10-Q 1 rusha20230930_10q.htm FORM 10-Q rusha20230930_10q.htm
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________________ to _______________________

 

Commission File Number 0-20797

 

RUSH ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

Texas 74-1733016

(State or other jurisdiction of

(I.R.S. Employer Identification No.)
incorporation or organization)  

 

555 I.H. 35 South, Suite 500

New Braunfels, Texas 78130

(Address of principal executive offices)

(Zip Code)

 

(830) 302-5200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑                  No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑                  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer ☐ Non-accelerated filer ☐ Smaller Reporting company
       
      Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                             

Yes                   No ☑

 

Indicated below is the number of shares outstanding of each of the issuer’s classes of common stock, as of October 31, 2023.

 

    Number of Shares
Title of Class   Outstanding
Class A Common Stock, $.01 Par Value   61,599,412
Class A Common Stock, $.01 Par Value   17,890,941

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value

RUSHA

NASDAQ Global Select Market

Class B Common Stock, $0.01 par value

RUSHB

NASDAQ Global Select Market

 

 

 
 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

 

INDEX

 

PART I.  FINANCIAL INFORMATION  Page
       
  Item 1. Financial Statements  
       
    Consolidated Balance Sheets - September 30, 2023 (unaudited) and December 31, 2022 3
       
   

Consolidated Statements of Income - For the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

4
       
   

Consolidated Statements of Comprehensive Income - For the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

5
       
   

Consolidated Statements of Shareholders’ Equity – For the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

6
       
   

Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2023 and 2022 (unaudited)

8
       
    Notes to Consolidated Financial Statements (unaudited) 9
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  15
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk  27
       
  Item 4. Controls and Procedures 27
       
PART II.  OTHER INFORMATION  
       
  Item 1. Legal Proceedings 28
       
  Item 1A. Risk Factors 28
       
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 28
       
  Item 3. Defaults Upon Senior Securities 28
       
  Item 4. Mine Safety Disclosures 28
       
  Item 5. Other Information 29
       
  Item 6. Exhibits 29
       
SIGNATURES 30

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Shares)

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 
   

(unaudited)

         
Assets                

Current assets:

               

Cash, cash equivalents and restricted cash

  $ 191,988     $ 201,044  

Accounts receivable, net

    263,480       220,651  

Inventories, net

    1,671,623       1,429,429  

Prepaid expenses and other

    18,690       16,619  

Total current assets

    2,145,781       1,867,743  

Property and equipment, net

    1,474,662       1,368,594  

Operating lease right-of-use assets, net

    107,406       102,685  

Goodwill, net

    416,420       416,363  

Other assets, net

    73,784       65,681  

Total assets

  $ 4,218,053     $ 3,821,066  
                 

Liabilities and shareholders equity

               

Current liabilities:

               

Floor plan notes payable

  $ 1,121,490     $ 933,203  

Current maturities of long-term debt

    104,778        

Current maturities of finance lease obligations

    36,128       29,209  

Current maturities of operating lease obligations

    15,892       15,003  

Trade accounts payable

    177,142       171,717  

Customer deposits

    102,900       116,240  

Accrued expenses

    161,786       163,302  

Total current liabilities

    1,720,116       1,428,674  

Long-term debt, net of current maturities

    202,824       275,433  

Finance lease obligations, net of current maturities

    103,513       93,483  

Operating lease obligations, net of current maturities

    93,193       89,029  

Other long-term liabilities

    23,856       19,455  

Deferred income taxes, net

    155,468       151,970  

Shareholders’ equity:

               

Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2023 and 2022

           

Common stock, par value $.01 per share; 105,000,000 Class A shares and 35,000,000 Class B shares authorized; 62,053,249 Class A shares and 17,989,388 Class B shares outstanding in 2023; and 63,518,042 Class A shares and 18,124,627 Class B shares outstanding in 2022

    804       572  

Additional paid-in capital

    533,648       500,642  

Treasury stock, at cost: 266,519 Class A shares and 105,924 Class B shares in 2023; and 1,626,777 Class A shares and 1,112,446 Class B shares in 2022

    (16,169 )     (130,930 )

Retained earnings

    1,385,646       1,378,337  

Accumulated other comprehensive income (loss)

    (4,317 )     (4,130 )

