H&E Equipment Services Inc (HEES) 2014 Q1 法說會逐字稿

Good day and welcome to today's H&E Equipment Services first-quarter 2014 earnings conference call. Today's call is being recorded.

At this time I would like to turn the call to Mr. Kevin Inda. Please go ahead, sir.

Thank you, Lisa, and welcome to H&E Equipment Services' conference call to review the Company's results for the first quarter ended March 31, which we released earlier this morning. The format for today's call includes a slide presentation which is posted on our website at www.he-equipment.com.

Please proceed to slide 1. Conducting the call today will be John Engquist, Chief Executive Officer; Brad Barber, President and Chief Operating Officer; and Leslie Magee, Chief Financial Officer and Secretary.

Please proceed to slide 2. During today's call we'll refer to certain non-GAAP financial measures. We have reconciled these measures to GAAP figures in our earnings release which is available on our website.

Before we start let me offer the cautionary note that this call contains forward-looking statements within the meaning of federal securities laws. Statements about our beliefs and expectations and statements containing words such as may, could, believe, expect, anticipate and similar expressions constitute forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties which could cause actual results to differ materially from those contained in any forward-looking statement. These risk factors are included in the Company's most recent annual report on Form 10-K.

Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call. With that stated I will now turn the call over to John Engquist.

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services' first-quarter 2014 earnings call. On the call with me today is Leslie Magee, our Chief Financial Officer, and Brad Barber, our President and Chief Operating Officer.

Proceed to slide 3, please. This morning I will give an overview of our first-quarter performance and also discuss activity within our regions and current market conditions.

Leslie will then review our first-quarter financial results in more detail. When Leslie concludes I will discuss our outlook for 2014 and at that time we will be happy to take your questions.

Slide 5, please. The first quarter represented a strong start to the year for our business despite challenging weather conditions. We see the recovery in the commercial construction industry is gaining momentum as end-user demand continues to increase at healthy levels compared to a year ago.

This continued momentum can be seen in the strength of our rental business in the first quarter. Rental revenues grew 14.4% from a year ago and delivered solid gross margins at 45.2%.

Fleet utilization remains at a high level even with a much larger fleet at 69.2% based on OEC compared to 67.9% a year ago. Rental rates also increased 2.5% compared to a year ago.

Demand was also very strong for equipment purchases by end users during the first quarter resulting in a solid performance for our distribution business. New equipment sales increased 30.4% as demand for cranes and earthmoving equipment was significantly higher than last year. The used equipment market also continues to perform at strong levels.

In terms of the financials total revenues increased 11.7% to $237.2 million versus last year. Our gross margin was 30.7%.

Income from operations increased 31.4% to $24.6 million and EBITDA increased 22.2% to $62.7 million compared to a year ago. Net income for the quarter was $7.4 million or $0.21 per diluted share versus net income of $4.8 million, or $0.14 per diluted share a year ago. We are extremely pleased with our performance and our teams continued ability to capitalize on improving market conditions especially considering that the first quarter is historically our most challenging quarter.

Proceed to slide 6, please. There are a few key takeaways on this slide. Activity in our industrial markets along the Gulf Coast and in the Intermountain region is extremely high and we expect end-user demand to increase further throughout 2014 due to continued expansion in the petrochemical and oil and gas related industries.

We also expect to benefit from the historically high level of capital spending relating to new projects in these industries in our Louisiana and Texas markets. While our Gulf Coast and Intermountain regions generate the majority of our revenue and gross profit activity in our less industrial regions is also expanding and is generating higher levels of revenue and gross profit than a year ago.

Slide 7, please. This slide will come as no surprise to everyone on this call and reflects the positive trends in market conditions we have been seeing in our business. These key market indicators all point towards a significant recovery in the commercial construction industry.

As I mentioned previously there is an unprecedented number of industrial projects that are expected to begin breaking ground this year in Louisiana to construct new petrochemical and manufacturing plants. And we expect these backyard projects to be another strong driver of our performance in our Gulf Coast region. At this time I'm going to turn the call over to Leslie for the financial review.

