Rush Enterprises Inc (RUSHA) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Rush Enterprises Inc. fourth quarter and year-end 2011 earnings conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn your call over to your host for today, Mr. Marvin Rush. Sir, you may begin.

Good morning, and welcome to our fourth-quarter earnings release conference call. On the call today are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and CFO; and Jay Haselwood, Vice President and Controller. Now, Steve Keller would like to say a few words regarding forward-looking statements.

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our annual report on Form 10-K for the year ended December 31, 2010, and in our other filings with the Securities and Exchange Commission.

I will give you a 2011 update. We're pleased to announce the Company's achieved record revenue of $2.6 billion in 2011. We also earned $0.50 per diluted share in the fourth quarter, achieving the highest quarterly pretax income in the Company's history for the second consecutive quarter.

Aftermarket services, which accounted for 63% of the Company's total gross profits in 2011, reached record highs in March and continued to climb and remain strong through the end of the year. This resulted in another record quarterly absorption rate of 117% for the fourth quarter of 2011, and the annual absorption rate of 114%, our highest ever. This was a result of increased service needs of aging vehicles and incremental business generated by service solutions we are providing to our customers.

Rush Class 8 new truck deliveries increased by 91% over 2010, significantly outpacing the US Class 8 market, which grew 58%. This is mainly due to the continued strong demand in the energy section -- sector and replacement purchases for the large fleets. Similarly, for Class 4 through 7, deliveries increased 94% compared to last year, also outpacing the US medium duty market. Our medium duty growth is primarily the result of acquisitions made in 2010 and 2011. We also delivered 1000 light duty trucks for the first time, thanks to our Ford acquisitions.

During 2011, the Company continued to expand its geographical footprint. We added three Navistar locations in Atlanta, two Ford and Isuzu locations in Florida and California, and five Peterbilt locations in Texas. We also expanded operations to our -- to larger and new facilities at three locations and purchased land with plans to construct a new dealership facility in Corpus Christi, Texas.

We continue to grow our ancillary business as well. We established a new modification center in Texas and opened a new bus center in San Antonio with plans to open another Houston -- in Houston this spring. We also relocated IC Bus operations in Atlanta to our larger Rush collision center and added four PacLease franchises to our truck leasing operations.

Let's look at the industry outlook. We expect Class 8 retail sales to reach 200,000 to 215,000 units in 2012, just slightly above historical replacement levels. Class 4 through 7 retail sales are expected to increase about 13%, to reach about 163,000 units. We expect the expiration of tax incentives at the end of 2011 and the brake-valve recall on Class 8 trucks to cause our first quarter retail sales to be down from the fourth quarter.

We also expect employee benefit program enhancements and higher equity compensation costs to negatively impact our expenses in the first quarter. Despite a poor first quarter, we believe our aftermarket business and the energy sector will remain strong in 2012. We are also encouraged by recent improvements in the other vocational segments and continue to expect strong truck sales markets for 2013 and 2014.

We are very proud of the Company's performance in 2011 and are grateful to all our employees for their contributions to the Company's success. We continue to transition the Company to being the premium solutions provider of the commercial vehicle industry and decrease the impact of Class 8 sales on our financial performance. We're in excellent financial position for continued growth heading into the expected industry upturn. We are now prepared to answer any questions you may have.

(Operator Instructions)

Peter Chang, Credit Suisse.

Hi, good morning, gentlemen, and congratulations on a nice quarter. My first question is on the energy sale, or the sales into the energy end market in the fourth quarter and where you think that's going to be going in 2012. Are we here at peak-ish levels, or do think there is continued room to grow there? And then if we are sort of at peak-ish levels, is there a similar opportunity in fitting up these trucks for non-res construction or res construction if we start to see a material rebound in those markets?

Peter, it's Rusty, obviously. From an energy perspective, we'll probably -- we're projecting out to be relatively flat in 2012, and I take just the energy sector, I think that's -- that's a positive, though. You have to understand how bullish and how fast it ramped up in 2011, so we view that as a positive as you look out across the oil and gas sector, especially the oil side of the business, understanding where the business is and where it's going. We like to think we understand it pretty well across the whole United States. We feel pretty good about that.

Especially given the signs of improvement we see -- are seeing on the coastlines in the purchasing patterns that we are seeing. Even though they're just trickles, but they're signs that we have bottomed and are starting back the other direction in California and Florida and Arizona. As to what - at what speed and what pace we -- those purchases increase, I can't quite tell you.

