Asbury Automotive Group Inc (ABG) 2007 Q1 法說會逐字稿

Please stand by. Good day and welcome everyone to the Asbury Automotive Group first quarter 2007 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. Please go ahead.

Thank you. Good morning, everybody thanks for joining us today. As you know, this morning we reported our first quarter 2007 earnings, the Press Release posted at our website at asburyauto.com. If you don't have access to the internet, or if you'd like a copy of the release, faxed or emailed to you, please contact Gail Falotico at our Corporate Office. She can be reached at 212-885-2520. She'll get you a copy right away.

Before we start, I just want to remind everyone 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 2006 10-K[A] 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 on our website under the Investor Relations section. We also, from time to time, update the website with additional financial information. So, any interested investors should check the site periodically.

The purpose of today's call is to discuss Asbury's first quarter results. Our agenda will be as follows. Charles Oglesby, our Chief Operating Officer and soon to be President and CEO will begin with a few introductory comments, then Gordon Smith, our CFO, will provide everyone with some financial highlights. Then Charles will have a few concluding comments and as always, we'll be happy to entertain any questions you might have. Charles?

Thanks, Stacey and good morning to everyone. Asbury's results for the quarter continue to demonstrate the strength of our well-balanced business model. As the numbers reveal, it's the depth and breadth of the performance that's most impressive. All four business lines, experienced record first quarter gross profit results with two of them, fixed operations and used vehicles, having all-time record quarters. And equally as important, our strong performance was not confined to any one geographic region, as each of our four regions delivered record first quarter profits.

Looking at the bottom-line results on an adjusted basis, our income from continued operations for the first quarter increased 12% versus last year's first quarter. And we continue to leverage our expense structure, which was down 80 basis points as a percent of gross profit, and Gordon will discuss this further in his report.

The general industry environment was lackluster during the quarter with new light sales down one percent. With our superior brand mix, 80% luxury and midline imports we are somewhat protected from the ups and downs of overall market, where much of the variability is driven by the domestic brands. On a unit volume basis, we outperformed the market, posting comp store gains of 2%, including fleet.

For the first time in quite a while, we saw a steep reduction in domestic inventories, which were down 16% from December. While midline import inventories continued to build up 4% versus the end of last year, a few of the midline import manufacturers, specifically Honda/Nissan had incentive programs in place and our general managers did an excellent job capitalizing on these programs, driving sales volumes while retaining gross margins.

The additional dealer money contributed to our overall 20 basis point expansion in new retail margin. Overall, Asbury delivered 4% comp store gross profit growth in new vehicles and posted record first quarter gross profits.

With respect to used vehicles, even though there has been some conversation about weakening industry-wide sales, we really didn't experience any signs of softening in our local markets, as we posted the highest gross profit level of any quarter in our history.

The retail environment for used vehicles in the first quarter of the calendar year is typically stronger than the other quarters, especially in the sub-prime market, as customers use their tax refunds for down payments on vehicle purchases.

Keep in mind that we bear no financial risks related to the financing on these deals and we haven't seen any of the financial lenders back away from that segment of the market.

Overall, we posted unit volume gains in the quarter of 9% and impressive gross profit gains of 10%. Going forward, our goal in used vehicles is simple, is to be the best used vehicle retailer in each of our local markets.

The opportunity for growth in this market is enormous. But we must expand our share of this 40-million-unit market through high quality retailing at the local level. Our professional used car teams, technology, and focused initiatives, set us apart from our local competition and will ultimately guarantee our success against independent retailers and other franchise dealers.

Fixed operations continued at stable growth posting 6% comp store gross profit gains during the quarter. As in used vehicles, this quarter was an all-time record in fixed gross profit. We posted some outstanding results in fixed, over the past two years and there are several, several areas we have been focused on that have lead to our success.

The first is a focus on customer retention through personalized service. Second, a focus on "customer pay," maintenance and repair work, and finally a focus on increasing employer productivity and process efficiency.