Thank you, John, and good morning. I'll begin on slide 9.

We are pleased to report another quarter of strong results this morning and as John mentioned our total revenues increased 11.7% to $237.2 million and gross profit increased 12.9% to $72.8 million compared to the same period last year. The drivers of our revenue growth this quarter were increased rentals and new equipment sales.

We'll now dive deeper into the results beginning with our rental business first covering revenues and then gross profit highlights for each of our segments. Rental revenues were $86.2 million for the quarter, a 14.4% increase over the same period a year ago. We have continued to invest in our fleet which has increased approximately $126.5 million, or 14.1% from a year ago based on original equipment cost or OEC.

Although our fleet size has grown significantly we have maintained high utilization levels with average time utilization based on OEC of 69.2% for the quarter compared to 67.9% a year ago. In addition, based on number of units available for rent average time utilization was 64.5% compared to 63.6% last year.

Also average rental rates increased 2.5% over a year ago driven by increases in rate on aerials. As a result our dollar returns were 34.1% compared to 33.9% a year ago.

New equipment sales were $69.5 million, up 30.4% from $53.3 million a year ago. As John indicated in his remarks this was primarily the result of higher demand for cranes which increased 38.7% and strong demand for earthmoving equipment which increased 29% in each case over a year ago.

Used equipment sales were $29.3 million, a $2.8 million or 8.7% decrease over the first quarter of 2013. The net decrease was primarily due to lower used crane sales. Although business activity in our parts and service segments were consistent with the prior year with revenues of $39.5 million, this segment of our business was impacted more severely due to the harsh winter conditions in the first quarter.

Let's move on to a discussion of gross profit by segment. Total gross profit for the quarter was $72.8 million compared to $64.5 million a year ago, an increase of 12.9% on an 11.7% increase on revenue. Consolidated margins were 30.7% compared to 30.4% a year ago with every business segment delivering improved margins from a year ago.

Our rental business delivered margins of 45.2% compared to 44.6% a year ago due to lower rental expenses as a percentage of comparative revenue. Margins on new equipment sales were 11.2% compared to 10.5% in the same period last year reflecting higher margins on new crane and earthmoving equipment sales.

Gross margins on used equipment sales were 30.4% compared to 29.2% in the same period last year. Parts gross margins were 29.1% compared to 26.6% a year ago and service gross margins were 65.3% versus 60.5% a year ago. And margins on other revenues were 4.9% compared to 3.4% in the first quarter of last year.

Moving onto slide 10, please. Income from operations from operations for the first quarter increased 31.4% to $24.6 million, or a 10.4% margin compared to $18.7 million, or an 8.8% margin a year ago. The driver of the increase was the strong performance of all of our business segments combined with the control of costs at the SG&A line despite the negative impact from a shift in our revenue mix.

Proceed to slide 11. Net income was $7.4 million, or $0.21 per diluted share compared to $4.8 million, or $0.14 per diluted share in the same period a year ago. And our effective tax rate was 39.3% compared to 31.3% a year ago due to lower benefits on permanent deductions in the current period.

Please move to slide 12. EBITDA was $62.7 million, or a 22.2% increase over the same period last year. And EBITDA margins were 26.4% compared to 24.2% a year ago driven by the same strong operating results previously mentioned.

Next slide 13. SG&A was $48.9 million, a 5.6% increase over the same period last year and SG&A as a percentage of revenue was 20.6% this quarter compared to 21.8% a year ago.

Our greenfield initiatives added $1 million, or approximately 38% of the total $2.6 million increase in SG&A this quarter compared to a year ago. Further, we incurred increased wages and incentives largely due to the growth in the business.

Slides 14 and 15 include our rental fleet statistics. Our fleet based on original equipment cost of the end of the first quarter was $1.024 billion versus $890 million a year ago, an increase of 14% or $126 million. During the first quarter we increased the size of our fleet by $23.3 million based on original equipment costs.