But we know that we have bottomed and are headed back the other direction in those areas. So, combined with the consistent performance in the energy sector, and also with what we see, and even the truckload side of the business with rate increases that you're seeing, all our public customers, which trends then down onto midsize customers and even the smaller customers, that goes across the board.

All those are positives, and we feel really - we feel real good about where we are from an annualized basis. We touched upon the first quarter in that the deliveries would be slightly down in the first quarter, but we take a look at it -- I want to put - to put to rest that question, that one paragraph, I don't want people to get concerned because we feel very good about where we're looking, what the market looks like through '12, '13 and '14 given the consistent growth rate that we see across the board. We feel real good about the whole year of 2012.

As far as your used truck question, you're going to have to -- I didn't quite under - get to what you were driving at there, Peter.

It wasn't a question on used trucks. It was more a question on if there was an opportunity for the parts and service market on the res construction or non-res construction type trucks that is similar to what you're seeing in the energy markets where you have to retrofit them.

No question. I promise you this, we are poised and waiting for that to take place. If we could draw a black jack and hit -- keep the energy market where it's at and get the construction market to pick up, obviously we would look to do good things for the stock.

Great. And my second question is a margin question on the parts and service business. You guys hit above 40% for the first time in a couple years. Given that energy is going to be flat and you've got the new west Texas acquisitions, it seems like above 40% margins are pretty likely going forward. How do you think about that?

You've got to look at it as a mix issue. Our service business was up more than our parts business, and our parts margins were actually a little bit higher in the fourth quarter sequentially from the third. I'm not going to sit there and tell you we are going to touch close to -- it was about 40.9%, if I'm not mistaken. I think that's probably on an annualized basis, because there is seasonality involved sometimes, and there's mix of business, and there's a lot of varying factors in there.

But to be around the 40% number, which I think we ended up the year around 39.3% or something along those lines would be good. If we could get up and stay around that 40% give or take a half a point. Again, there's a lot of factors that go into that. But we feel real good about where we are at, and especially if you look back where we were two years ago and what we are at now, we feel real good about the progress, and in a typical cycle, those margins will hover around 40%.

Tim Denoyer, Wolfe Trahan.

Good morning. If I could add one to the, just the parts margin question. Did the new modification center in Texas, that opened up during -- was that during the fourth-quarter that, that opened up, and did that have any significant impact?

No, that didn't have any significant impact. In fact, we just opened in the fourth quarter, and I would tell you the one in the Dallas area is really just right now getting to be fully ramped up, to be honest with you. So actually, we look for that to be a help as we go forward. We are real excited about where we are at with that facility and also the 230,000 square feet that we opened up in, well the late third, early fourth in the Houston area too. We look for those to both be of benefit as we go forward and try to maintain around that 40% margin.

Excellent. And I hate to put you on the spot on Navistar, but I was just a little bit -- was kind of expecting to see a few more deals by now. Can you give us an update on how that is going in terms of locations of Navistar dealers?

You're looking for some pretty robust growth. I look back and -- I personally look at it, and I look through the year ended December 31, and in the span of less than 20 months, we added 15 dealerships. So I don't feel too bad about that. There is a gap from say the mid to end March last - until right now. Are we aggressively pursuing and do we have the confidence of the management team and Navistar to acquire facilities? You bet we do. But you know, the market has turned up.

People that weathered the storm of 2008 and '09 and 2010, the buyers are becoming a little tougher. Or, the seller - should I say, the sellers are becoming a little tougher. But we're still out there as a willing buyer and are aggressively pursuing more deals and are working in conjunction with the management team and Navistar to acquire more. We feel real good about where we are at. But it takes - it can't be just a willing buyer -- there has to be a willing seller.

Yes, great. And then if I could ask one on the 2012 outlook for parts and service. That seems to be a tougher one to forecast from a top line standpoint a little bit. I appreciate the color on the margins. After growing 37% in 2011, you've got a couple acquisitions coming on. It seems like that -- is it fair to say that could be sort of a mid-teen kind of revenue grower in '12?

On an overall basis, yes, not same store, but if you're going to look at it from that perspective, sure.

I would tell you, we look at absorption. Absorption is the key indicator, and we were very pleased getting 114%. Don't look for that same expansion, I think we were 106% the year before to 114%. I can't sit here and honestly tell you I expect 8 points growth of absorption. Is our goal to get 115? If we do a little better, we will be very happy with it, you bet we will. But that'll be on a much larger base, which at the end of the day produces more dollars of return. That's what our focus is. And we look forward to executing that for our shareholders.

Brad Delco, Stephens.