Our "customer pay" business has helped to drive our overall results in fixed operations for the quarter up over 7%, and a shift in sales towards this higher margin business resulted in a 150 basis point improvement in fixed margin.

We continue to invest in service facilities and manpower to ensure that we have the capacity available for future fixed operations growth. We have a detailed schedule of future projects and Gordon will share our overall CapEx plans for the remainder of 2007.

Finally, in F&I, our dealerships did an excellent job, driving what we refer to as dealership-generated F&I PVR, up 9% to $945 per vehicle. A portion of this growth is attributable to the renegotiated contract with our service contract provider, which will continue to add approximately $35 per vehicle retail through May 2007.

As a reminder, we focus on the dealership generated metric, because it excludes the impact of the retro pool that we participated in during the first half of 2006. Our retail unit sales growth combined with the PVR improvement resulted in 13% growth in dealership generated F&I income during the quarter and total F&I set a first quarter record.

With respect to geographical contribution, each of our four regions contributed to the results for the quarter. In Florida, the new vehicle market remains on the soft side, and despite gaining share in our local markets, we experienced a 2% decline in our new unit volumes.

However, the remainder of the business responded well and with the used gross profit up 13%, F&I up 19% and fixed up 6%, the Florida region was able to deliver 11% bottom-line growth.

In the Mid-Atlantic region, all four business lines, improved in the high single digits and expenses were down a 150 basis points resulting in a 17% increase in the bottom-line.

In the South, both new and used gross profit experienced double-digit advances and combined with a phenomenal 300 basis point reduction in expenses, produced 15% growth in net income.

And finally in the West, we were able to capitalize on manufacturer incentive money, specifically from Honda, allowing us to drive unit volumes up 10% and improve new vehicle margin, 60 basis points to 8.2%.

The West coupled their strong retail volumes with a 22% improvement and F&I PVR and an amazing 470 basis point reduction in expenses, overall, resulting in a very impressive 55% increase in the bottom-line.

Needless to say we are very satisfied with the performance of our regions. As an organization it is our philosophy to employee high-performance individuals and surround them with the tools, technology and support they need to reach their full potential. And with these results it's oblivious that this approach to automotive retailing can be effective on a large scale.

And with that I'll turn the call over to Gordon to bring you through the financial highlights. Gordon?

Thanks, Charles. Good morning everyone. Before I get into the financial results this morning I want to take a few minutes to discuss the recent debt due to refinancing.

In February we launched a tender offer for $250 million of our 9% notes due in 2012, and on March 26th, we repurchased 238 million of the notes. In conjunction with the tender offer, we issued $150 million of those 7-5/8th notes due 2017, and $115 million of 3% convertible notes due in 2012 including the over-allotment option.

The after-tax charge associated with the tender included the tender for premium and write-off of that related debt issuance cost totaling $11.1 million, or $0.33 per share. Overall the debt refinancing decreased our annual debt service by $6.5 million or $0.12 on of the EPS, and expanded the maturity of $150 million of principle, five years.

In connection with the issuance of the convertible notes, we entered into an equity arrangement with [Sher] to increase the conversion price of the notes from $34 per share to just over $45.

Also during the first quarter we incurred $1.8 million after-tax charge or $0.05 of EPS related to the retirement benefit of our current CEO Ken Gilman, who is officially retiring on May 4th.

Adjusting that quarterly performance for these two items, income from continuing operations increased 12% for the quarter to $15.3 million, or $0.45 per share from $13.7 million last year, or $0.41 per share.

One more point to cover on the debt refinancing. As discussed in our previous call the board of directors approved the $1.3 million share repurchase programs designed to offset the impact of further share dilution resulting from stock-based compensation.

In connection with the debt refinancing we elected to repurchase all 1.3 million shares at $27.35 per share for approximately $36 million. The share repurchase did not have a material impact on the quarter as the average number of shares outstanding this year was still up 2%, and as a result EPS grew at a slightly lower pace than net income.

