Rush Enterprises Inc (RUSHB) 2004 Q4 法說會逐字稿

Welcome to your fourth-quarter and year-end 2004 Rush Enterprises earnings conference call. My name is Bernie and I will be your coordinator today. At this time all participants are in a listen-only mode, and we will be conducting a question-and-answer session at the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder this call is being recorded for replay purposes. I'd now like to turn the presentation over to our host for today, Mr. Marvin Rush, Chairman and CEO. Please proceed, sir.

Good afternoon. Welcome to our fourth-quarter and year-end earnings release conference call. On the call today there are Rusty Rush, President and COO; Marty Naegelin, Senior Vice President and CFO; John Hiltabiddle, Controller; Steve Keller, (ph) Director of Finance; and Jay Hazelwood (ph) Controller of Rush Equipment Centers. Now Marty 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. The factors that could cause our 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, 2003, and in our other filings with the Securities and Exchange Commission.

We'd like to give you an update on our progress. Fourth-quarter results. Our fourth-quarter results demonstrate the momentum that our business has achieved. Revenues for the fourth quarter increased 25.6 percent to 301 million, versus 239.7 million last year. Net income for the quarter was 5.1 million or 27 cents per diluted share, compared to 3.1 million or 20 cents per diluted share in last year's fourth quarter. As these numbers demonstrate the fourth quarter clearly continues the trend of increasing demand and execution of our operating strategy.

Let's talk about the fourth-quarter business results in segment results. The truck segment. Rush's heavy-duty truck segment delivered 1,546 new trucks during the fourth quarter of 2004, compared to 1,224 heavy-duty trucks in the same period in 2003. As a result, it recorded net revenues of approximately 286.6 million in the fourth quarter of 2004, compared to approximately 225.5 million in the fourth quarter of 2003.

Industry-wide, the medium-duty business is as large as the market for Class 8s, and the nature of that market promotes the use of our facilities during the night shift, which traditionally is a slow period for heavy-duty truck service. To capitalize on that opportunity, we've also brought on board a team of highly qualified salespeople with the experience in this area. As a result, in the fourth quarter of 2004 our sales on the medium-duty trucks doubled to 548 units sold, from 271 units sold in the fourth quarter of '03. Revenues generated from the sale of new medium-duty trucks increased to 30.3 million in the fourth quarter of 2004, from 13.5 million during the fourth quarter of '03.

We plan to further penetrate this market by adding new franchises and complementing our existing Peterbilt medium-duty line. In addition to Peterbilt, several of our truck centers already offer medium-duty trucks manufactured by GMC, Hino, UD, which is Nissan, and Isuzu, as well as associated parts and service. Our current projections call for sales of medium-duty trucks to become a greater portion of our business, and we have a goal to sell over 3,000 medium-duty trucks in 2006.

Parts, service, and body shop sales increased 11.3 percent, from 59.3 million in the fourth quarter of '03 to 66 million in the fourth quarter of '04.

Let's talk about the construction equipment business. The Company's construction equipment segment recorded revenues of 12.1 million in the fourth quarter of '04, compared to 11.3 million in the fourth quarter of '03. New and used construction equipment unit sales revenue increased by 6/10 million or 7.6 percent from the same period in '03. Parts, service and body shop sales increased 14.3 percent, from 2.8 million in the fourth quarter of '03 to 3.2 million in the fourth quarter of '04.

Let's talk a little bit about our 2004 annual results. Our gross revenue for the year ended 2004 increased 34 point 3/10 percent to 1,095,000,000 from 815.3 million the previous year. Most importantly the quality of our earnings continue to improve as our absorption rate moved from approximately 92 percent in 2003 to approximately 95 percent in 2004. This rate is the amount of total dealership overhead that we can cover with the gross profits from our parts, service, and body shop business. Our annual goal -- I mean and our goal remains 100 percent, which we believe we can achieve in 2006. As a consequence of this increase in efficiency our income from continuing operations rose to 17.2 million from 9.5 million last year or an 81.1 percent increase.

Take a little breakdown of the sales. In 2004 the industry sold approximately 203,000 Class 8 trucks in the U.S., and projects sales of 250,000 in the U.S. in 2005, with demand continuing to grow. Rush sold 5,374 Class 8 trucks in '04, a 47.8 percent increase over the 3,636 Class 8 units sold in '03. The sale of medium-duty trucks nearly doubled with an increase of 96.4 percent to 1,766 units from 899 units in '03. Rush's used truck sales increased by 12.2 percent, from 2,421 in 2003 to 2,716 in '04.