Total Rush Enterprises, Inc. shareholders’ equity

    1,899,612       1,744,491  

Noncontrolling interest

    19,471       18,531  

Total shareholders’ equity

    1,919,083       1,763,022  

Total liabilities and shareholders equity

  $ 4,218,053     $ 3,821,066  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Revenues

                               

New and used commercial vehicle sales

  $ 1,235,767     $ 1,142,201     $ 3,648,286     $ 3,176,175  

Aftermarket products and services sales

    643,623       622,130       1,942,979       1,763,691  

Lease and rental sales

    89,466       85,688       264,681       237,561  

Finance and insurance

    6,317       7,639       19,077       22,919  

Other

    5,567       6,628       20,536       18,383  

Total revenue

    1,980,740       1,864,286       5,895,559       5,218,729  
Cost of products sold                                

New and used commercial vehicle sales

    1,113,294       1,045,658       3,287,998       2,875,057  

Aftermarket products and services sales

    410,935       378,748       1,216,441       1,080,240  

Lease and rental sales

    62,106       58,482       184,098       162,378  

Total cost of products sold

    1,586,335       1,482,888       4,688,537       4,117,675  

Gross profit

    394,405       381,398       1,207,022       1,101,054  

Selling, general and administrative expense

    257,132       242,609       770,631       692,383  

Depreciation and amortization expense

    15,872       13,961       44,731       41,545  

Gain on sale of assets

    220       2,209       596       2,433  

Operating income

    121,621       127,037       392,256       369,559  

Other income (expense)

    133       (215 )     2,384       22,182  

Interest expense, net

    14,194       6,275       37,415       10,662  

Income before taxes

    107,560       120,547       357,225       381,079  

Income tax provision

    26,926       29,884       87,277       87,290  

Net income

    80,634       90,663       269,948       293,789  

Less: Net income attributable to noncontrolling interest

    356       287       940       733  

Net income attributable to Rush Enterprises, Inc.

  $ 80,278     $ 90,376     $ 269,008     $ 293,056  
                                 

Net income attributable to Rush Enterprises, Inc. per share of common stock:

                               

Basic

  $ 0.99     $ 1.09     $ 3.30     $ 3.51  

Diluted

  $ 0.96     $ 1.06     $ 3.19     $ 3.41  
                                 

Weighted average shares outstanding:

                               

Basic

    81,229       82,848       81,629       83,401  

Diluted

    83,987       85,313       84,251       86,045  
                                 

Dividends declared per common share

  $ 0.17     $ 0.14     $ 0.45     $ 0.39  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net income

  $ 80,634     $ 90,663     $ 269,948     $ 293,789  

Other comprehensive income (loss), net of tax:

                               

Foreign currency translation

    (2,108 )     (5,701 )     (187 )     (5,823 )

Reclassification of currency translation related to equity method accounting

                      (601 )

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

    (2,108 )     (5,701 )     (187 )     (6,424 )

Comprehensive income

  $ 78,526     $ 84,962     $ 269,761     $ 287,365  

Less: Comprehensive income attributable to noncontrolling interest

    356       287       940       733  

Comprehensive income attributable to Rush Enterprises, Inc.

  $ 78,170     $ 84,675     $ 268,821     $ 286,632  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(In Thousands)

(Unaudited)

 

   

Common Stock

Shares

Outstanding

   

$0.01

Par

   

Additional

Paid -In

   

Treasury

   

Retained

   

Accumulated

Other

Comprehensive

   

Total

Rush

Enterprises,

Inc.

Shareholders’

   

Noncontrolling

   

Total

Shareholders’

 
   

Class A

    Class B     Value     Capital     Stock     Earnings     Income (Loss)     Equity     Interest     Equity  

Balance, December 31, 2022

    63,518       18,125     $ 572     $ 500,642     $ (130,930 )   $ 1,378,337     $ (4,130 )   $ 1,744,491     $ 18,531     $ 1,763,022  

Stock options exercised and stock awards

    228             2       3,412                         3,414             3,414  

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

                      13,080                         13,080             13,080  

Vesting of restricted share awards

          422       3       (6,964 )                       (6,961 )           (6,961 )