For the remainder of the year the buyback will be $0.03 [accretive] to our previously announced earnings guide. The business line improvement that Charles discussed, combined with a shift towards our higher margin business, resulted in a 50 basis point improvement in overall gross margin to 15.8%, a new quarterly record for Asbury. Used retail sales, F&I, and fixed operations complies 36% of total sales, up from 34.4% in the first quarter of 2006. Overall gross profits grew 7.1% this quarter.

Taking a look at expenses, I am proud to say that this marked the 10th consecutive quarter of year-over-year improvement in our expense ratio. The SG&A expenses on a comparable basis, improved 80 basis points, to 77.4%, surpassing our target for 2007, of 50 basis points reduction. The SG&A improvement was largely the result or leveraging our fixed overhead and organizational structure with personnel expenses down 80 basis point, and insurance down, 30 basis point.

Turning to the balance sheet, cash and cash equivalents totaled $95 million, at the end of the quarter. On a combined basis we used $39 million of cash in debt refinancing and share repurchase. The business continues to raise good stable cash flow. Adjusted EBITDA this quarter totaled $41.7 million, up 10% with the EBITDA margins improving to 2.9 percent from 2.8% last year.

During the quarter, we invested $13.1 million facility expansion in real estate. For the full year of 2007, we expect capital expenditures to total between $70 and $80 million, $15 million of which is reserved for maintenance CapEx. The remaining balance will be used for new facilities, including real estate and capital capacity expansion. We intent to finance between 50% to 60% of these expenditures through [sell-lease type] transactions.

We have made substantial progress in improving the debt to total CapEx ratio over the fast few years. However, the debt refinancing and share repurchase resulted in a 310 basis points increase in the ratio to 46.9%. The impact of the 12 million non-standard notes will be temporary as we will intend to call the bonds on the first call day June 15, 2007.

Taking into consideration the current cash balance of $95 million, the net debt to total CAP ratio is 38.1%. The capital structure remained solid, with over 90% of long-term obligations fixed, and nothing outstanding under the $125 million revolving credit facility.

In March we've repurchased approximately 21 million of our 8% notes with an additional [19] million available under our debt repurchase program. As stated our convertible notes mature in 2012, and the subordinate debt facilities ultimately mature in 2014 or later with a first call date on March of 2009.

Looking at new light vehicle inventory, DSI was at 58 days down two days from last March, with overall inventory up 2%. By category, luxury brands were down one day from last March to 54 days, with luxury inventories total was up 2%.

Midline import brands are coming in lines for us and reaching a high point in December. DSI was 54 days in March, up 4 days compared to last year, but down 4 days from the end of 2006. Overall Midline inventory was up 9%, slightly below the industry-wide increase. It remains our view that this higher inventory in these brands have us well positioned to gain market share in 2007.

Lastly, Midline domestic brands were down 20% to 76 days compared to 95 days last March, overall domestic inventories were also down 20%.

Used vehicle inventory is in good shape with DSI at 45 days, down from 47 days last March. Before I discuss advice guidance for 2007, I wanted to touch on the management of our dealership portfolio.

In the first quarter we disposed the two value brand stores in the south regions taking a charge of $2 million. We have now completed our strategic repositioning of the portfolio and don't anticipate disposing off anymore stores in the near-term.

For the first quarter 83 or our 86 stores operated at a profit. However, we will continue to evaluate the performance of the stores, falling in the bottom 10% and making adjustments as necessary.

Now, turning to guidance, taking into consideration our strong first quarter performance the debt refinancing and share repurchase we are increasing our previous EPS guidance range of 205 to 215 upwards to 220 to 228 for the year. This guidance range excludes the charges associated with the debt refinancing and retirement benefits I've discussed earlier.

In summary, we are very excited about the first quarter results, and the positioning of the company as it relates to our financial targets for the remainder of 2007.

With that I'll turn the call back over to Charles for some concluding remarks. Charles?

Thanks, Gordon. It's a good feeling to be able to increase your guidance after a strong quarter, and I would like to put our results in context our total shareholder return model.

The organic growth for the quarter of 12%, was sufficient to cover both the organic and acquisition growth target required by our model of 8% to 12% on a combined basis. And we continued to pay the dividend with a current yield of 2.9%.