Good morning, gentlemen. How are you? I wanted to follow up, maybe touch on some of the commentary around growth. Looking at the balance sheet, you guys have over five dollars in cash. Heard the commentary on Navistar expansion. But how would you prioritize the use of cash, whether it's continuing to build out medium duty, buying land, building your additional stores? If you can't get Navistar deals, what's the other use of that cash for you?

It's funny you asked that. We are assessing what we are going to do as we look forward. We were pretty pleased as we - in the press release, as we mentioned. When you consider that we spend over $55 million out-of-pocket on acquisitions last year in cash and add that to still picking up the amount of cash we picked up, and if the acquisition trail was to slow down somewhat this year, we obviously have -- going to be growing our cash position quite nicely. We're taking a look across the board at our debt, obviously.

As for paying down some of the debt, based on a real estate perspective, obviously we feel real good about our floor plan. We just re-signed - we just, by the way, re-upped our floor plan agreement with General Electric at a nice rate and for a three-year deal. So we feel real good about that. We just consummated that 1 February. We wouldn't be looking along those lines. We would be looking at another debt that we have across the network. Our job is -- obviously, our first choice is obviously to -- we're on the acquisition trail.

If you step back, it's not as hot from an acquisition perspective as it has been the last two years. But I credit our whole management team and the whole outlook of the organization and our aggressive growth, and our aggressive nature that we were able to get ahead of the curve from our perspective and started looking at purchasing in 2009 when most people were just looking to survive.

So we feel real good about what we have accomplished. That has nothing to do with what we have to accomplish still and our future goals. Obviously we will pay down some debt if we can't spend it - use it all on acquisitions. That would be the simple, straight answer.

Got you. And then maybe another balance sheet question. If you could put some perspective around where your lease fleet is today versus maybe where it was in the prior peak of '06. I guess what I'm trying to get at is, seeing that long-term debt continue to creep up, I imagine most of that is funding equipment on lease and any details you could provide on that would be helpful.

No question. Like Steve said, the growth in our lease fleet has been phenomenal. Our return on our leasing business is the best we've ever had. At the same time, from an outside investor's perspective, who may not be as astute about the overall workings of our business, it looks like a lot of long-term debt. Steve, do you want to jump in?

I don't have the number right in front of me, Brad, but I'm going to tell you, it's probably close to 50% growth rate from the prior peak to now.

I want to say we were -- it might be even north of 50% from -- if you're going back to '06. I'd have to dig the exact number up. As you know and what we try to -- we tried to educate new investors into the -- we try to educate new investors, is that this is a cash neutral debt. Right? We don't stock these in inventory. We match the asset and the liability, and we have the cash cream from the customer to offset the payment on the side, but when you're doing return calculations that you guys like to see, it certainly is not beneficial in our model compared to the dealership side of the business.

We're looking at ways, actually, to present it differently so we can put the leasing company here and the dealership business here. The leasing business goes in conjunction with being a large dealer. Most manufacturers want you to be a large leasing organization -- large leasing arm for them. And we adhere to supporting our manufacturers given, I think, our relationships speak for themselves with the manufacturers. We do that as a part of the overall dealership package.

But one thing to understand about our long-term debt, our long-term debt is made up of only two things, and that is real estate and leased trucks. The leased trucks are cash neutral, and other than that, we have no other long-term debt.

Andrew Obin, Bank of America.

Yes, just two questions. One, could you just explain to us what exactly is the impact of this brake issue in your deliveries in Q1, and how long do you think it will take to work through that issue?

Sure, Andrew. Good morning, by the way. We -- from an impact, from a delivery perspective, it could be a couple hundred units. It might be pushed into the second quarter.

Remember - it's just more of a timing issue than anything else. It is not a -- it's not a hindrance as far as it's going to hinder us and have any effect on what our overall sales are. It's nothing more than a timing issue. As we get the final fixes for them, there's a temporary fix, the final fixes are supposed to be out here in the next few weeks, we will understand -- get a whole lot better handle on when we will have that final fix.

Currently we do have trucks that we are holding that we cannot deliver. It's a little bit early for me to say -- well, some of them are going to fall into the second quarter that should have been in the first, but as I said, no more than a couple hundred units or so, I would think. But that could have an effect, and that's why I had the one paragraph in the release, and I don't want people to take that wrong. I am extremely bullish on 2012, '13, and '14. It's just -- it's the normal seasonal things that happen. If you go back to any of our years of our earnings, the fourth quarter is always -- we get hit with some seasonal things such as tax rates, comp costs, et cetera.

We just don't want people to get so excited about the fourth quarter thinking you should -- you build from that into the first. We build throughout the year. We are extremely bullish on 2012. And we just want to remind everybody of how the dealership business works. So the brake issue there, like I said, we will have a little bit of timing issue, but other than that, nothing else that I can see out there, Andrew.

