prior month, plus (B) 1.10% and were payable monthly.

On May 31, 2023, we entered into the First Amendment to the Floor Plan Credit Agreement that changed the benchmark interest rate to Term SOFR, as defined in the amendment.

Effective June 1, 2023, borrowings under the Floor Plan Credit Agreement bear interest per annum, payable monthly, at (A) the greater of (i) zero and (ii) Term SOFR, plus (B) 1.20%.

Borrowings under the Floor Plan Credit Agreement for the purchase of used inventory are limited to $150.0 million and loans for working capital purposes are limited to $200.0 million.

The Floor Plan Credit Agreement expires September 14, 2026, although BMO Harris has the right to terminate at any time upon 360 days written notice and we may terminate at any time, subject to specified limited exceptions.

On September 30, 2023, we had approximately $947.7 million outstanding under the Floor Plan Credit Agreement.

The average daily outstanding borrowings under the Floor Plan Credit Agreement were $855.5 million during the nine months ended September 30, 2023.

On March 31, 2024, we had approximately $1.0 billion outstanding under the Floor Plan Credit Agreement.

The average daily outstanding borrowings under the Floor Plan Credit Agreement were $958.3 million during the first three months ended March 31, 2024.

We utilize our excess cash on hand to pay down our outstanding borrowings under the Floor Plan Credit Agreement, and the resulting interest earned is recognized as an offset to our gross interest expense under the Floor Plan Credit Agreement.

On May 31, 2022, RTC Canada entered into that certain BMO Revolving Lease and Rental Credit Agreement (the “RTC Canada Revolving Credit Agreement”) with BMO.

Pursuant to the terms of the RTC Canada Revolving Credit Agreement, BMO agreed to make up to $120.0 million CAD of revolving credit loans to finance certain of RTC Canada’s capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through RTC Canada’s Idealease franchise, with an additional $20.0 million CAD available upon the request of RTC Canada and consent of BMO.

Advances under the RTC Canada Revolving Credit Agreement bear interest per annum, payable on the first business day of each calendar month, at the Canadian Offered Dollar Rate (“CDOR”), plus 1.35%.

On May 31, 2022, RTC Canada entered into that certain BMO Revolving Lease and Rental Credit Agreement (the “RTC Canada Revolving Credit Agreement”) with BMO.

Advances under the RTC Canada Revolving Credit Agreement bear interest per annum, payable on the first business day of each calendar month, at the CDOR, plus 1.35%.

The RTC Canada Revolving Credit Agreement expires September 14, 2026.

On September 30, 2023, we had approximately $71.7 million CAD outstanding under the RTC Canada Revolving Credit Agreement.

On July 15, 2022, RTC Canada entered into that certain Amended and Restated BMO Wholesale Financing and Security Agreement (the “RTC Canada Floor Plan Agreement”) with Bank of Montreal (“BMO”).

Pursuant to the terms of the Agreement, BMO agreed to make up to $116.7 million CAD of revolving credit loans to finance RTC Canada’s purchase of new and used vehicle inventory.

On March 31, 2024, we had approximately $67.4 million CAD outstanding under the RTC Canada Revolving Credit Agreement.

On July 15, 2022, RTC Canada entered into the RTC Canada Floor Plan Agreement with BMO.

Pursuant to the terms of the Agreement, BMO agreed to make up to $116.7 million CAD of revolving credit loans to finance RTC Canada’s purchase of new and used vehicle inventory.

Loans to purchase used vehicle inventory are limited to twenty percent (20%) of the credit limit available at such time.

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Prior to June 1, 2023, advances under the RTC Canada Floor Plan Agreement bore interest per annum, payable on the first business day of each calendar month, at CDOR, plus 0.90% and in the case of an advance required to be made in USD dollars, at LIBOR, plus 1.10%.

On June 1, 2023, RTC Canada entered into the First Amendment to the RTC Canada Floor Plan Agreement that changed the interest rate in the case of an advance required to be made in USD dollars to Term SOFR, as defined by the First Amendment.

Effective June 1, 2023, advances required to be made in USD dollars under the RTC Canada Floor Plan Agreement will now bear interest per annum, payable monthly, at Term SOFR, plus 1.20%.

Effective June 1, 2023, advances required to be made in USD dollars under the RTC Canada Floor Plan Agreement bear interest per annum, payable monthly, at Term SOFR, plus 1.20%.

The RTC Canada Floor Plan Agreement expires September 14, 2026.

On September 30, 2023, we had approximately $67.2 million CAD outstanding under the RTC Canada Floor Plan Agreement.

On September 30, 2023, our backlog of commercial vehicle orders was approximately $3,297.4 million, compared to a backlog of commercial vehicle orders of approximately $3,300.1 million on September 30, 2022.

The flatness of our backlog reflects the allocation decisions of the manufacturers we represent and continued demand associated with production constraints experienced by the manufacturers we represent.

Our backlog is determined quarterly by multiplying the number of new commercial vehicles for each particular type of commercial vehicle ordered by a customer at our Rush Truck Centers by the recent average selling price for that type of commercial vehicle.

On March 31, 2024, we had approximately $72.5 million CAD outstanding under the RTC Canada Floor Plan Agreement.

On March 31, 2024, our backlog of commercial vehicle orders was approximately $2,047.1 million, compared to a backlog of commercial vehicle orders of approximately $4,209.9 million on March 31, 2023.

The decrease in our backlog primarily reflects the decreased demand for new Class 8 trucks resulting from production catching up to pent-up demand caused by limited production over the last few years.

Our backlog is determined quarterly by multiplying the number of new commercial vehicles for each type of commercial vehicle ordered by a customer at our Rush Truck Centers by the recent average selling price for that type of commercial vehicle.