But what we are most excited about is that we are beginning to add the third leg to our model. As we've discussed on our last conference call we intent to be active in the acquisition market during 2007.

And last week we closed on a strategic Acura acquisition in Southern Florida. But more importantly we have a strong pipeline of deals, which we look forward to discussing in more detail on upcoming calls.

And I'd like to take a moment to recognize Ken Gilman's contribution over the past five-plus years, especially, in setting the strategy of the company, and I personally appreciate Ken's diligence in maintaining Asbury's solid foundation during our transition, and we wish Ken all the best in his retirement.

In summary, I would like to reflect on where Asbury stands today. As I brought you through each of our business lines and each of our four regions are performing superbly. We refinanced our debts and underwent several secondary stock offerings allowing us to remove our shareholder-overhang. Just last month we celebrated our fifth year anniversary as a public company, and I think it is fair to say that today the company finds itself in the strongest position it has ever been in that five-year period.

We're all very excited about what we have accomplished and more importantly where we are going. We have the right people in place both locally and in the corporate office to continue growing our business through leveraging our valuable asset base and supplementing our growth with strategic acquisitions.

With that good news I would like to turn the call over to the operator and we'll take any questions you may have. Operator?

(OPERATOR INSTRUCTIONS). The first question comes from John Murphy with Merrill Lynch.

Good morning guys.

Good morning John.

Charles as we will get your, your ability to cut cost, here I mean you had done a great job in the quarter and have for the past few quarters, as you slow down the acquisition pace have you been able to reflect or look more internally for this opportunities and do you think the slowdown in the acquisition pace has advantage to you in making these cost reductions? [technical difficulty) cut-off.

Is anybody on the line?

Can you hear me?

Yes.

Sorry about that, must be someone else on the line.

It's on our side.

All right on your expense activities, you've done a great job of cutting costs particularly in SG&A in this quarter and the past few quarters. I was just wondering have you been advantaged in doing that because of your, sort of, your slowdown, your acquisition pace and sort of your ability to pay more attention internally to your cost structure as opposed to spending a lot more time looking for acquisitions?

Well John, certainly not having -- not being able to focus on any acquisitions has given us the advantage to be able to look internally. But that is something that we -- that we have done and we'll continue to do even as we bring acquisitions on, because as we bring the acquisitions on and we make a strategic decision on what we will acquire, we make sure that it will fit within our SG&A and all of our expense models as well.

Okay. And if you look at the gross margin on your parts and service business, was that a function of an increased capacity utilization in the quarter and where does your capacity utilization stand, and where do you think it's going to go, you know, in the coming quarters and is there a potential to ramp this gross margin up beyond 51.5% or what do you think the ceiling is there or if there is one?

Well, as we've mentioned in some of our past calls that we put some marketing programs in place to recapture some "orphaned" customer, so to speak, or to compete with some of the local independents and so our margin had been bound somewhat in the past.

And what we felt like is, once we were able to get these customers back in our dealerships with the service initiatives that we have in place that we would be able to increase our margins as we move forward, and so that strategy has been executed. We do have plans from -- to add additional capacities and manpower as we move forward; I think Gordon mentioned some of that.

I don't know if you can give us this level of detail, but do you know your current service [bay]-count and what your, sort of, your target adds are over the next year?

John we'll probably have -- we've added 120 over the past couple of years. And we are continuing to do that, we have some plans that are in place right now. We'll have to get back to you with a specific answer on that.

Then just lastly how have sales have been shaping up so far in April in aggregate may be if you could comment on some of the key markets like California and Florida?

We're seeing down, down slightly to flat in a couple of those markets. In other markets I would say we are flat to last year. April is a little bit of a strange month, particularly the way that it ended that March ended because March ended on a Saturday, and so there is always a push at the end of the month as you know to get as many deals in as you can and with GAAP accounting we start fresh, you know, April 1st or April 2nd which was a Monday, so you have a little bit of momentum to get caught back up. So, normally April will end up stronger than it begins, and we're hoping that that's the case too, but right now that's what I would say it's flat to slightly down.