Let me ask you another question. I'm not sure you will like me asking it. But if I look at your historical pattern - if I look at your historical earnings pattern, during the upturn, Q1 sometimes is a little bit weaker than Q4. But second and third quarter were hitting Q4 earnings rate, and by the fourth quarter, we often exceeding it, and given just how strong the Q4, that you just printed was, at the same time it doesn't seem to be there was anything unsustainable there. Should this pattern repeat itself in 2012?

I would tell you, the fourth quarter number had-- this fourth quarter 2011 had a couple other things, remember?

Remember tax incentives. You saw how much the deliveries jumped up. A lot of that was driven by tax incentives across the board. That was on the medium duty side and on the heavy-duty side. We had a lot -- I mean, deliveries were at their highest mark, but everybody was hustling to get in to get the - have the full effect of the tax before that went away on December 31. I don't see that in front of us in 2012, but we historically --(multiple speakers)

But Q1 production for the industry is not going to be down that much, right?

No, I don't know for the industry -- I don't believe it will be for the industry. As I said, I've got a couple hundred trucks affect. I don't expect deliveries in Q1 to be as strong as Q4.

I understand. But going to Q2 to Q3, we should get back to at least to Q4 run rate, and then you are going to have more efficiencies as well and the parts business will be bigger as well, right?

I would expect Q2 to be up over Q1, yes I would, Andrew. And I'm looking out right now. No question about that. I'm agreeing with everything you are saying.

I think what you've got to do, though, is look back at Q1 last year, it wasn't but 1300 and some deliveries if I remember. I don't have it right in front of me right now.

But if I remember right, Q1 of 2011 was in the 1300 and something range, I'm pretty sure off the top of my head. Obviously, we are going to be up well over that. But I don't think quite -- if you're asking me to put a number on it? 2400 or so, Class 8s in Q1, but it's not going to be 2800 and something. There's no way given the effect of the tax incentives going away and the brake issue I'm dealing with that we're going to hit that mark. But as far as growing from there, you bet. I'm all over that with you, Andrew.

Chaz Jones, Morgan Keegan.

Good morning, guys. Thanks for taking my question. Nice quarter. Just wanted to maybe circle around -- I know you talked a little bit around the edges about it, but could you maybe outline any of the expansion plans that you currently have for 2012 on the existing network? What might come on this year and maybe how that relates to your CapEx budget?

I guess if I look out, we've completed a lot of expansion here recently. And some of it from a lease perspective - lease facility perspective like the facility with 230,000 square feet in Houston, the facility up in the Dallas area, the [mod] center, custom vehicles solutions. Those are both lease facilities. We have purchased the land in December. We purchased around 25 acres I think outside of Corpus Christi. We're going to build that facility. But that won't come on until year-end.

We're going to put a new facility in that market down in south Texas, in the Corpus area, we are very excited about that. We have a - we've got a leased bus facility that will come on in March, I think we alluded to, in the Houston area. And we're currently looking at other possible expansions. But if you look at CapEx for next year, probably in the $25 million to $30 million range. Not -- outside of leasing trucks, okay, but from a construction perspective, I would look at it from around the number, okay?

Okay.

If that gives any color. We are constantly reviewing our markets and looking where -- I can sit here, we are going to do an expansion of the San Antonio franchise. But I don't know if that will all -- can be done in 2012. But I can guarantee you it will get started in 2012. Remember, we're moving in -- remember, we bought that facility in Phoenix over a year ago, which is probably the largest facility we have that we would own, it's in the 160,000, 170,000 square-foot facility. We are moving into that by May.

That money has already been spent other than a little refurb and a little stuff we're going to spend on it. But as far as purchasing it, we did that a while back. We'll be moving into it in May, so that will increase our capabilities by double in the Phoenix marketplace. That's still on board to get done. We've got all that going on also.

Rusty, one quick question on just the employment market, obviously unemployment is still high, but are you seeing any labor constraints at all yet that resonate in the business, whether it's related to diesel mechanics or anything along those lines?

Your timing is amazing with that question. We undertook something here recently, and I guess I can say that because competitors, everybody gets to know what we do from a competition perspective. Technicians, obviously just like in the truck business, truck drivers, technicians are the toughest thing to get, especially in an environment like this. With the unemployment rate so high, you'd think it would be easy.

So we undertook a six-figure investment here recently in CareerBuilder. And we just kicked it off two weeks ago, and I can't tell you the results -- I'm not going to tell you, but we are pleased with the first results that were coming in as we are recruiting across the nation to come to work for us.