Let's talk a bit about the American Truck Source acquisition and equity offering. In 2004 we took a major step forward by acquiring American Truck Source, our largest acquisition ever. Although the deal actually closed on January 3, 2005, the financing was completed in 2004. Therefore the ATS acquisition, Rush Enterprises adds Peterbilt dealerships in Dallas, Fort Worth, Abilene, and Tyler, Texas, as well as Nashville, Tennessee.

The acquisition will be accretive to Rush's future earnings. Most importantly it increases our geographic presence in the Sunbelt by adding 5 locations to our dealership (indiscernible), giving us a total of 43 locations. This is our most strategic acquisition to date; and in keeping with our operating strategy we have already begun integrating these locations into the Rush network.

The Company financed the acquisition of ATS by successfully completing a $110 million equity offering in November of 2004. The offering not only raised the necessary capital to complete the acquisition but also provided the Company with liquidity for further expansion.

Talk about the outlook in 2005. In 2005 much of our efforts will be directed towards the successful integration of our new ATS acquisition. We are confident that this will add to our competitive strength, because customers traveling the Southern states will be able to locate a Rush truck center along their route. It will allow us to sell more heavy and medium-duty trucks, increase our market share, and improve our margins.

Just after we completed the ATS acquisition, we purchased 120,000 square foot facility on 28 acres in Nashville, Tennessee, and expect to relocate our Nashville dealership by the summer of 2005. This new facility is more than twice the size of our existing store.

In addition to the ATS expansion, we are continuously evaluating relocation in greenfield opportunities. Currently we are near completion on the relocation of our existing Mobile, Alabama, store to a new state-of-the-art 41,000 square foot facility located on Interstate 10.

We have intentions of building a new location in the Florida to replace an existing location. This expansion will more than double our capacity. Furthermore we are evaluating additional greenfield opportunities in our Florida market. While we have a lot of work to do, we believe that Rush has never been better positioned to take advantage of an improving economy with a large appetite for trucks.

We're now prepared to answer any questions and answers you may have. Operator, please review the procedure for asking questions.

(OPERATOR INSTRUCTIONS) Andrew Obin of Merrill Lynch.

Just a question on used truck sales in the fourth quarter. I guess a little bit below our expectation. I was wondering; is there something specific going in the used truck market?

No, Andrew, I'd have to tell you there's really nothing specific, other than that fact that, remember, used truck sales don't normally correlate totally with new truck sales. They correlate to what was sold into the marketplace 3 and 4 years ago. With the expansion in truckload tonnage, a lot of fleets have chosen not to trade but to rather maybe possibly hold onto their equipment or, even with the markets so strong, sell themselves in the secondary markets. So it's more of a supply issue, I would tell you, than a demand issue.

The second question is as I am looking at the gross margin on parts and services, it looks like it declined year-over-year. What is going on there?

I'd have to tell you, Andrew, that there's two things, twofold here. In a particular instance in the fourth quarter, probably half of the deterioration that took -- the deterioration wouldn't have been as bad (ph) that took place in the fourth quarter; it was because of an account that we had a large refurbishment with a garbage customer. So there was a huge pass-through on the garbage body that went through the numbers even though we made no mark-up on it. We did the truck part, the body company did the refurbishment of the body. So I would say half of what happened in the fourth quarter.

Now overall, remember, we're continuing to chase, especially in the parts growth, when you look at about 15 percent parts growth last year, we're continuing to chase nonproprietary parts. Of course it has to do with a mix issue. When you chase nonproprietary you are trying to leverage off your existing asset base, while adding a little bit of incremental cost. But at the same time you're taking lower margins to sell that nonproprietary, because it's not -- you have more competition in the marketplace for it.

Thank you very much.

Chas Jones (ph), Morgan Keegan.

Congratulations on a great quarter. Maybe if I could start off with a CapEx question. You outlined it seemed like a number of facilities that you were going to expand into in '05. Could you maybe give us a sense for what we should expect for CapEx in 2005?

This is Marty. CapEx for this year is going to be about 54 million, which includes 18 million 5 in leasing vehicles. So remember you've got to break out your leasing, because that's more of recurring type replenishment of existing, plus some growth.

What I want to talk about in CapEx is really cash flow CapEx. Because the leasing division doesn't eat up cash flow in that CapEx, 100 percent of that CapEx is financed at the time that the truck is acquired. Recurring type capital expenditures for what I would refer to as running the business -- lack of a better work, maintenance. I don't want to say maintenance, because that implies that you should expense it. But this is normal recurring type capital expenditures; it's going to be about $7 million a year.

Then on top of that you have got all your building expansion. Right now we have about -- this year we had $11 million in construction in progress that closed out. At the end of the fourth quarter we added about 7.8 million of that or 7.9 million of that 11 million. Next year we've got several facilities coming online. We have got Mobile. So you have got pent-up construction in progress that's going to trip over into a true capital expenditure in '05.