Our gross fleet capital expenditures for the quarter were $65 million including non-cash transfers from inventory. Net rental fleet capital expenditures for the quarter were $40.2 million.

For the quarter gross PP&E CapEx was $6.1 million and net was $5.4 million. Our average fleet age as of March 31, 2014, was 34.4 months.

Next slide 16. At the end of the first quarter are outstanding balance under the ABL was $124 million and accordingly we had $272 million of availability at quarter end under our ABL facility net of $6.5 million of outstanding letters of credit.

I will now turn the call over to John to discuss our 2014 outlook. And then we will open the call for questions.

Thank you, Leslie. Please proceed to slide 18.

Let me quickly close by saying that our business is off to a strong start this year. Despite challenges caused by the harsh winter our first-quarter results improved significantly from a year ago.

Current end-user demand in our markets is outpacing the activity levels we experienced this time last year, which we believe reflects that the recovery in the commercial construction markets is gaining more momentum. High levels of demand in our rental and distribution business as well as increased construction activity in our less industrial markets also reflect our view that our industry is in the midst of a significant expansion cycle.

With our strong first-quarter results and the positive current trends in our markets we continue to believe that 2014 will be an exciting and positive year for our industry and our business. Our focus remains on solid execution, improving operating leverage and cost control to continue to improve our market position and capitalize on the significant market opportunities in 2014.

At this time we will be glad to take your questions. Operator, please provide instructions.

(Operator Instructions). Joe Box, KeyBanc Capital Markets.

Good morning, everyone. Question for you on the rental rates in the quarter. I know you guys calculate rental rates a little bit different from the ARA method.

So can you just put maybe a little more color on the 2.5% increase year over year? Curious, did you sign more long-term contracts, or was there any noise that maybe pushed that rate down a little bit?

Joe, I would point out a couple of things. One, I think we're up against a really tough comp.

If you look at what we did a year ago we were up double digits. And I don't think any of our peer group was up that level.

So it's a tough comp and probably more importantly we are aggressively growing our fleet right now. We've had a lot of product come in the first quarter and you saw the fleet expansion.

And frankly we are being very protective of utilization right now and it certainly shows in our year-over-year improvement in utilization. So heavy fleet growth, improved utilization and I think that's probably the bigger driver there.

Understood. And then I apologize if you mentioned it earlier, but did you say where rates were at sequentially in 1Q?

I did not, no. Leslie, do you have anything on that?

Yes. They were down 80 basis points in the first quarter.

Joe, basically utilization was flat, like Leslie just said they were down 80 basis points in the first quarter. Probably more important today we are sitting at north of 73% physical utilization based off of OEC, the dollars invested that are on rent.

And I can tell you throughout multiple cycles now we have proven that we are very disciplined when it comes to rates. We remain very focused as it comes to rates, and as John said we're up against a very difficult comp.

We were low double-digit growth this time last year in the year-over-year measurement so we anticipate continued rate improvement. We are very focused on it, focused on rate, on growth and on ultimately the margin, so good question. We are focused and you will continue to see some incremental gains on the rental rate front.

And Joe, the first part of your question you asked if any product was going on long-term projects and I think that is the case with some of our crane product where we have seen a slight decline in rates. And some of these industrial projects are kicking off and some of these cranes are going on to long-term projects that are rate sensitive. But the equipment is going to be out a long time and the yield will be good on those projects.

Thanks for the color there. And look, we noticed that the dollar utilization number is going up too so we are not going to harp on that 2.5% too much.

You had mentioned margin earlier, so maybe just to dovetail on that. I know that there was some weather in the quarter, and maybe a little bit less contribution from price but if you look at the rental incremental gross profit margins it's a little bit light of our expectations would you say that's a one-time blip or is it fair to be thinking about that in the maybe 50% range this year?