I think when anybody looks at working for Rush Enterprises, they are looking at the best, most well capitalized, outstanding network that provides room for growth of any dealership group whether it be car or truck business across this whole country. We are trying to take those -- the attributes of the organization and advertise them a little better across the 48 states, the continental United States.

And we just invested a lot of money going out there, and if you get a chance, you might look it up. We are getting pretty good results in our first few weeks into it. We look forward to -- and that's on top of all the things we have done in the past from our technician rodeos to these type of things. But I would tell you that we are continuing to fill those slots. And from a management perspective, I've got another 12 management trainees in our six-month management trainee program.

As you know, one of the things -- probably the biggest hurdle you face when you're growing an organization, we faced it for years, is people. This is a relationship - this is not a manufacturing business, this is a dealership business. It's a relationship business, and it's built on people. We don't build trucks. We deal with the consumer or should I say the commercial side consumer, not the consumer from a retail perspective, but the commercial businesses and growing people that can take your culture and take it to a marketplace and succeed, and outperform the competition is what we have been all about.

70% of our general managers have never worked anywhere but for Rush Enterprises, and we are very proud of that fact. And we will continue -- we've invested since 1992 -- up until four or five years ago, I did all the final interviews myself. But it's gotten so large and my time, getting so pulled that I no longer do that anymore, but I still get to go to lunch with them before we hire them.

But the investment, not just in technicians but in management talent, is something that we are all about, and we put that at the top of the charts no matter where we are in the cycle. It's difficult when you're a cyclical business to continue that. But we think that's probably one of the biggest keys to our success in the past is our investment in people. I know I got off a little further probably than you wanted, but you got me excited there a little bit.

No, that's good commentary. Certainly as you get to a $3 billion, $4 billion company, people become more and more important. But maybe one last housecleaning question. Looking for the buses number in the quarter, and then if you had the revenue figure for heavy-duty, medium duty (multiple speakers)

Sure. 314 buses were in the medium duty number of -- let me get my glasses. Getting old is hard, you have to take your glasses off to read some of these small numbers. Out of the 1711 medium duty vehicles, there was 314 buses. What was your other question, Chaz?

Just the revenue number for heavy duty, medium duty, and used.

Heavy duty was $388 million, medium duty was $120 million, and light duty was $9.7 million let's say, and used was $47.8 million. That was all quarter numbers.

Great, that all I had. Nice quarter, guys.

Robert Kosowsky, Sidoti & Company.

Nice quarter guys. The question is on the same-store sales for parts and service in both the fourth quarter and 2011.

All right, let me pull that sheet here. What you got, Steve? That's year to date. 21%, Steve says. I'm pulling that right now. I have the year sheet here, on the quarter, 21%, year-over-year.

So 21% for the quarter, and then what was it for the year?

24.2%.

Okay, and then do you have the same-store absorption ratio in the quarter?

Okay. 118.7. For the year, it's 116.4, if you want to know that.

118.7. 116.4. Really good numbers. And then just -- in your prepared remarks, you talked about some recent improvement in other vocational segments. I was just wondering if you can give some more information on that. Is that more on the municipal side, the trucks for construction side? What are you seeing?

A little bit of construction. A little bit of -- for me, it would be hard to say it's residential, probably more commercial, some highway lettings -- a little more commercial driven. But we are seeing some activity. Just a little now, but a little bit of activity out more in California, a little bit in Arizona, and a little bit in Florida. I know that's not - it's hard to give you a little color, but it's the first activity we have seen in over three years. Okay?

You are encouraged that you've hit the bottom. As far as the acceleration rate of that, I can't tell you. That's going to be driven by things outside of me. But I know that the equipment, all the equipment was purchased in '05, '06. Folks, we're - even if it wasn't working, it's been sitting.

We are in 2012. It's not like fine wine, it doesn't get better with age. As those markets do come back, I would expect people -- even though stuff has been parked -- I'm going to tell you it doesn't -- trucks don't age well when they are parked, okay?

So as those markets continue to ease back in, I think more commercial driven than residential currently. We are excited. We are very excited about those markets getting back -- just somewhat, we're feeling really good about what you see going -- remember, the two biggest drivers for freight are housing, commercial construction, and automotive. And the automotive markets, we all know have gotten better.

And some of the markets that are projected out for the next couple of years are extremely strong. The SAAR numbers that are projected out look very good. You combine that with what we've got going on in other sectors, and our continued three-prong approach, and we are going to continue to invest, and we are going to drive efficiencies. Remember, the better we do, the better our customers do. I promise you, we are driving cost savings to our customers.