Issuance of common stock under employee stock purchase plan

    102                   2,828                         2,828             2,828  

Common stock repurchases

    (623 )     (84 )                 (25,280 )                 (25,280 )           (25,280 )

Cash dividends declared on Class A common stock

                                  (8,897 )           (8,897 )           (8,897 )

Cash dividends declared on Class B common stock

                                  (2,692 )           (2,692 )           (2,692 )

Foreign currency translation adjustment

                                        232       232             232  

Net income

                                  90,455             90,455       335       90,790  

Balance, March 31, 2023

    63,225       18,463     $ 577     $ 512,998     $ (156,210 )   $ 1,457,203     $ (3,898 )   $ 1,810,670     $ 18,866     $ 1,829,536  

Stock options exercised and stock awards

    237             1       3,479                         3,480             3,480  

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

                      5,952                         5,952             5,952  

Vesting of restricted share awards

                      (54 )                       (54 )           (54 )

Common stock repurchases

    (890 )     (195 )                 (40,305 )                 (40,305 )           (40,305 )

Cash dividends declared on Class A common stock

                                  (8,812 )           (8,812 )           (8,812 )

Cash dividends declared on Class B common stock

                                  (2,725 )           (2,725 )           (2,725 )

Foreign currency translation adjustment

                                        1,689       1,689             1,689  

Net income

                                  98,275             98,275       249       98,524  

Balance, June 30, 2023

    62,572       18,268     $ 578     $ 522,375     $ (196,515 )   $ 1,543,941     $ (2,209 )   $ 1,868,170     $ 19,115     $ 1,887,285  

Stock options exercised and stock awards

    124             1       1,888                         1,889             1,889  

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

                      6,265                         6,265             6,265  

Issuance of common stock under employee stock purchase plan

    107             1       3,123                         3,124             3,124  

Common stock repurchases

    (750 )     (279 )                 (44,174 )                 (44,174 )           (44,174 )

Retirement of treasury shares and par value adjustment

                224       (3 )     224,520       (224,744 )             (3 )             (3 )

Cash dividends declared on Class A common stock

                                  (10,574 )           (10,574 )           (10,574 )

Cash dividends declared on Class B common stock

                                  (3,255 )           (3,255 )           (3,255 )

Foreign currency translation adjustment

                                        (2,108 )     (2,108 )           (2,108 )

Net income

                                  80,278             80,278       356       80,634  

Balance, September 30, 2023

    62,053       17,989     $ 804     $ 533,648     $ (16,169 )   $ 1,385,646     $ (4,317 )   $ 1,899,612     $ 19,471     $ 1,919,083  

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (continued)

(In Thousands)

(Unaudited)

 

    Common Stock

Shares

Outstanding

   

$0.01 Par

   

Additional

Paid -In

   

Treasury

   

Retained

   

Accumulated

Other

Comprehensive

   

Total

Rush Enterprises, Inc.

Shareholders’

   

Noncontrolling

   

Total

Shareholders’

 
    Class A     Class B     Value     Capital     Stock     Earnings     Income (Loss)     Equity     Interest     Equity  

Balance, December 31, 2021

    64,662       18,598     $ 563     $ 470,750     $ (36,933 )   $ 1,031,582     $ 787     $ 1,466,749           $ 1,466,749  

Stock options exercised and stock awards

    168             1       2,384                         2,385             2,385  

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

                      13,793                         13,793             13,793  

Vesting of restricted share awards

          454       3       (7,215 )                       (7,212 )           (7,212 )

Issuance of common stock under employee stock purchase plan

    99             1       2,434                         2,435             2,435  

Common stock repurchases

    (288 )     (157 )                 (15,315 )                 (15,315 )           (15,315 )

Dividend Class A common stock

                                  (8,189 )  

––

      (8,189 )           (8,189 )

Dividend Class B common stock

                                  (2,505 )  

––

      (2,505 )           (2,505 )

Foreign currency translation adjustment

                                        445       445             445  

Net income

                                  92,453             92,453             92,453  

Balance, March 31, 2022

    64,641       18,895     $ 568     $ 482,146     $ (52,248 )   $ 1,113,341     $ 1,232     $ 1,545,039           $ 1,545,039  