So let's just say you continue along with the leasing company at about 18.5 million; you throw in the 7 million for recurring type CapEx; and then you throw on a Mobile facility for 2.5 million. You're going to have Nashville finish out; it's going to be a couple million, let's say. Now we purchased Nashville at the end of '04, so the acquisition of the dirt and building actually went into '04.

Then it is still a little bit unclear yet where we're going to build in Florida or exact location and buildout cost; but it will be somewhere in the 5-ish range, 5 to 6 million is what I would think. That's what is on the slate for right now. By the summer of '06 will be moving forward with further plans. I mean in '05, sorry; I said '06. We will be moving forward with plans for a pol (ph) expansion or further building expansion.

But right on the slate right now is what I just told you. Just the Mobile, the Nashville buildout, Florida. We've got on the drawing board a San Antonio facility, so that will probably bleed over into '06.

That is very helpful. Maybe if I could shift over to demand. Any sense for maybe demand at your customer base? Is there any one group that you can point to that maybe is stronger than the next? Whether that's the owner-operator base, the small or the large fleet, or even the vocational business?

I'd be quite honest with you, Chas, it's pretty strong across the board. Take all three sectors and you divide it up really --.

That is what I wanted to hear.

I may divide the fleet sector into the large fleet and the medium-size fleet, which is really a customer base that we go after with a lot of aggression. But I would say it is strong across the board. Extremely strong on the construction side also, which is the side that we really press. Because that's that local product that runs in your area that you drive a whole lot more parts and service and body shop from, because they are standing in your areas of responsibility.

Any sense, Rusty, I mean from the demand standpoint, growth versus replacement?

There has obviously started to become some growth. We noticed in the middle of last summer; you might not have (technical difficulty) there's a public truckload level you haven't seen a whole lot of the expansion. There may be one or two carriers out there that were having consistent expansion.

But I would tell you in the medium side of it, the people that you folks may not have sight to, there has been -- I know of some fleets that had got pared down in size during the downturn of '01 and '02 and '03 that are coming back on line. They may have pared down to say 100 -- I know of a couple accounts that pared down to 150 trucks and they are gathering back up steam to be back at 500 trucks again.

So at the medium truckload level we've had quite a bit of purchasing. So, yes, there is some expansion even if all of it is not visible at the public truckload level.

And then any issues creeping up to be concerned about on the supply-side at this point?

Supply-side has been sort of an issue as we have been working through the last 6 to 8 months. With the ramp up in production, that second and third-tier supply chain had difficult ramping up. Now, are they catching up? Yes, I get a sense that they are catching up. As we come out of the first quarter I think will be in a lot better shape on that second and third-tier side than we say were in the fourth quarter and maybe some of the first quarter this year.

In your press release you said 3,000 medium-duty trucks in 2006. Would you venture to say how many heavy-duty trucks may be out there in '06?

You know we have internal goals. I really won't get into it, but it's substantially more than you are currently seeing. Let's leave it at that.

Fair enough. Could you just remind me? You talked about expanding the medium-duty dealership base. Where are we right now in terms of how many of your medium-duty -- or excuse me; how many of the dealerships are currently selling medium-duty trucks?

If I was to give you a pop quiz, you'd probably fail; because I would tell you all of them. Remember Peterbilt builds a fine medium-duty product. So every location we have has Peterbilt medium-duty. Now we have added over 20 other lines and are currently negotiating with other people to add more lines. Because the whole focus of this is to push more throughput through existing asset base, and especially during our second and third shift in the shop, the parts, service, and body shop.

The medium-duty focus is not necessarily totally driven just at the truck sale level, but also for the back end because we have more idle time -- well, I don't want to say idle time -- but more time to push product in through the parts and service body shops and body shops in the second and third shifts.

But to get that you have to fill your area of responsibility with product. That's what we're just in the beginnings of over the last year and a half. But we're very excited about where we are at. We are going to continue to add franchises too. Not with separate facilities but leveraging off that existing asset base. But we will continue to add as we go forward; we are constantly in negotiations with manufacturers or dealers who maybe are wanting to spin off a franchise.

Lastly, are the ATS dealerships, have they already ramped up medium-duty sales?

No, they have not in the past. The have not addressed it with specialists as we have. We are -- obviously as we integrate them into our organization, they will take on a feel of Rush.

Thanks a lot, guys.

John McGinty of CSFB.

Marvin, what is your goal for absorption in '05? You did 95 percent, which is pretty darn good; what do you guys think you're going to do in 05?

The goal is 97 to 98.

With an ultimate?

I'm sorry?

Is there an ultimate number?

100 by 2006.

A question for Marty. I'm looking at the press release and it says, for example, construction equipment revenues were 12.1 million in the fourth quarter. I am looking at the table and it says construction equipment sales were 8.6 million. I am just trying to make sure I understand what that difference is.