Yes, I have no expectation that you will see any change in our incremental margin on rentals over the course of the year. I think we will be where you expect us to be.

Okay, great. And then, John, you mentioned earlier it seems like commercial is gaining some momentum. Can you maybe just put a little more color around this is either by project type or geography?

Well, I'll tell you, Joe, from a project standpoint or geography it's very broad based. The markets that were really tough for us for a long time have really come back.

If you look at Florida, Arizona, Nevada, the Vegas market has really come back in Southern California. So geographically and from a project standpoint it's broad based. It's very very encouraging what we are seeing right now.

Excellent. I'll hop back in queue. Thanks.

Neil Frohnapple, Longbow Research.

Hi, good morning and congrats on a nice quarter. Just to follow-up to Joe's question on a rental rates. I don't want to be just too much into the ground.

And Brad you were kind enough to provide color on physical utilization where we are today. So you mentioned that customer demand accelerated significantly in the month of March and is there any way to provide additional commentary on rental rate performance in the month of April? Was the growth rate higher than what we saw in the first quarter?

We don't provide monthly guidance but let me say this. John alluded to in his comments particularly on the crane side, our crane fleet has continued to grow at some level as the rest of the fleet has grown.

And we are faced with probably a little more pressure with that product type than others. And so the waiting as a goes through the whole mix can -- it yields a result and so -- look, I don't think anyone should be overly concerned about rates.

We see opportunity to continue to raise rates. We see our competitors continuing to raise rates and I think we are going to be okay there.

Utilization is at a very healthy level. We've got pretty meaningful fleet growth going on the same time. Whether you look at that on a sequential or year-over-year basis I think those are impressive metrics that say something about our business.

And I assure you that we are well focused on rental rates as are our competitors. So the marketplace I think is in good condition for all of us to continue to see incremental rental rate increases.

You know it's always a balancing act between rate and utilization and we think we are in a pretty good spot right now.

Great. Thanks for the color on that I appreciate it. John, as you take a step back and look at the opportunities on the horizon in the Gulf Coast over the next few years are there any other equipment rental product categories or distribution areas you are not in currently that you would be potentially interested expanding into either organically or through M&A?

Obviously some of the specialty rental stuff is interesting to us and that is something that we may look at at some point. But we've got a lot of opportunity in front of us with our existing product lines and a lot of growth opportunities.

So would we look at the right opportunity to get into some of the more specialized rentals? Absolutely if the right thing comes along but we got ample opportunity in front of us with what we currently have in our fleet.

Great, and just one final one from me. Pertaining to crane sales activity are there certain crane categories that are outperforming or is the strength really broad based at this point?

Yes, the all-terrain cranes are exceptionally strong right now. Crawler cranes are showing some improvement and certain truck crane models are very strong.

And probably the soft area right now would be rough terrain cranes. That's the softest category we are looking at right now. But overall we are seeing a lot of demand, a lot of inquiries on the crane side but it's heavily weighted to all-terrains, crawlers and truck cranes.

Great. Thanks very much.

Nick Coppola, Thompson Research Group.

Good morning. Looking for a little bit more color on how weather impacted you in Q1.

Your network doesn't really extend too much in the Northeast or Midwest but clearly the south had some tough weather too. Any thoughts about how weather impacted you in the quarter?

There's no question that impacted us. I know at one point in time Brad and I looked and we had 25% of our stores were closed due to an ice storm and stayed close for two or three days and that happened more than one time.

So we had some harsh weather. I think it probably impacted our parts and service business more than it did other categories but that is something hard to quantify.

But I can absolutely guarantee you it didn't help us any, in any of our business segments. So a little bit hard to quantify but there was certainly a negative impact.

Okay, and then second question transitioning a bit into new sales and understanding that piece of your business is lumpy. Can you give us any color on your expectations throughout the year?

You've got a big hurdle in Q3. Q3 was up 84% year over year last year. How are you looking at new sales and are you looking at industrial activity in the golf as really a key driver there to get some positive year-over-year comps?