Stock options exercised and stock awards

    244             2       3,244                         3,246             3,246  

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

                      4,203                         4,203             4,203  

Vesting of restricted share awards

                      (1,423 )                       (1,423 )           (1,423 )

Common stock repurchases

    (673 )     (496 )                 (38,438 )                 (38,438 )           (38,438 )

Dividend Class A common stock

                                  (8,128 )  

––

      (8,128 )           (8,128 )

Dividend Class B common stock

                                  (2,521 )  

––

      (2,521 )           (2,521 )

Foreign currency translation adjustment

                                        (567 )     (567 )           (567 )

Reclassification of foreign currency translation related to equity method

                                        (601 )     (601 )           (601 )

Noncontrolling interest equity

                                                    17,828       17,828  

Net income

                                  110,227             110,227       446       110,673  

Balance, June 30, 2022

    64,212       18,399     $ 570     $ 488,170     $ (90,686 )   $ 1,212,919     $ 64     $ 1,611,037     $ 18,274     $ 1,629,311  

Stock options exercised and stock awards

    16                   227                         227             227  

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

                      3,554                         3,554             3,554  

Vesting of restricted share awards

          3             (31 )                       (31 )           (31 )

Issuance of common stock under employee stock purchase plan

    102             1       2,783                               2,784               2,784  

Common stock repurchases

    (769 )     (264 )                 (33,095 )                 (33,095 )           (33,095 )

Dividend Class A common stock

                                  (8,995 )  

––

      (8,995 )           (8,995 )

Dividend Class B common stock

                                  (2,698 )  

––

      (2,698 )           (2,698 )

Foreign currency translation adjustment

                                        (5,701 )     (5,701 )           (5,701 )

Net income

                                  90,376             90,376       287       90,663  

Balance, September 30, 2022

    63,561       18,138     $ 571     $ 494,703     $ (123,781 )   $ 1,291,602     $ (5,637 )   $ 1,657,458     $ 18,561     $ 1,676,019  

 

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

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 
   

2023

   

2022

 
Cash flows from operating activities:                

Net income

  $ 269,948     $ 293,789  
Adjustments to reconcile net income to net cash provided by operating activities:                

Depreciation and amortization

    165,145       146,477  

Gain on sale of property and equipment

    (596 )     (2,433 )

Gain on joint venture transaction

          (12,500 )

Gain on business acquisition

          (6,958 )

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

    25,297       21,550  

Provision for deferred income tax expense

    3,508       7,921  

Change in accounts receivable, net

    (42,822 )     (75,066 )

Change in inventories, net

    (193,668 )     (264,687 )

Change in prepaid expenses and other, net

    (2,078 )     875  

Change in trade accounts payable

    4,576       44,069  

Change in customer deposits

    (13,334 )     9,650  

Change in accrued expenses

    (4,086 )     25,464  

Other, net

    (831 )     (4,832 )

Net cash provided by operating activities

    211,059       183,319  
Cash flows from investing activities:                

Acquisition of property and equipment

    (289,079 )     (175,243 )

Proceeds from the sale of property and equipment

    1,890       7,014  

Business disposition

          27,500  

Business acquisition, net of cash acquired

          (15,754 )

Other

    (3,765 )     (11,691 )

Net cash used in investing activities

    (290,954 )     (168,174 )
Cash flows from financing activities:                

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

    188,420       277,261  

Proceeds from long-term debt

    995,081       695,169  

Principal payments on long-term debt

    (962,792 )     (788,757 )

Principal payments on finance lease obligations

    (13,447 )     (11,091 )

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

    14,734       11,080  

Taxes paid related to net share settlement of equity awards

    (7,017 )     (8,669 )

Payments of cash dividends

    (37,097 )     (33,123 )

Common stock repurchased

    (107,037 )     (85,270 )

Net cash provided by financing activities

    70,845       56,600  

Net (decrease) increase in cash, cash equivalents and restricted cash

    (9,050 )     71,745  

Effect of exchange rate on cash

    (6 )     (372 )

Cash, cash equivalents and restricted cash, beginning of period

    201,044       148,146  

Cash, cash equivalents and restricted cash, end of period

  $ 191,988     $ 219,519  
Supplemental disclosure of cash flow information:                

Cash paid during the period for:

               

Interest

  $ 40,233     $ 12,966  

Income taxes, net of refunds

  $ 80,759     $ 74,320  
Noncash investing and financing activities:                

Assets acquired under finance leases

  $ 40,144     $ 14,290  

 

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

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1 Principles of Consolidation and Basis of Presentation

 

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. 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.