We're not selling vehicles because we go to market to sell vehicles. We go to market to service the customer. And we feel extremely good about our models and how we've differentiated ourselves from everyone else.

At the same time, when you look where the whole overall Class 8 market is, let's remember 2011, we weren't even on replacement cycle yet, folks. We had the benefit of some of the sectors that we served, being up better than some other sectors I would say in the country. But at the same time, I think our overall business model fits for any customer out there, no matter what business sector they are in, that we can drive efficiencies into their business. And even if projected numbers for 2012 are just barely above what people would consider normal replacement cycles, so we do believe extremely strong in our model going to market will benefit us over the next three years.

Bill Armstrong, CL King & Associates.

Good morning, Rusty. Just a - really a couple of follow-up questions at this point. In terms of the brake valve recall, it seems that you might get some warranty work on that, and that could actually -- maybe be at least a partial offset to near-term results?

Let's don't get caught up -- it's not that big -- is not that long of a fix, a procedure. The permanent fix is a three-hour procedure. Now, we will give some of that, but some of that, remember -- if you look -- I guess I can put this number out there, if you look at all the Peterbilts that are out there -- let's just take the Peterbilt side because the Navistar side is newer. We were just so fortunate enough that 56% of them were sold. So with 10,000 or so possibly that were out there, or 60,000 I think is the number across the whole network, we're probably affecting 5600 were our customers -- the trucks that we sold. I wish we sold that many of all the trucks on the road.

But anyhow, that percentage, so we are going to take care of our customers, so we'll get some benefit from that, but I'm going to tell you the majority of that is probably going to lop into the second quarter, not the first quarter because we don't even have the permanent fix. The temporary fix is a very quick solution. But the permanent fix, they don't have the parts for even yet. We will pick up some, but I would expect most of it to be in the second quarter, not this -- maybe the last part of March, the last two weeks of this quarter. But the parts are still not even available.

But in terms of overall impact really, it sounds like not very much, then?

Other than slow down some deliveries in the first quarter as I mentioned earlier, there'll be some impact. If I could do three hours per job, maybe I'd pick up another 15,000 hours. That is great.

But at the size we are getting, yes, that will be a nice benefit. I don't know if I would -- I think I would personally prefer it never had happened regardless of that money because it just creates a hindrance for my customer base. It slows down obviously -- a truck's made to pull - make revenue. It's not made to sit in the shop and get fixed. There's a balance act there for me when I think about it.

Got it. And another topic on the vocational side, it looks like non-energy is starting to pick up. Could you give us just the percentage maybe, of energy versus non-energy in your vocational business, what that might be now? And what it would have been a year ago, just to give us a little perspective?

Well, it's not - if it's vocational, it's going to be a huge percentage. If it's overall business, I'm going to tell you around 30%.

Remember one thing, when we talk about energy, people -- there's a lot of great energy stuff going on right now. But there's a lot of ancillary businesses that are off of that, that are sometimes hard to gauge as to whether they're true energy. There's a lot of ancillary stuff that goes on to support energy. Sometimes it's a difficult thing. But remember, given our geographic footprint, we've always got energy business. It's just a matter as to what level.

Is it at a very high level right now? No question. There are concerns out there with the price of natural gas. I'll address it myself. But you know what? We understand where we're at, we understand our customer base and we feel good, but there's also dry gas, wet gas, and I don't have enough time on this phone call to get into all those and I'm not that astute at it, but I'm astute enough that we track it and watch it here at our organization.

We follow where our customers are, we follow other things, not just -- we're trying to be out front. We still feel good -- I think my comments that we feel good about our energy business going forward in 2012 on an overall basis without getting too technical, and the things that we follow and the things that we watch, we look forward to remain as robust in 2012 as it was in 2011. I'm not going to say it's not going to have the same growth rate to it, there's no way it can have that. But we do believe it will maintain itself in spite of the low price of natural gas.

Do you think the non-energy vocational, is that big enough then to -- will the growth be big enough to move the needle in terms of overall results?

I think it will move it some, but I think it will be more back loaded because it is just starting to trickle like anything else. But I am seeing signs. We are selling a few construction trucks. It's not going to -- we're selling, but we look very -- we're very excited about where we are in the refuse business. That's another vocational sector we haven't even touched on, but we are extremely excited about where we are in the refuse business, and the results we provided last year, and we are only going to increase those results next year. That's a vocation I haven't gotten into here, but again, it's through our service footprint.