Thank you very much.

Your next question comes from Edward Yruma with JP Morgan.

Hello and good morning. You had some very nice performance in F&I which is even more surprising considering some of the weakness you saw in Florida. Is there something you can take form the Florida region and from the West Coast region where you had that real strong gains in F&I and kind of bring to the rest of your dealership base?

Edward we are always working on best practices and training and working particularly on the bottom third of our lower producers. So we use a very consistent menu process in all of our markets. So if there was or if there is a best practice I mean, we're able to utilize it in any of our markets quickly. But again we have a very consistent process in place now with our training and with the compliance and with our menu process.

Great. And you are showing some very nice improvement in your SG&A growth and with your initial guidance you had alluded to some other investments you are making, I believe for the DMS, is that backend weighted in terms of its impact or are you just truly tracking ahead where you had expected?

The impact on the DMS conversions will most definitely be backend loaded even a little bit more than what we had anticipated previously. So we're not seeing any of the impact from that strategy yet. And this was mostly at -- this the -- the performance this quarter is really a result of higher gross leveraging our overall expenses basis with some small benefits from -- from some consolidation, but not a lot.

Okay, thank you very much.

Now we'll move onto Rick Nelson with Stephens Investments.

Thank you and good morning.

Good morning, Rick.

Question of new vehicle, thanks to our growth, the 0.5% in unit growth in the quarter looks like it was short of the industry data import brands -- I know the units were up over 7%, you know, can you comment on that and your market shares, and are you trading sales for margin.

Actually, if you look at it on a retail basis we're up, the retail was down 4% Rick, and -- the market was down 4% on a retail basis and we were up 1% and then we -- we said including fleet, you know, 2%. Our fleet really is what we call "fleetail business," which is not really fleet to deliver to any large company. It's a -- it's part of our strategy in dealerships that we will manage some of this businesses that will be with companies or an individual sale but it's again we can't determine it retail, but it really is fleetail. So we would be up 2% including that and then the other market -- with the retail market down 4%. So that's a 6% spread.

I don't know fleet, but it's evidently affecting the industry data even on the --

Yes.

Yeah? Okay. Question on used cars. Now, you've had a string of consecutive big growth, there I'm wondering how much more opportunity you see in used cars?

Well, as we've been -- we continue to state that we see a lot of opportunity in used cars that's a pretty consistent market, 40 million plus a year. With the team approach and the technology that we use and as we stated in our last call we start focusing on subprime because we felt that this quarter specifically there was more opportunity in subprime in the first quarter of the year than normal. And so we are able to kind of manage our inventory base towards that market.

So having the vehicle available for what the market is asking for, is generally who will win in that. So by maintaining and continuing the strategy, the used strategy that we have in place, and we're continuing to refine that, and managing the trade-ins, and making sure that we purchase cars, and we're buying the right cars market is looking for, and we consider the independent dealers and the other franchise dealers really as our competition.

So it's matching the inventory and the sales efforts to the market. And our used car sales managers are focused on managing the sales staff, and the customers, where the teams support our inventory control. So, we're able to put the effort and the energy into each piece of what it takes to be successful in used car retail. So we don't know how much upside there is, we know that there's still more, we're going after it.

How do you effective -- sub-prime market effective sales and how much exposure do you have there?

Well, when you talk about exposure, we have no exposure on carrying into that business. But as far as the -- that seems to be a continuing growing market because of we're seeing other lenders get into -- get in the sub-prime business. So as the customers start to -- with -- from a financial standpoint, as customers, that base continues to widen, we feel like we're positioned very well for that marketplace. We will not change our business strategy to where it will be over weighted towards sub-prime because that could influence our -- other retail lines, but we will be very aggressive in that market.