 

Stock Split

 

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. 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).

 

 

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.

 

 

 

3 Earnings Per Share

 

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share information):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Numerator:

                               

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

  $ 80,278     $ 90,376     $ 269,008     $ 293,056  

Denominator:

                               

Denominator for basic earnings per share – weighted average shares outstanding

    81,229       82,848       81,629       83,401  

Effect of dilutive securities – Employee and director stock options and restricted share awards

    2,758       2,465       2,622       2,644  

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

    83,987       85,313       84,251       86,045  

Basic earnings per common share

  $ 0.99     $ 1.09     $ 3.30     $ 3.51  

Diluted earnings per common share and common share equivalents

  $ 0.96     $ 1.06     $ 3.19     $ 3.41  

 

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):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Weighted average anti-dilutive options

    1,079       1,500       1,353       1,261  

 

 

4 Stock Options and Restricted Stock Awards

 

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.

 

 

5 Financial Instruments and Fair Value

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis. 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 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. Thus, the carrying amount of such debt approximates fair value.

 

 

6 Segment Information

 

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; and financial services, including the financing of new and used commercial vehicle purchases, insurance products and truck leasing and rentals. 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. These segments include a retail tire company, an insurance agency and a guest ranch operation and are included in the All Other column below. None of these segments has ever met any of the quantitative thresholds for determining reportable segments.

 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. 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):

 

   

Truck

Segment

   

All Other

   

Total

 
                         

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

                       
                         

Revenues from external customers

  $ 1,976,395     $ 4,345     $ 1,980,740  

Segment operating income

    121,675       (54 )     121,621  

Segment income before taxes

    107,614       (54 )     107,560  

Segment assets

    4,163,261       54,792       4,218,053  
                         

For the nine months ended September 30, 2023

                       
                         

Revenues from external customers

  $ 5,883,127     $ 12,432     $ 5,895,559  

Segment operating income

    391,870       386       392,256  

Segment income before taxes

    356,839       386       357,225  
                         

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

                       
                         

Revenues from external customers

  $ 1,859,823     $ 4,463     $ 1,864,286  

Segment operating income

    126,770       267       127,037  

Segment income before taxes

    120,373       174       120,547  

Segment assets

    3,688,151       54,428       3,742,579  
                         

For the nine months ended September 30, 2022

                       
                         

Revenues from external customers

  $ 5,205,802     $ 12,927     $ 5,218,729  

Segment operating income

    368,596       963       369,559  

Segment income before taxes

    380,397       682       381,079  

 

 

 

7 Income 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. 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. 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.

 

 

8 Revenue

 

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):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Commercial vehicle sales revenue

  $ 1,235,767     $ 1,142,201     $ 3,648,286     $ 3,176,175  

Parts revenue

    376,183       373,207       1,141,081       1,080,552  

Commercial vehicle repair service revenue

    267,440       248,923       801,898       683,139  

Finance revenue

    2,869       4,113       9,369       13,211  

Insurance revenue

    3,448       3,526       9,708       9,708  

Other revenue

    5,567       6,628       20,536       18,383  

Total

  $ 1,891,274     $ 1,778,598     $ 5,630,878     $ 4,981,168  

 

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.

 

 

9 Leases

 

Lease of Vehicles as Lessor

 

The Company primarily leases commercial vehicles that the Company owns to customers primarily over periods of one to ten years. The Company does not separate lease and nonlease components. Nonlease components typically consist of maintenance and licensing for the commercial vehicle. The variable nonlease components are generally based on mileage. 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):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Minimum rental payments

  $ 77,685     $ 73,797     $ 229,276     $ 205,070  

Nonlease payments

    11,781       11,891       35,405       32,491  

Total

  $ 89,466     $ 85,688     $ 264,681     $ 237,561  

 

 

10 Accumulated Other Comprehensive Income (Loss)

 

The following table shows the components of accumulated other comprehensive income (loss) (in thousands):

 

Balance as of December 31, 2022

  $ (4,130 )

Foreign currency translation adjustment