The only reason we've been able to capture the refuse business we've been able to, is because of our service footprint. We go to market with technicians to support someone throughout the continental United States. If you've got a problem, we'll have people on-site in 24 hours. By using that model and then taking the product and combining that with a service that's second to none, it's allowed us to grow that side of our business, and we are extremely excited about where we are going and I've committed a lot of assets to that sector. It will be a - it will probably be a faster grower for us than construction will in 2012, to be honest.

Got it. And then last question, last year throughout much of the year, there were some supply issues for some of the truck manufacturers. From what we are hearing, it sounds like that is mostly cleared up. Is that what you're seeing also?

Yes, no question about it. As usual, the greed quotient of this country takes care of itself. When there is sales out there, we will always figure out a way to - how to manufacture. I've looked at -- I remember, going into the '05, '06 cycles, nobody ever projected we could build that many trucks in 2006. But this country is famous for being able to produce when it has to produce, and I guess that's why we are at where we are at.

Neil Frohnapple, Northcoast Research.

Good morning. This is Matthew [Kookel] calling on behalf of Neil. Congratulations on the good quarter. For the most part, all of my questions have been answered. I just have one real quick housekeeping question. In terms of 2012, what are you looking at for the year-round tax rate?

It should be around 39%.

Around 39%?

38.5% to 39%.Pretty much where it ended up this year.

And that's all I have for you. Congratulations.

Tim Denoyer, Wolfe Trahan.

We've batted around. Couple of follow-ups. I guess one, Rusty, on the shape of the cycle. You said that you're very bullish on '13 and '14. I'm wondering if you can prognosticate for us in terms of -- we've got a big replacement cycle that is starting to kick in. We've got fleets starting to grow a little bit. Do expect this cycle to peak above last cycle? And at what point do you think we start to see that replacement demand -- seems to be really good right now? At what point do you think we get to a point where the average age starts really coming down?

Well, I think sometime maybe in 2000 -- later this year (multiple speakers) 2013. If 200 is your number, you have to look back. How long -- we went longer. We were in the trough for four years, guys at least. And typically we are always in the trough for three years. The average depth of the trough was much deeper than it has been in the past two cycles.

So I think we've got a longer road to recovery. A lot of it has to do with the government. Government intervention had a lot to do with what happened throughout the last decade. And I think -- when you talk -- if we don't have as much, and I've talked to manufacturers, I don't quite understand all the ramifications of 2017 coming on. We've got the two markers to hit, but especially 2017. I don't think the first one is going to be that big of a hurdle.

I'm not sure how that is going to drive things. That will have an effect and as to what effect, I'm not here to explain that. Someone else will have to explain it to you.

But I do think one thing is for sure. I look for a more elongated cycle. I don't think -- we're not going to have -- we had three emissions issues last decade to deal with, okay? We had 2002, we had 2006, then we had 2009, which was '10. I'm always I'm going to the 31st of each year. But we dealt with that.

I don't look for that much to deal with. And especially when you look at -- I don't think GDP growth is going to be as spiked, or as fluctuate as much as it has. And that had a lot to do with the last decade, too. You start off - we started off the decade in a recession and we jumped through the roof, and then we're back down again and then we just sort of crept -- that was what we had through the last decade. I don't look for us to have that type of GDP growth that we had back in '05 and '06 -- in '04, '05, and '06. I don't think we are going to have that huge a spike.

So I think that will temper somewhat and take some of the -- not quite as high a high, as I should say. But the good part is, it elongates the cycle. That's my perspective. You asked for my perspective, and you're getting it. That's why I say a good '12, '13 and '14. And I'm not here to badmouth '15, either. But it's just too far out for me to say anything about.

But I do feel good -- I sat here a year and something ago, and you said - well, you can look at it, you can say '11, '12 and '13 look great. Well, I feel good sitting here right now saying '12, '13 and '14 look great. Simply because -- we've been under -- you go back to 2007, '08, '09, '10, even '11 is under replacement, guys. That's a lot of years. That's five years under replacement cycle. And you don't see anything in the overall economy that says it's going to spike real high. So you look for a elongated cycle. That's the best I can explain it, Tim.

I definitely appreciate your thoughts. Switching gears a little bit. You mentioned the government having a big impact. I totally agree. And then the refuse business, can you give us a little more color on what percentage of your business refuse is at this point and how state and local governments are feeling in terms of budget pressure?

Well, they are feeling budget pressures. That's why I'm not going to get into some of the programs I'm looking at to address some of that.

To answer your question, probably 10% but growing, with big growth potential for us. But what I'm going to spin to is you're talking about the - there's also a private side to that. There's some very large private carriers, and I'm not going to sit here and get into naming names, but we have worked extremely well with and extremely hard to service better than anybody in this country can begin to service. And taking our footprint and spread across -- and using that to attack that market also.