And just to put it in a little bit of perspective for you, Rick, I think when we talked last quarter; we said 25% to 30% of our used business was in the sub-prime market. It's now up -- as a result of these strategies, we put in play, we're up to 30% to 35% of our business is in the sub-prime. And just to -- and we still have not seen the carry-over effect from the sub-prime housing market into this market. Just to put that in perspective, the sub-prime auto business, from a financing perspective, really is a pretty mature business. So, they've gotten their models down pretty well. So they're faring a little better than the housing market. So there's not been a carry-over effect yet. I assume there may be some down the pipe, but we haven't seen it yet. We did extraordinarily well in the first quarter on sub-prime.

Okay. Thank you for that, just kind of a quick question on interest income --

Yeah.

-- rise compared to last year, what was that due to?

Well, it's really a timing of acquisition , at this point, as you know, where we kept our powder dry last year holding back on acquisitions, and we strategically used our cash in different ways over the last year starting with our dividends, and we'll spend about the somewhat -- right now about $26 million annually on the dividend. And then with the refinancing, we used some of our cash there; we used about $39 million cash there. So as a result of -- really the acquisition timing is the reason our interest income is

All right, got it, thank you.

[Rod Lache;] with Deutsche Bank.

A couple of questions, I'd like to follow-up on the SG&A growth. Given the strong performance in the first quarter, where do you see that particular metric moving this year?

We predict at 40 to 50 at this point. We're looking at the higher end of that at 50 basis points given where we ended the first quarter at 80 basis points. And still it slowed down from last year where we were at 170 to 180 basis points as we start to move into the next phase of our consolidation initiatives.

Okay, and are you still looking for approximately 80 basis points next year, given the stronger performance this year?

Yes.

Okay, a couple other questions. Can you comment on the Acura acquisition that you did in April, size, multiple, stuff like that?

Sure, it's about a $40 million revenue acquisition. So it's a relatively small one, but strategically located down in the southern Florida market. And it will be slightly accretive this year, probably under a penny, but it's in a growing market that's just north of Miami.

Okay, could you comment on, culling an acquisition budget for this year? Is there a number you guys are looking towards?

Well, we -- our model looks for 200 million in revenue. At this point, given the pipeline that we're seeing that Charles alluded to, we're looking at revenues of 300 plus this year.

Okay, one final question, can you guys comment on who you purchased the 1.3 million shares from?

Open market.

Okay, thank you.

Matt Nemer with Thomas Weisel Partners.

Hi, everyone.

Good morning, Matt.

Good morning, Matt.

First question is on service -- in the service and parts business, what is driving the customer pay increase? Is there any change in advertising or prices that we should be aware of?

Matt, a lot of these were driving customer (inaudible) -- some of our past initiatives. As you know, [warranty] is continuing to decline, be flat or decline. And so, the specials that we marketed to -- [Gosh] started last year doing that, and we're seeing the results, of some of that now, as well as the customer doing that, regular -- really more maintenance work on their vehicle.

Okay, great. And then, can you provide any additional detail on the Honda/Nissan dealer cash, and the impact that had on your western region? It seems like their performance out west has certainly bucked the trend of what we've seen from other dealers.

Remember, West for us starts in Texas, so it's not all California. Just that that will be closer to Charles' remarks.

Yeah, all of our stores hit the objectives, except for one Matt, so incremental about 700 -- over $700,000. And, as you know, not all that drops to the bottom-line because we do have manager comp that comes out of that. But we did increase our Honda gross margin by 30 basis points because of this program to 7.6%.

In round numbers it's half a penny to a penny in that range.

Is that program ongoing, or has that run its course at this point?

Well, Honda had a fast (inaudible) start portion, but it also has an annual objective as well. So this was the fast start piece of it, and there were some objectives that if you hit -- there's some more money, but we won't see that till December.

Got it, and then lastly, your stock has had a nice move, and I'm wondering if you can update us on what you're thinking in terms of the dividend yield, and is there a target yield that you're looking at, what's the dividend philosophy?

Yeah, and while we're coming up on their -- on the annual event that had -- and we plan on taking a hard look at where we ought to be. As you remember, we initiated the dividend at a 40% payout ratio. That got us about a 4% yield at that point in time. And I would expect -- while haven't been to the Board yet and gotten their views, but we will be in that same range of 40% payout ratio, I would expect -- and you should hear more from us after our second quarter results. But that's where I'd expect us to be.