Yes, I don't think there's any question what we are seeing in Texas and Louisiana is going to drive new equipment sales. There's no question. Our expectation is that we will be solidly up year over year in new equipment sales.

Do you have any commentary on what crane inquiries have looked like maybe through April?

Yes, I think strong. Brad, you've probably got more comments -- they've been strong.

Yes, they've been strong. The inquiries, the order intake is starting to improve.

When you talk about one single quarter and understanding how heavily weighted we can get to cranes, and particularly large cranes, I think John's comment is spot on and really good guidance for you. I think you need to think in broader terms in more of a total full-year performance.

But I can tell you that inquiry on earthmoving and inquiry on all types of cranes is dramatically improving. Now what does that net within this year and in a particular quarter? That's still difficult to estimate but again on a full-year basis we feel pretty comfortable that we are going to perform better than last year with new sales.

Okay. Thanks for taken my questions.

Seth Weber, RBC Capital Markets.

Hey, good morning, everybody. I guess first just a clarification. Brad, the 73% number that you shared, is that's a utilization kind of where we're at through April, was that an April number, or --?

That's a snapshot.

That's a snapshot this morning, Seth. 73.3% of our inventory at OEC is on rent today.

Today. Okay, great. Thank you.

So I have a question on, it's sort of relates to pricing, so for Tier 4 the OEMs are trying to push through Tier 4 pricing and you guys are absorbing some of that. How should we think about that, the price cost dynamic to you and the ability to push that through? Is that going to sit on your -- weigh on your margins a little bit here as that starts to become a bigger part of your fleet, or is that just not something that I should be worried about?

I don't think you should be overly concerned about it. I think initially on certain products could have a margin impact.

If you look at a reach lift for example, that's a big impact to cost there. It could be 10% on a product like that.

In other product categories it's really not an issue on a crane it's such a small dollar amount it's easily passed on. Over time the market will adjust to the cost.

Short term could it have a short-term impact on certain models? Probably. Brad, you got any other -- ?

No, I think those examples are good examples. Seth, the smaller the product the larger the impact.

So air compressors that fit within the requirement, they can be 30%, 40% type of price increases. That's not a big component of what we do.

History tells us whether it be steel or technology changes those costs get pushed through and generally do not reflect in our margin. So while we could have some isolated cases with a particular product line or a mix within a product line we don't have any large concerns about that at this point in time.

Okay, on the AWP business do you feel like you are absorbing that whole price increase or is some of that shared pain with the OEM?

Yes, that's probably one of the products that we are sharing a little bit of the pain. I think it's certainly impacting the OEMs.

You could speak to those guys and they can convey that more clearly than I can. But from our standpoint a customer when they rent a 60-foot Boom or 80-foot Boom, or pick a product, they don't care about the tier process. And the fact is we've got a very young rental fleet, I think 34.5 months, so it's caused some economic headwinds for us that we're going to continue to work through.

Okay, and then I just wanted to go back to a comment, I think your used equipment sales were down in the quarter and I think I heard you say you sold fewer cranes. Should we interpret that to mean that you're going to be -- your rental fleet CapEx you will be adding more credence to your fleet this year relative to the last couple of years, or you are just selling fewer?

Well, our CapEx this year will be similar on a gross spend to what we did last year. But with that said our expectation is that we sell less fleet and that is by design.

Our fleet average, as Brad said, is 34 months, very young fleet. We just don't have the need to sell the level of equipment we did the last couple of years. So we are going to pull back on that.

I'm just trying to understand if your CapEx -- if what you are buying, if the mix of what you are buying is changing?

You should think out about our mix being very similar to what it has been, Seth.

Okay, great. Thank you very much, everybody.

(Operator Instructions). Steven Fisher, UBS.

Hi, good morning. I got on the call a little late, so I apologize if you cover these points already.