All I can say is we feel real good about where we are at in that market segment. We feel real good about where we are at from expertise, and we feel real good about the investments I'm going to make in natural gas. Whether it be CNG or LNG, we are going after it hard and fast from all our places. And we will be -- our goal is to be the number one leader in providing service for natural gas trucks across this whole country.

We will have well over 100 technicians trained by year-end -- I think I'm in the 30 range right now, but our goal is to be in the -- my goal is to be closer to 150. My guys have guaranteed me 100 plus natural gas trained technicians across this country and looking into fuel (multiple speakers). And a lot of different things we are looking at to support that whole from a parts perspective, from a service perspective, from a fueling perspective across the whole country.

That's all I can tell you is we are hard after it, because I do believe one thing for sure, the amount of natural gas that technology has allowed us to find in this country, I agree with Mr. Pickens is something that we have to exploit as a nation, and I'm going to be fully behind it supporting that as we go forward.

Yes, definitely. When you're talking natural gas, you're more referring to the driller type customer as opposed to trucks that are running with natural gas engines at this point right?

Say that again? I'm talking about trucks that are running with natural gas engines, okay? Vocational businesses, okay? I'm going to tell you, the garbage trucks we sell, currently 60% of them are natural gas. I don't see that crossing over - I see that crossing over, into other sectors also, in vocational sectors.

Remember, the old highway businesses - but there's a lot of other people -- you read a lot, you know a lot about it, there's a lot going on out there, and once we get the cap cost of this product down and we get some kind of long-term over the next five or 10 years and we get some kind of support system out there, from a fuelling perspective, I don't see, given the abundance of natural gas we have in this country, why we don't figure out a better way to utilize it.

Obviously we've been exporting quite a bit of it, but it's driven the price down. So we need to find a reason -- a way to use more of it here in this country also and lessen our dependence on foreign oil at the same time. It's a better model. Especially for vocational business, and one day, we will figure out how to get it on the over the road business, I believe.

On the over the road business, it's basically a distribution problem at this point? Or is it also that the -- it seems like the only real engine is the 9-liter and you need a more (multiple speakers)

It's a cost perspective. It's a cost problem going in. Without government subsidies historically, you haven't been able to make any sense out of it. But I do believe that as volumes continue to pick up even on the smaller stuff, you are going to be driving the actual cap cost down. The cap cost is not going up.

It's going to trend one direction over the next decade. It has to go that direction. And I don't know when -- I'm not going to time out the over the road business for you, but I'm going to tell you it's rabbit holing the vocational businesses, and it's going to continue to grab, and as it continues to grow given the abundance that we have in this country, there's - I don't see how you stop it one day. It doesn't mean it's going to take over all diesel. That's not the case, but it is going to continue to grab market share from diesel powered trucks. There's no question about that.

Brad Delco, Stephens.

Thanks, guys, for taking my follow-up. Rusty, I'm going to give you a break for a second and ask Steve some questions if that's all right. You've been talking a lot. The follow-up on a prior question, can you give us the gross margins for heavy duty, medium duty, light-duty and used?

For the quarter?

Yes.

Heavy-duty was 7.3%, medium duty was 4.8%, light-duty was 3% and used was 8.3%.

And then not to beat a dead horse, Steve, but the commentary on the expenses coming in first quarter, I think you mentioned option grants and insurance premiums and payroll taxes. What should we be expecting on SG&A on a sequential basis?

Let me talk G&A and not the S piece because -- your S piece is your selling, your commissions based on truck sales, and we've already walked through that deliveries might be a little lighter in Q1 versus Q4.

But on the G&A piece, when we split it out, probably 8% to 10% of the G&A piece -- you could see it increase in Q4, I mean, Q1 over Q4 about 8% to 10% when you add all those pieces up.

Typically the selling portion, what's the -- it's like 27% of gross profit from --

The S piece is going to be 28% to 30% of the gross profit of truck sales. And you've got other things driving that G&A. You've got -- we did two acquisitions in the fourth quarter, one in December and one in November. You got a full quarter effect of those. Then you also have those employee benefits that you described earlier, the equity comp cost and insurance costs and taxes.

Congrats again on a great quarter and I will leave it at that. Appreciate the time.

Thank you, Brad. Because you won't let me talk.

(Operator Instructions)

I am showing no additional questions in our queue.

Great. Thanks everybody, we look forward to talking to you with first-quarter results sometime in April. We will see you, now.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.