Okay, congrats on a great quarter.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) Darren Kennedy with Goldman Sachs.

Hi there, this is Darren Kennedy here with Matt Fassler. One question was about your experience in Texas on sub-prime and the used business. I know you talked about this a little bit earlier, but I'm not sure if you could explain some of the opportunity you have in other markets, and if there's anything approaching the success you've had there?

We do believe that we can -- that's one of the reasons, I guess, that we start looking at the sub-prime market is because of the success that we were having in Texas. And with the structure that we have and the support staff, we're able to kind of utilize these best practices, and support and take them from one market to another. Location has a lot to do with the success of the sub-prime market, and some locations will have better success than others.

One of the ways that we've been able to do that is through the use of infomercials, which generate a lot of leads for us, and then we have dedicated people that we utilize for the sub-prime markets and programs. So as we roll that out, and in -- just in some ways it doesn't work, such as our Lexus store in Atlanta by the way.

Right.

We would not implement this program, so it will be a strategic move with certain of our dealerships that we can utilize this kind of program, but we do see some more upsides.

Are there other markets where you're actually doing those infomercials that you showed us at your analysts' day?

Yes.

Okay. And can you comment on any ones in particular?

We're having -- we would have greater success with it in Florida, we haven't had as much success with it in Atlanta --

Okay, got you.

-- and by the way, Mississippi has done a fabulous job the last quarter with it.

All right. And then my second and final question. If you can clarify how much of your upper guidance revision relates to refinancing versus the underlying core, earnings growth core, EBITDA growth?

Well, most of it has to do with refinancing. There is about $.09 in upside on the refinancing and $.03 on the share repurchase. So the -- that accounts for most of the increase.

Okay, thanks.

We'll move on to Rich Kwas with Wachovia.

Hi, good morning everyone.

Good morning Rick.

Good morning.

Just Charles, could you comment on the used -- it seems like the market is still pretty firm, wholesale prices, and it seems like inventories just generally speaking are fairly lean at the dealer-level for use. Are you having to go to auction more to replenish your inventories or are you still getting sufficient trades in to keep them at -- at fair levels?

Rich, actually, we are utilizing both auctions as well as trades. The auction with the technology we use, it helps identify the specific products that we need at each location. So we will supplement that with auction vehicles, but being able to control the trade and knowing what the market is on trades, gives us a higher ability to make the deal with the customer on the trade-in, so that we are controlling that -- the deal more that way and we look at the used car piece as a -- another profit opportunity, whatever we're making the new car deal.

To us, inventory management is the key to our used car success, and that's having the right vehicles, priced right in the right market.

It is basically the area that with wholesale prices actually strengthening, it -- the impact is in the sub-prime business, where there's a very defined vehicle that fits the -- that market, so it's -- it will have a small impact on us of going forward, if the wholesale market continues to solidify.

And is this incrementally -- are you using auction more, say, relative to three months ago, or is it not changed?

It's about the same.

Okay.

It's part of our whole growth strategy as necessary.

Okay. And then import inventories; they are higher year over year. As we progress through the year, it seems like availability is a lot more plentiful relative to the year ago period and as you go through the year. You are getting cash from Honda or -- and it seems like Nissan's picked it up a bit. What are your concerns there with the higher inventory levels?

Right now, Rich, we really -- because you made the point that last year, they were short and this year they are up, they just wasn't available -- the market strengthened last year for this inventory and the imports have started producing them.

We think it's still an advantage for us, and right now we're not really concerned. We think that there'll still be some aggressive incentive programs, and so we think we're in good position at this time to continue, particularly with our model. We think that the -- well, we know that the market has continued to trend with midline imports and luxury, so -- at this point we're not concerned.