The $5 million cash balance, I know you've got some credit line flexibility but how do you think about what the right amount of cash is to have on the balance sheet? I assume this has got to be the low point here?

We don't really maintain cash when we are in, when we have funds drawn on the ABL because we are just in the, any funds we collect are going to pay down automatically sweep and pay down the ABL. So that's just a timing situation.

Okay, so you're perfectly comfortable with having this level of cash for running the business?

Well, our ABL is pretty much -- we use it as a working capital line basically depending on what our needs are. But this is how we have operated forever and we are completely comfortable with it.

We have tons of availability under our $403 million ABL facility. It is supported by assets of north of $800 million and it's just the way the arrangement is set up that as funds are collected they are automatically swept to pay down the loan.

And so any cash that's sitting on the balance sheet at any point in time is strictly a timing situation of funds that were collected that aren't considered collectible and will be swept the next day to pay the line down. We don't maintain cash until that balance is zero.

Okay. You mentioned in the release about continued market penetration. Are you referring to the shift to rental in the overall marketplace and if so how should we view that against the strength of your commentary on strong equipment sales in the quarter and inquiries going forward?

I think when we refer to penetration we are talking about all of our business segments. The distribution side and the rental side.

Steve, we're a fairly large Komatsu distributor in a couple states of our footprint. Those markets are growing and our market share is improving year over year.

So as John said, we're really talking about all product types. But each one individually we're seeing growth in both from a revenue category, meaning rentals versus retail, as well as the particular product lines that may be part of the distribution, earthmoving and crane.

Okay. Thank you.

Joe Box, KeyBank Capital Markets.

Just a couple of quick follow-ups for you. On the last call you guys talked about SG&A as somewhat flattish year over year as a percent of sales. This year it was down 120 basis points year over year.

Should we think about that as maybe normalizing over the next couple of quarters to get you to that flat year-over-year percent? Or are we just going to see better leverage at this point?

I think the guidance that we have given to this point on SG&A, I think that will hold true. You may see a tad of leverage by the time the year is up but I think for all material purposes the guidance we have given is adequate.

Okay, perfect. And separate topic here, can you just talk about the rental activity that you are seeing in some of the Gulf Coast shale plays? Just curious if that has been a big driver recently, or if there has been a lot more competition in that area?

Yes, the liquid plays are just phenomenal. Anything tied to oil is really good. If you look at our stores in like Midland and you get into those kind of plays, it's really really strong. And our expectation is that it will remain so.

And then just one last one for you if you don't mind. Somewhat of a follow-up to Nick's question.

You guys put up a really strong new equipment sales number on top of a tough comp. It seems to me like maybe your tone is changing a little bit on this business. I am just curious, does it seem like we are actually at a point now where we are going to see a sustainable recovery in the new equipment business, or do you think that it still could be choppy and we will have quarters where it is down significantly and other quarters where it is up significantly?

Just the nature of new sales, it tends to be a little bit choppy at times. But again it is our expectation that year over year we're going to be up solidly in new equipment sales.

So we are not forecasting anything to flatten or start leveling out. I think we are in the beginning of a nice recovery in that part of our business.

Joe, let me add this and maybe this will be a little helpful. The smaller or let's just call it the more average-sized product that we retail, we are seeing much more consistency with more customers, the small- to medium-size customers.

I think the thing that causes us a little concern is the large crawlers, these $4 million to $6 million individual sales or groups of sales that can really swing that revenue number a substantial amount. But I came to you we are seeing a much steadier, healthier feeling stream of business where our small- and medium-size consumers. But I think our trepidation on the revenue number and really speaking to it is four, five, six cranes at $5 million a pop can really move the needle one way or another.

But, Joe, again just the nature of equipment sales, you could have a lumpy quarter here or there but overall I think we feel pretty good about the year-on-year equipment sales.

Understood. Thanks, everybody.

Sean Wondrack, Deutsche Bank.

Good morning, guys this is Sean Wondrack on for Phil Volpicelli. Great quarter.