We include only confirmed orders in our backlog.

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In the event of order cancellation, we have no contractual right to the total revenues reflected in our backlog.

The delivery time for a custom-ordered commercial vehicle varies depending on the truck specifications and demand for the particular model ordered.

We sell the majority of our new heavy-duty commercial vehicles by customer special order and we sell the majority of our medium- and light-duty commercial vehicles out of inventory.

Orders from a number of our major fleet customers are included in our backlog as of September 30, 2023, and we expect to fill the majority of our backlog orders during the remainder of 2023 and the first half of 2024, assuming that the manufacturers we represent can meet their current production schedule.

Our current backlog continues to be much higher than normal.

Given the potential for industry headwinds in the coming months caused by lower spot rates and higher interest rates, which could negatively impact industry demand for new commercial vehicles moving forward, we believe that the longer it takes to fill our backlog, the greater the risk that a significant amount of commercial vehicle orders currently reflected in our backlog could be cancelled.

The delivery time for a custom-ordered commercial vehicle varies depending on the truck specifications and demand for the model ordered.

We sell most of our new heavy-duty commercial vehicles by customer special order, and we sell the majority of our medium- and light-duty commercial vehicles out of inventory.

Orders from several of our major fleet customers are included in our backlog as of March 31, 2024, and we expect to fill most of our backlog orders during 2024, assuming that the manufacturers we represent can meet their current production schedule.

Our Truck Segment is moderately seasonal.

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Research, in the last ten years, total U.S.

retail sales of new Class 8 commercial vehicles have ranged from a low of approximately 187,600 in 2013, to a high of approximately 281,440 in 2019. 

Through geographic expansion, concentration on higher margin Aftermarket Products and Services and diversification of our customer base, we have attempted to reduce the negative impact of adverse general economic conditions or cyclical trends affecting the Class 8 commercial vehicle industry on our earnings.

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Furthermore, investigation or remediation may be necessary in the event of leaks or other discharges from current or former underground or aboveground storage tanks.

We may also have liability in connection with materials that were sent to third‑party recycling, treatment, or disposal facilities under the federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and comparable state statutes.

These statutes impose liability for investigation and remediation of environmental impacts without regard to fault or the legality of the conduct that contributed to the impacts.

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Similarly, the federal Clean Air Act and comparable state statutes regulate emissions of various air emissions through permitting programs and the imposition of standards and other requirements.

The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the U.S.

Department of Transportation, issued rules associated with reducing greenhouse gas (“GHG”) emissions and improving the fuel efficiency of medium and heavy-duty trucks and buses for current model years through 2027. 

In addition, in August 2021, the President of the United States issued an executive order intended to increase fuel efficiency, further reduce GHG emissions and speed up the development of “zero-emission”

The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the U.S.

In March 2024, the EPA issued additional rules associated with reducing GHG emissions from medium and heavy-duty trucks and buses for model years 2027 through 2032.

The executive order calls for the EPA and the Secretary of Transportation to adopt new rules and regulations for commercial vehicles starting as early as model year 2027.

Similarly, in June 2020, the California Air Resources Board (“CARB”) adopted a final rule that is intended to phase out the sale of internal combustion engine commercial vehicles over time by requiring a certain percentage of each manufacturer’s commercial vehicles sold within the state to be “zero-emission vehicles,”

or “near-zero emission vehicles,”

starting in model year 2024.

In July 2023, CARB and various manufacturers of heavy-duty commercial vehicles and engines, including PACCAR, Navistar, Ford, Hino, Isuzu and Cummins, entered into the Clean Truck Partnership, whereby the manufacturers agreed to comply with CARB’s emission requirements where applicable, regardless of whether any entity challenges CARB’s rule-making authority, and CARB agreed to work with manufacturers to provide reasonable lead time to meet CARB’s requirements and before imposing new regulations.

In addition, CARB agreed to align its nitrogen oxide emissions rules with the EPA’s, which go into effect starting in model year 2027, and modify certain of its 2024 nitrogen oxide emissions regulations for which manufacturers will provide offsets as needed to meet California’s emission targets.

Since July 2020, a group of eighteen U.S.

states and the District of Columbia have entered into a joint memorandum of understanding that adopts at least a portion of CARB’s emissions regulations and commits each of them to work together to advance and accelerate the market for electric Class 3 through 8 commercial vehicles.

Similarly, in June 2020, CARB adopted a final rule that is intended to phase out the sale of internal combustion engine commercial vehicles over time by requiring a certain percentage of each manufacturer’s commercial vehicles sold within the state to be “zero-emission vehicles,” or “near-zero emission vehicles,” starting in model year 2024.

In addition, CARB agreed to align its nitrogen oxide emissions rules with the EPA’s, which go into effect starting in model year 2027, and modify certain of its 2024 nitrogen oxide emissions regulations currently in effect, with respect to which manufacturers may provide certain offsets to meet CARB’s emission target in exchange for the ability to sell legacy engines.

Since July 2020, a group of seventeen U.S.

Six of the states are states where we operate new commercial vehicle dealerships:

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Attaining these goals would likely require the adoption of new laws and regulations and we cannot predict at this time whether such laws and regulations would have an adverse impact on our business.

Additional regulations could result in increased compliance costs, additional operating restrictions or changes in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.

Additional regulations, or CARB’s enforcement of its existing regulations, could result in increased compliance costs, additional operating restrictions, or changes in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.

We do not believe that we currently have any material environmental liabilities or that compliance with environmental laws and regulations will have a material adverse effect on our results of operations, financial condition, or cash flows.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements