Asbury Automotive Group Inc (ABG) 2006 Q1 法說會逐字稿

Good day and welcome, everyone, to the Asbury Automotive Group quarterly earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Ms. Stacey Yonkus.

Good morning, everybody, and thanks for joining us today. As you know, this morning we reported our first-quarter earnings. The press release is posted to our Website at Asburyauto.com. If you don't have access to the Web or if you'd like a copy of the release faxed or e-mailed to you, please contact [Gail Saladigo] at our corporate office. Gail can be reached at 212-885-2520; she'll get you a copy right away.

Before we start I just want to remind everybody that the conference call today will include some forward-looking statements that are subject to certain risks and uncertainties, which are detailed in the Company's 2005 10-K report, as well as other filings we have with the SEC. In addition, certain non-GAAP financial measures as defined by the SEC may be discussed in this call. To comply with SEC rules, reconciliations of non-GAAP financial measures have been attached to this morning's release and will also be posted to our Website under the Company's investor relations section. We will also from time to time update the Website with additional financial information. Any interested investors should check the site periodically for such information.

The purpose of today's call is to discuss Asbury's first-quarter results. Today's agenda will be as follows. Ken Gilman, our President and CEO, will begin with a few overview comments; then Gordon Smith, our CFO will provide everyone with some financial highlights. After that, Ken well have a few concluding remarks, and then, as always, will be happy to entertain any questions you might have. Ken?

Thanks, Stacey. Good morning to everyone and thanks for joining us today. This is our sixth quarter in a row where we've posted strong results, results that have exceeded the Street's expectations, so it's certainly a pleasure to be talking with you this morning.

Our earnings from continuing operations for the quarter are up 38% on a GAAP basis and 19%, excluding the expenses related to our regional reorganization a year ago and the impact of stock-based compensation this year.

What I think is particularly noteworthy is that we achieved this in the face of substantial headwind in the form of higher interest rates. In fact, if you take into account the notable increases in interest rates since last year, Asbury's bottom line is even more impressive. For example, if rates had held flat -- of course you could say for example, if I had wheels I could be a trolley, but we'll just go through this -- if rates had held flat, and comparing this year's first quarter against last year's with the same adjustments previously noted -- that is restructuring last year, stock-based compensation this year -- EPS from continuing operations would have been up an additional 8/10 per share, or 38% overall. This exceptional performance is a function of our strong same-store gross profit increases, leveraged by significant improvement in our expense ratios, which Gordon will speak to in a few minutes. It also highlights Asbury's earnings potential once interest rate increases slow down or even stop altogether.

Our dealerships overall are performing very well, despite a retail environment that remains relatively challenging. The way I see it, it really comes down to executing against the basics of automotive retailing -- the balanced retail and services business model we keep talking about, and we will continue to talk about. We can't control the overall ups and downs of the new car market and the factory incentive wars, but there is a lot we can do and have been doing to improve our performance, specifically in used cars and fixed operations.

But starting at the top of the P&L structure, in new cars we again outperformed the market with a 2% same-store increase in new retail units. This is attributable to our superior brand mix, which, as you know, emphasizes mid-line import luxury nameplates -- segments of the market that continue to gain market share. In addition, our new vehicles sold at a slightly higher average price this year, so new vehicle revenue rose 4% on a same-store basis, and at a higher average gross profit rate per vehicle. So, rolling it all together, doing the math, overall new car gross profit was up 7% on a same-store basis.

My view is that we had a pretty good quarter in new cars. Having said that, I would not say that we are anticipating any fundamental change in the long-term story of downward pressure on new vehicle gross margins. There is still too much excess capacity on the manufacturing side for the equation to change meaningfully anytime soon. It doesn't mean the equation won't change, but we're not anticipating anything soon. And we'll all know, as the OEMs adjust their factory capacity, when to anticipate some likely change.

In used vehicles, we reported a 14% increase in same-store gross profit for the quarter. We are continuing to benefit from the creation a few years ago of regional used car teams. With their help, we are simply doing a better job merchandising the used business, trading for and buying used cars and optimizing our inventory mix. We achieved a 14% same-store gross with only a 3% increase in unit sales, due to a 40 basis point improvement in our used gross profit rate.

In parts and service, fixed operations, we continue to benefit from our investments in additional capacity and new equipment and in people, both by adding people and through stronger, more consistent training programs. During 2005 we added about 70 service stalls and we'll be adding another 25 to 30 this year. We hired about 100 new service technicians last year, and we'll match that number again this year.

For the quarter, we achieved an 8% increase in same-store gross profit and fixed operations. Our margin percent was down a bit -- and this I want to emphasize -- that that was a planned function of our increased focus on generating customer pay business. We are successfully building our fixed business, which is driving growth and dollar profits. But the way we are approaching it, it does tend to start with some level of lower-margin customer pay work. Of course it's absolute dollars, not margin rate that we bring to the bank. So, we'll take that planned trade-off, percent for dollars, any day.

In finance and insurance we experienced a 2% drop in same-store revenue and a 4% decline in dealership F&I PVR. I view the slight drop in our F&I PVR during the quarter as temporary. We have recently negotiated the pricing of certain of our service products, and I expect that our F&I will grow at a measured pace throughout the remainder of the year.

At this point I'm going to stop my remarks; turn the call over to Gordon to review the numbers in greater detail.

Thanks, Ken. Good morning, everyone. As Ken mentioned, the first quarter of 2006 was yet another successful quarter for Asbury from an operatings perspective. Many of the programs we put in place last year to drive gross profit growth, as well as our regional reorganization that reduced cost and improved efficiency, continued to have a substantial impact on the bottom line.

Income from continuing operations for the quarter, excluding stock-based compensation, was 14.5 million, or $0.43 per diluted share, versus 9.9 million last year, or $0.30 per share. Viewing our results from an operational perspective requires an add-back to last year's quarter of 2.3 million after-tax to eliminate the cost of our regional restructuring. Considering this adjustment, we achieved income from continuing operations growth of 20% for the quarter. And yet, it does bear repeating that this performance was achieved in the face of rising interest rates, which were up 200 basis points versus last year. We estimate that if rates were held constant with last year, our income from continuing operations growth would have topped more than 40%.

We achieved this performance during a period of time when the headlines of automotive publications have reported that dealership profits are at a five-year low. What it comes down to is execution and brand mix. Our consistent performance has proven that we have the right brands and we have successfully implemented our initiatives in both expanding the business and controlling expenses.

Taking a broad look at the business, we are able to further leverage our cost structure through driving 6% organic sales growth. The growth in the business, coupled with our focus on expense control, resulted in a 3% operating income to sales ratio, an impressive 10% improvement over last year.

With respect to organic sales growth, we achieved 4% growth in new vehicle revenue, 9% growth in used retail vehicle revenue, and a 10% growth in fixed operating revenue. As I mentioned, a disciplined focus on expense control played a critical role in achieving our results. Specifically, we have enjoyed the cost savings resulting from our regional reorganization, which have substantially decreased our fixed cost structure. In addition, our regional (indiscernible) teams have reduced the level of traditional advertising spend and continue to look for new and innovative ways to drive sales volumes while controlling advertising dollars.

All of our general managers have embraced the power of the Internet as a marketing and sales tool. For the quarter, over 8000 of our vehicle sales originated from Internet leads, comprising 21% of same-store retail vehicle sales, up from 17% last year. In addition, our regional operators have found (indiscernible) with alternative forms of advertising media, such as television infomercials, which have served to drive our used vehicle sales. The impact of these and other advertising initiatives have been impressive, resulting in a 10% reduction in the advertising per vehicle retail, without sacrificing market share. Overall, our SG&A expense ratio for the quarter was 77.7%, a 180 basis point improvement over last year.

We continued to focus on inventory management and have successfully lowered our average days supply for the quarter by 4% to 73 days. As of March, our days supply was consistent with last year at 66 days. By category, luxury brands were 53 days, versus 56 days last March, and luxury inventory increased slightly from last March to 143 million. Mid-line import brands improved two days from last March to 52 days. Mid-line import inventory was relatively flat with last March on a comp store basis, and totaled 194 million. And Mid-line domestic brands were 115 days versus 112 days last March. Our domestic inventory was down 5% on a comp store basis and totaled 170 -- (indiscernible) in March. Used vehicle days supply was flat with last March at 47 days.

Our operations continue to generate substantial levels of cash flow, with continuing operations EBITDA of 39 million excluding stock-based comps, a 16% increase from first quarter of last year. We have improved our continual [op] to EBITDA margin 20 basis points to 2.8%, despite a 40% increase in [floor plan] expense. Taking a look at our capital expenditures for the quarter, project maintenance-related CapEx totaled 12 million, of which approximately 6 million will be financed. We expect that our CapEx spend for 2006 will total between 70 and 80 million, and we plan to finance about 60% of our expenditures.

In April we sold our remaining two Portland stores for cash proceeds of $15 million, completing our exit of the Portland market. We will recognize an after-tax gain of approximately 2 million on the sale of these stores in the second quarter. Taking these gains into consideration, we do not expect that discontinued operations will negatively impact our net income for the year.

Our portfolio is now in very good shape. Only three stand-alone stores are currently not profitable, two of which are currently impacted by construction projects, and one of which is located on strategic real estate. This puts us in excellent position versus an industry that currently has one in four stores losing money, according to Automotive News.

Taking a quick look at the balance sheet, our debt to total capital ratio improved another 90 basis points to 46.7%, due to the strength of our first-quarter earnings. Our capital structure is solid. Over 90% of our debt is fixed rate maturing in 2012 or later. During the quarter we adjusted our floor plan and revolving credit facility slightly, adding Chrysler to the floor plan facility and reducing our revolver by 25 million to 125 million. We do not have any amounts outstanding under the credit facility at this time.

Looking forward for the remainder of the year, we expect that interest rates will continue to impact our bottom line. Based on our models, which assume that the Fed Fund rates will be 5% by May, we estimate that the increased rates will have an additional $0.07 impact on the bottom line. In total for 2006 we estimate that increase in interest rates will have a $0.15 impact. In addition, the expiration of the fixed to floating rate swap in March will result in an incremental interest expense of approximately $0.08.

Based on our strong first-quarter performance, we now expect that the business will deliver between $1.90 and $1.95 of EPS in 2006, excluding the cost of stock-based compensation of about $0.10. There is some sensitivity in this (indiscernible) with respect to interest rates, as it assumes that the Fed Fund rate will max out in May at 5%. Any further increase by the Fed will have a muted impact as it will be in the second half of the year. For example, we estimate that two additional Fed Fund increases by the end of the third quarter, bringing premium rates to 5.5%, would have less than a $0.03 impact per share.

With that I will turn the call back to Ken.

Thanks, Gordon. Now I'd like to take a few minutes just to discuss some of our regional highlights. But first, I would like to report that Asbury's home office softball team lost their first game of the season last night. But I'm confident that they will end the season with a league-winning average, much the same as Asbury has had industry-leading results for the last six quarters.

Our West region, which encompasses California and Texas, and is under the leadership of Tom McCollum, was clearly the standout performer during the quarter. In California this week we are celebrating the official grand opening of our Spirit Honda, which, as we have mentioned before, sits directly opposite the world's largest-selling Toyota store. Spirit's gross profit and operating income this past quarter were both substantially better than we had budgeted. And overall, under the direction of Dan Herwaldt in Northern California, profits were up dramatically in Northern California from a year ago.

In Texas, where we've been doing extremely well of late, this quarter was exceptionally strong. We posted solid same-store gains across all four business lines, as well as a strong increase in bottom-line performance. Our new Honda store in Frisco, Texas continues to ramp up and is performing exceptionally well, with especially strong growth in used vehicles and fixed operations. Texas has also done a great job finding more creative and tactful ways to approach advertising, cutting back on traditional print advertising.

Our Florida region, the Company's biggest overall revenue and profit generator, continues to perform well, with low double-digit gains in operating income for the quarter. Our South region, which encompasses our old Arkansas and Atlanta platforms, had a solid performance during the quarter in its used car business. They posted same-store double-digit gains in both used units and revenue, as well as high single-digit gains in gross profit.

Turning to acquisitions, as we've indicated in our last few conference calls, the pace has slowed down a bit. We currently expect 2006 to come in below our target range, which, as you know, is 300 million in annually acquired revenues. As you know, we continue to be very selective in terms of the brands and locations we are willing to consider.

In terms of concluding remarks, we think our performance over the last couple of years confirms the soundness of our operating strategy. You've heard me say it before, and I don't get tired of saying it -- Asbury has the right brands and the right markets. We generate almost 80% of our new passenger vehicle unit sales from luxury and mid-line import nameplates, which we believe are going to continue gaining market share.

In addition, a significant majority of our dealerships are located in regional markets with strong demographic trends, above-average population and economic growth, to be specific. We have also got some of the best GMs in the business, which is critical to success in automotive retailing.

In the face of a fairly static and highly competitive new car market, we are continuing to generate solid revenue and gross profit increases in our dealerships by focusing on our service businesses and used vehicles. We also have been doing a better job over the last couple of years in controlling expenses, as Gordon indicated, and leveraging our profit growth.

Finally, we have a prudent, relatively low-risk acquisition strategy, focused primarily on tuck-in acquisitions in existing markets.

So, overall we continue to believe that Asbury has a very bright future in terms of prospects for long-term growth. All the necessary ingredients are there and we simply need to continue executing, and I'm confident that we will.

One last point. During Q&A, please don't ask questions about recent rumors regarding Asbury's future as we don't comment on rumors. With that I would like to turn the call back over to the operator, and Gordon and I will be happy to take your questions.

(OPERATOR INSTRUCTIONS). Rick Nelson, Stephens.

Really nice quarter. Ken, was (indiscernible) back-end loaded quarter for you, too, as we're hearing from the other dealers? And any comments on April would be helpful, too.

I've read all of the transcripts so far for the calls, and it's pretty much the same. January was weak. We ended the year strong in December. January was a little softer, and it built, and March was really -- and it very (indiscernible) gangbusters at the end. The first weekend in April, which was really a continuation of March, was good; then it sort of dips down for tax day. And I have expectations that it will end on plan.

Maybe a little difference in some of our competitors, but ours was -- last year was a little bit more lumpy than this year. January last year was very weak, and really was accelerated in March. Whereas this year, while it's one of our slowest months, but it was still much stronger than previous years. So, it was a little bit easier on the help this quarter than it was last year.

Thank you for that. I know you mentioned same-store units were up 2%. Do you have the breakdown between foreign and domestic in that -- with that figure?

I think Gordon might have that.

In terms of unit sales?

Yes.

(indiscernible) looking at same-store, right? I've got it at luxury, mid-line imports and domestic. From a luxury perspective, we were up -- up about 4% in luxury, 4% in mid-line import. And domestics were down about 6%.

Right in line with the industry, I would think.

It was pretty much aligned. Just overall, the markets we are in seemed to have been a little weaker than the industry as an average. But we offset it with increased share in those markets. We were up about 20 points in overall market share in our markets. But this seems to be a little bit weaker than total customer.

Good performance on the used car side. I'm wondering what sort of processes or systems are driving that.

As you know, a couple of years ago we put in some new software, and we've got used car teams, and I think it's just lead to better merchandising. I also think that the market that we are in, which is -- can be very treacherous if you are not very sharp in terms of how you're appraising trades, and what you retain to retail and recondition in retail, puts great risk and stress on the system. So, I think our used car managers are doing a much better job. So, I think it's a combination of all these things.

I did think the reorganization we did last year was intended to improve on the communications amongst us and the stores, and I think the used car improvement was the result of some of that as well.

SG&A -- nice improvement there as well. How much more is there to get?

I still believe that there is some. We target 50 to 100 basis points improvement year-over-year this year. It looks like we're on target to improve on that a little bit. I think the strategy that we are undertaking is really from a back-end to become more centralized, and that means a lot of different things, but -- depending on what particular function you're talking about. But we see significant savings to be had as we consolidate some of our back-end processes. How that relates, I think, for next year, I believe, is at least another 100 basis points we can take out. So, I think there's still a long ways to go.

What sort of processes would you centralize, and what would you leave decentralized -- sales and marketing, I guess, more decentralized?

The way I portrayed it is front-end should be -- front-end focused activities, those activities that deal with the customer, will and always will be a decentralized activity. But anything behind that, any process behind that is open for some level of centralization.

For instance, just as an example, we have three [DMS] systems in the Company today. We're going to one. And when we do that, we will do a few things. One, we'll reduce the cost -- the overall cost of the system, but we'll improve the efficiency as well. That's just one example that will happen over the next 18 months. It's going to take some time to do that, but that's one of the things we're doing. And we are implementing a company-wide payroll system that should by midyear next year be online. We're also going to (indiscernible) accounts to further simplify and make it easier to look at the Company on a consistent basis. I could go on and on. I don't know if you want more detail. There's a lot of things we're doing on that front.

What we're not going to do is have a big central accounting office that does all the processes for 50 stores, for example. There may be some clustering of three stores that are next to one another, but we're not going to be going to giant processing centers.

In other words, we'll consolidate, but on a local market; for instance, a city. We'll have a controller, one controller that oversees the four stores. And we'll have office managers in each one of the stores so we can maintain control over the processes.

Have you chosen the DMS provider?

Yes, but I'm not ready to disclose it at this point.

Kelly Dougherty, Calyon Securities.

Congratulations. I understand the thinking behind taking on some lower parts and service business right now as a good long-term move, but I'm wondering where you see margin ultimately heading. Should we be factoring for these slightly lower levels throughout 2006, and then maybe see an uptick after that?

I think that if you -- due to the baseline, the long-term trend that we have talked about of 3 to 5%, and comp store gross profit gains in fixed, if we are achieving higher than that, I think you can take your margin rate down a little bit. But we still get the higher dollars. So, when the 8%, which I think is industry -- will probably be industry-leading -- on the same-store fixed revenue we're up over 10 -- I think that it's a balance. There are some things you just want to be hyper-competitive with, and you don't want the customer going anyplace else. And that's what we're doing.

Great. How about some thoughts on the acquisition pipeline? You're going to rein in (indiscernible) acquisition level a little bit more, like you did in 2005. I'm wondering if this is just primarily a result of valuations, or if you guys have decided maybe that the $300 million annual revenue number you were targeting is too high for what you want to do going forward.

I think we've been very successful in generating organic growth. And I think what we want to do is continue to focus on that and buy opportunistically. And so we are not pressing our markets. What we want to do is be very selective, because we see lots of opportunities to grow and generate cash flow internally.

Matthew Nemer, Thomas Weisel Partners.

My first question is on the parts and service margin. Is that a mix shift, or is that a specific change in pricing in parts and service to drive customer pay? My thought was that customer pay was usually a little bit of a higher margin than warranty.

Sometimes it is and sometimes it isn't. But at certain aspects of customer pay, the ones that are most visible -- I don't want to get into the strategy; if the competitors want to look at what we're doing, they have to go to our stores and shop us. But certain aspects of it you want to be hyper-competitive and not give that customer any reason to go anyplace else. And on that basis, you get them habituated to coming to your store. And for those items, we are going to price very sharply. And it's not an embarrassment in front of the neighbors to make a high 40s% on some of those lower but highly frequented service opportunities.

Is it primarily maintenance items, or is it actual repair?

It would be the frequent maintenance items. And you can take in on judgment -- I know you shop the stores -- as to what they are.

Have you seen any response where you have lowered prices from dealerships that are close by?

I don't think it's fair to say we've lowered prices. It's not lowering price as much as it is adding -- attacking a different segment. So, it may be a little nuanced, but the price that we charge the customer hasn't changed. It's the type of work that's being done, it has changed a little bit. So it's more mix, but it's clearly price. Price has not changed at all.

And what we're trying to do is compete with the -- not with the other dealerships; we do compete with them. But it's really the Quick Lubes out there and the Firestone tire stores and the Goodyear tire stores and the Jiffy Lubes, and places like that.

Understood.

I wouldn't be factoring in a -- much more of profit margin decline. It's not going to change much more than this. Maybe slightly, but very slightly.

Got it. On the SG&A front, on the advertising decline per vehicle retailed, is that the low-hanging fruit, or how much more is there to go on that front?

I think it's opportunistic and it's something that you learn as you go through it. And so there may be -- but you don't want to take it too low, because you don't want to, I think, give up some of the brand equity and some of the other imaging that we've built in the customer's mind. So it's an opportunity to go a little lower, but it may not be appropriate to. We just have to look at it, and it's basically store by store, market by market.

Okay. And it's primarily a shift away from television? Is that a good way to think about it?

No. In many cases its shipped out of newsprint.

Okay. And then, on the SG&A front, Gordon, you mentioned that you thought there was a 50 to 100 basis point opportunity this year. Is that including or excluding options, option expense?

When I talk, I usually exclude the options (multiple speakers)

So, does it make sense it would be about zero to 50, including options?

Yes.

Lastly, just wondering if you could comment on what you're seeing in the Texas market. You said that was strong. And I'm wondering, is that the economy, is that -- are we still getting Katrina sort of buyback, buying power? What's going on down there?

I think that it -- the economy may be better. Katrina had a little impact in Houston. But it's our -- it's the work that Tom McCollum and his team are doing down there.

I think we've got to give our team down there a lot of credit. This is more execution in a sense than market, from my vantage point. (indiscernible) Honda on Acura dominated market, and clearly that brand has done well over the last 12 months. But principally, I think it's great execution by the team.

Actually just one more. Can you give us an update on discontinued ops? What is in there, what was added to this quarter, and kind of how long has it been in that line?

We usually don't put in anything into dis-co until we have a buy-sell. So, it doesn't stay in very long. The only thing we put in this quarter was a Pontiac store down -- down south in Florida that we sold. And then there was an ancillary business that we are selling as well. So, those are the only two pieces -- very small -- that we have (indiscernible) this quarter.

As far as what's in there today? Clearly, the two remaining stores in Portland were in there as of quarter end. As I've said, we subsequently sold those. We have, I believe, one other store (multiple speakers) very small store outlet. That's it in dis-co. And if you're asking for what -- what potential is there out there -- as it says, the portfolio is in outstanding shape as we speak. And we're looking only because it's one store that is a [dual] store that for a variety of reasons it doesn't -- we don't want (indiscernible) store and that doesn't make sense as a standalone. So, there's only one other store that we're really looking at putting into dis-co. So, as I say, I'm looking at dis-co for the year being no impact on net income.

That's helpful. Great quarter. Thanks very much.

(OPERATOR INSTRUCTIONS). Jerry Marks, autoretailstocks.com.

Same-store new and gross profits were up. Usually you don't get both at the same time. Why did that happen?

I beg to differ. I think that you can. And I think when you have the right brand mix and the right markets, and your new does well, and I think when you focus on used the way we did; and most of that gross profit increased on a same-store basis. A lot of it was due to the way we're merchandising, because the units were not up all that much, not double digits by any stretch. I think you can achieve both. Yes, there are times when new will compete against late-model used, but that only means you have to address your used merchandising mix.

I was referring more to your 20 basis point improvement in new margins, and you're still having relatively consistent performance with the industry. Usually there's some market share (indiscernible) it's a pretty competitive market, like you talked about, and pressure on the new vehicle margins. Is there something that you're changing in terms of how you're focusing your GMs or GSMs to make the deal, that it has to be profitable sale, or --?

No, I think it's the basics of the business applied professionally. And I think that it's not a zero-sum game, where to make more in new car deals, you have to take shorter on the used car side. And I think that when you do it properly, with properly trained people, the whole business can rise. Again, there are some times when new will cannibalize late-model used, but then it's up to us; the burden is on us to adjust our tactics accordingly.

Clearly, there is a little mix in there, which is really related to the markets we are in, the luxury. And being higher growth than the mid-line domestics, it's adding a little but. So, there's a little mix improvement in there that's driving the margin, because, clearly, luxury brands have a higher margin than that, than the domestics.

A lot of your other competitors don't break out fleet sales. You guys seem to be doing rather well on that side of the market. What type of fleet (indiscernible)? Is this to, like, Enterprise Rental Car, or was this something overseas? What type of fleet sales are these?

There's a variety of approaches. Some (indiscernible) stores have relationships with certain governmental agencies. And it comes and goes. You can't count on it. And so, we break it out separately, show it to you, and you can draw your own conclusions.

Peter Siris, Guerilla Capital.

I have a couple of questions. My first question is, if you had wheels, would you really be a trolley?

Only if I carried a bell. (multiple speakers). There's a better Yiddish expression to it, but I don't think I want to go down permanently on the record in terms of (indiscernible) and zetas, but I'll let it go at that.

The first, more serious question is, I'm trying to get a handle on what the annual cash flow or free cash flow is. Just to go over. If you'd made no acquisitions, your CapEx would be what?

Our CapEx will be between 70 and 80 million.

That's basically maintenance CapEx?

No, that's overall CapEx. We'll finance about 60% of that number, so let's take the higher number. So, we'll have -- the CapEx it will impact, or cash flow, is about 32 million, thereabouts -- $30 million.

And the depreciation would be what?

Depreciation is about 20 million, $22 million annually.

So, if I take whatever the pre-tax earnings are going to be --

EBITDA for the year, just to make it simple, is going to be in the $165 million range. So, take out the 30. So, 130 million of cash.

The second question is, you -- you guys -- obviously, you've been putting good numbers together. But how much more -- over the next couple of years, how much more G&A take-out is there? You merged some of the regions together; you're moving ahead with a lot of initiatives. If we were looking at this thing two, three years from now, how much more room for G&A improvement is there, given a flat auto market; flat auto market means given that auto sales go up (multiple speakers) wherever they are now, stay straight.

I think, still, with the other parts of the business, there's still opportunities to leverage the cost structure. So, as I said earlier, without taking (indiscernible) into account, stock-based const, I think that 50 to 100 basis points is a percentage of -- expenses as a percentage of gross profit to be taken out on an annual basis. If you want to include that zero to 50, maybe slightly higher than that.

And when you say an annual basis, you're looking an annual basis for the next few years?

Yes. All for the reasons that I previously stated. I think there's still opportunities to consolidate the back-end of the business, and so we should see -- we should see some expense improvement because of that. It's not the primary reason I want to do it, but it will result in that.

One final question. I'm concerned about the loss in the softball game. Ken is not pitching, is he?

We keep him as far away from that game as possible.

Is that it?

(multiple speakers) with (indiscernible) Capital.

Congratulations on the quarter. Just a question on the previous comment you just made, Gordon. The EBITDA number, if I take your 190 and we back into EBITDA, the number you just gave us, 163, we get to 193 or something close to that.

I said [155] of EBITDA, right?

Right. But that number, I think, is closer to 190 if we're not mistaken, because you've got total interest expense and floor plan. Are you giving us (multiple speakers)

No, I'm including floor plan in that number (multiple speakers) if you add floor plan in, you'll get to where you're talking about. We have about 40 million plus of floor plan.

I just wanted to clarify that. So, EBITDA before floor plan is closer to 200 million. And when you talk about capital expenditure in the 30 million that you were talking about, even that -- that's not really maintenance. That includes some of the things you're doing right now, and some of the stores specifically.

We typically run -- maintenance CapEx typically runs in the 15, $20 million range. And the stuff we wouldn't necessarily finance -- sometimes we do -- is some equipment for the service to the service end, or maybe some leasehold improvements.

Yes, I understand that part. I'm excluding the finance part and saying the non-finance part is 30 million. But even that includes some of the improvement. So, it's really 15 to 20 out of the 30. I just want to clarify that.

We have no further questions.

Thanks, everyone, for joining us today. I look forward to meeting with investors over the balance of the quarter, and having another, hopefully, good report in three months. Bye bye.

This does conclude today's teleconference. We thank you for your participation. Have a wonderful day.