Yeah, and quite frankly in certain markets, we strategically are going after as many Honda Accords as we can lay our hands on, so we're -- we may have been carrying the -- a little higher inventory, but we have a strategy in place to ensure ourselves that we get the incentive money at the end, because there will be a scarcity of those vehicles and it clicked so clearly if you don't have them, you can't sell them, you can't sell them, you can't get the incentive.

So that's why we think we're really strategically positioned with respect to the midline imports. We got the cars and we will sell them.

And Gordon, finally, other than the Accord, does Honda have any programs on any other vehicles as they -- I know there are a couple of other vehicles they plan to -- new vehicles they plan to launch later in the year, do they have similar programs for those?

The Accord is the big one. There's always smaller programs, but clearly they're -- for this year, the big push for Honda is the Accord.

Okay. All right, thank you.

Thanks.

We'll move on to Jordan Hymowitz with Philadelphia Financial.

Hey guys.

Hey, Jordan.

First of all, if Ken's there, I want to congratulate him on doing an excellent job in building the company and just doing a very good job overall, so good job, Ken.

We agree with you.

Second of all, a couple of quick questions. I just don't understand the interest income question that I think Rick asked before, is that because you didn't spend the cash and it's out on your balance sheet, but the yield that that generated was unbelievably high on an interest rate basis, so is there something else in there?

Well, on a yield basis, it should be around LIBOR 5%, but maybe if you're trying to do an averaging, because of the timing of the debt, it may look higher, but it should be about 5%-5.2% yield on the interest income.

Or maybe it's just the averaging effect, okay. Second is, I'm hearing that in the last 30 or 45 days, a number of the banks cutback on sub-prime financing, not the independent guys -- has that affected you or have you had that experience or not really, or --

No, we haven't seen that Jordan, it's -- actually, we're seeing some more players come into the market.

Okay.

And one of our strategies, quite frankly, is that we want to do business with all the sub-prime lenders, so you know, if there should be a -- some capital constraints on one it shouldn't impact us materially since we're doing business with all the players.

Okay. And finally, could you comment on your usage of dealer track, how widespread it is in your business, (technical difficulties) them and things of that nature?

All of our stores have dealer track, Jordan.

Yeah, but are you buying or using them more often, or you think they're taking share, from route one or are you buying more of their software programs? I know that --

No, it's about the same.

About the same?

Yeah.

Okay, thank you.

We'll now move on to Derrick Wagner with Jefferies and Company.

Yes, thank you. Could you give us the capital expenditures for the first quarter and the outlook for the year, the outlook for D&A for the year as well depreciation and amortization and --

Sure, why not.

-- of the long-term debt?

I didn't catch the last piece, but let me answer the first piece and then you can repeat that -- the second piece.

For the quarter, we had a CapEx of about -- $13 million and for the year -- we got about five major projects that are just starting to get underway, so the outlook is to spend between $70 million and $80 million on CapEx, $15 million of that is your normal maintenance CapEx; that's about what we spend on a yearly basis, and depreciation is in the $21 million range. It's -- how much -- will depreciate this year.

Okay and then the breakdown of the long-term debt and when you are going to file the Q?

Oh, okay, we'll file the Q probably around the 7th, somewhat -- somewhere in that -- I probably have the wrong date, but it's around that date, the 7th. And the breakdown of the long-term debt is as follows.

We got $12 million of overhang from the 9th and as I said, we're going to call that in, in June. Then we have a $115 million of convertible notes due -- that's 2012, and then we have a $150 million of the new 7-5/8ths notes due 2017 and then a $172 million of 8% notes that are due -- the first call is 2009, and they're 2014. They're -- the -- last of 2014, that --

And the converts are dividend protected?

Yeah.

Yes.

Thank you.

Yeah.

And there's a -- one small piece I didn't put in there is the -- loaner vehicle also gets in that category, it's about $30 million.

What was that?

There's loaner vehicles in there for about $30 million.

Okay.

Not everybody puts that in long-term debt, but we do.

Okay, thank you.

We have no further questions at this time.

All right. Thanks everyone for calling in today and we will talk to you next quarter.

Well, this concludes today's conference; we thank you for your participation and have a great day.