Just a couple quick follow-up questions and just a housekeeping question. When you talk about rental rates I believe you said that Ariel basically led the 2.5% increase? Can you talk about some of your other categories and how they performed during the quarter?

Sean, that's not what we said. We said we had a 2.5% increase year over year but that cranes were a larger drag than the other products unless I'm misunderstanding the question?

Yes, cranes were down a little bit. Aerials were up more than other categories, so the strongest performer from a rate perspective was the Aerial business. And cranes was the weakest performer.

Cranes was the weakest. And then was everything else roughly flat year over year, or were they up as well just in (multiple speakers)

Yes, other products basically flat.

Okay.

And again, I think cranes, there's a lot of competition in this market with the work that's coming here. And there are some long-term projects that are rate sensitive although again your equipment will be out a long time and the yield on those projects is good. So that's impacting crane rates.

Okay, thank you. And then when you look at your physical utilization during the quarter did you see it improve as the weather improved?

A lot of the companies we've spoken to saw a steep uptick in March and April. I know you said that you are at 73% now, can you kind of described what the cadence was from month to month, please?

On utilization?

Yes.

Yes. It's been very consistent. There have been weeks, in the last three or four weeks we may have had larger growth in the preceding three or four weeks but it has been fairly consistent for us.

73% this time of year that is very high, that's very strong utilization and it has just been kind of steady growth.

Okay, how does that compare to last year in April?

Leslie may have that. I would think we are probably 150 --

Last April was under 70% on average for the full month.

Great. Despite the huge fleet growth, so a very good sign there.

Okay, and then just another real quick one, on the last call, John you sounded like you were more open to considering a larger acquisition, or acquisition in general versus greenfields. I know you plan to open roughly five greenfields this year.

I guess my question is with all this free cash flow coming through what are your priorities? Do you expect to open five greenfields and then look for other opportunities, or have you chosen those locations? How are you thinking about applying your free cash flow this year?

Yes, we are definitely focused on our greenfield initiative and I think Brad intends to open five or six stores this year. And that is our focus.

With that said, we've got a very strong balance sheet, we've got a lot of liquidity. If the right thing comes along -- I certainly didn't mean to imply that my focus has changed towards acquisition. That's not the case.

I'm really trying to be consistent and tell you that if the right thing comes along we will certainly look at it and would look at it. And I think we've got the balance sheet and the ability to do an acquisition if something makes sense. Right now our focus is on our greenfield strategy.

Right, and I would agree with you. A think you are one of the healthiest companies out there doing what you are doing.

Which is why given your expectations for continued growth and some of these companies becoming healthier and deleveraging, if you are seeing opportunities that have become a little bit more attractive that you might think about a little bit more versus a year ago when you were more focused on organic. I know you're still focused on organic but have opportunities become more attractive?

We have looked at some stuff and we have not found the right situation for us. But again we are going to be opportunistic and if the right thing comes along we will certainly take advantage of that opportunity.

Okay, thank you for that. And just one last one, housekeeping, what was the balance on your floor plan payables, please, during the quarter?

$56.3 million.

Okay, great. All right, thank you very much. Good luck next quarter.

Neil Frohnapple, Longbow Research.

Hi, guys just a quick housekeeping follow-up. Leslie, is the 39% tax rate a good run rate to use through the remainder of the year and in the out years?

Yes. I would use that for the remainder of the year at this point and then going forward I don't think that's unreasonable. We would just have to update you as we know more information looking forward. Anything in that 39% to 40% the way we view it today is probably reasonable.

Great. Thanks very much.

That concludes the question-and-answer session. I would like to hand the conference back over to John Engquist for any additional or closing remarks.

I appreciate everyone being on the call. Again, I think we are in a solid environment and looking forward to the rest of the year.

We think it will be a positive year for our sector and our business and look forward to it. And we will talk to you on the next call. Thank you.

And that does concludes today's teleconference. Thank you for your participation.