On the breakout of revenues, John, the construction equipment, parts and service sales drop into parts and service line. So what you see are truly construction equipment sales only. That is whole (ph) goods.

Okay, so in other words -- .

So the 12.1 represents the entire segment, which is parts, service, finance. The entire segment.

But if I take the heavy-duty trucks at 286.6, there is something else in there. Because new and used trucks and parts and service only add to 281. That is with giving all the part sales to them, too. You must have lease and finance in there as well?

Right. In that segment.

In the 286.6?

Yes.

Okay.

When you break it into just -- there's three business segments. There's truck segment, construction segment, and other. Now what you see in the 286.6 is truck segment. So it's all finance, income, parts, service, new, used, trucks sales relative to the truck segment.

And the construction, the 12.1 is new sales and whatever finance relates to that?

That is right. The difference between those two numbers from the segment reporting in the total is that third small segment, which is (technical difficulty) an insurance agency, a tire store, those kind of things.

Is that the 1,512 in the fourth quarter?

No, that is just other revenue derived from any piece of the business. That 1,512 primarily relates to discounts, things like that received from both the truck side of the business and the equipment side; and then gain on sale from the leasing company (inaudible).

I want to talk about prices for a second. If we look at your unit sales of trucks in the fourth quarter, you sold combined 2,715 trucks. In the third quarter you sold 2,677; and you actually sold the identical number of Class 8 trucks. So on a unit basis the fourth-quarter sales were only up 1.4 percent from the third. But the revenues sequentially were up about 3.4 percent.

So can I assume that -- is it the prices that you were getting were up substantially? Or was it just a much richer mix of Class 8 trucks you were selling in the fourth quarter?

Class 8s were a larger piece of the pie.

Actually they were not on a unit basis.

What do you mean, from the third?

Yes. They were actually down on a unit basis as a percent of the total. But the revenues fourth quarter versus the third were up. What it means is you were getting more dollars per truck, presumably on the heavy side.

Right, correct.

That could be a function of two things. It could be a function of mix, more expensive Class 8 trucks sold; or it could be just simply that prices are rising sequentially. Could you talk about the prices that you paid in '04, and the outlook for prices that you're going to be paying in 05?

I'd be happy to. Yes, obviously, we are paying more for the product. With all the commodity prices that went up during the year, yes, that is being passed through. I am sure there is no margin being passed through.

No, no, absolutely not. Just those record non margins that you had were phenomenal.

Yes, I know. Okay. So obviously, yes, I will tell you right now in fourth quarter it was more from pricing.

Okay, what do you see the prices -- in other words we are going to make an assumption on the truck build going up. But are you going to pay, what, 5 percent? In other words are you going to be able to sell and get, what, 5 percent price in '05 versus '04?

I think that's what most manufacturers see right now; and as long as order levels continue at 30,000 plus, or on average, and you don't meet that with builds, until they slow that production intake down I think they'll continue to push the price line, John.

Exactly. Then what about trucks? What are they telling you in Bellevue (ph)? Are you going to be able to get any more, or in other words than what you are currently getting? In other words your -- what -- the production in the fourth quarter was up over the first; are we going to ramp from where we were? Or are we pretty much stuck at the fourth-quarter level?

If their production increases, mine increases wit it.

I understand that, but what are they saying to you?

I would say forget what they are saying; what I see from taking to the supply side, they are --.

More importantly. Yes.

Right. What I feel, you're probably looking at some time in the second quarter you will get some. I don't look for much in the first quarter. But I would tell you in the second quarter I think all OEMs will probably be raising production levels.

I think as I mentioned earlier have supply side is catching up. I think you'll see that show up in increased production numbers in the second quarter.

What is your thought about a prebuy in '06? In other words, what you hearing about the '07 engines? They are supposed to go to some of the fleets in the middle of the year. Are you hearing anything?

Correct. There's a few out there, I was told, that are coming out here this month and February. But nothing to get a feel. I think you have to keep your ear closer to what's going on at the testing level right now with your OEMs and your suppliers. Okay? Your engine suppliers. Because I don't think the field really understands.

I know I have gotten word that, you know, I don't think the pricing is going to be as dramatic as some people were anticipating. Yes, they're going to make -- marketing is all about -- margin is all about marketing, right? So I think you're definitely going to see some increase in pricing, John. But I don't think it's going to be as dramatic as what people thought 6, 8 months ago.

As far as degradation of performance, that is to be seen. If you listen to the engine suppliers, and that's all of them -- oh, no, there won't be any. But we all know there has to be some. There has to be a little. Is it going to be as drastic as 5 to 7 percent? Probably not. Will it be in the 3 and 4 percent range, 2, 3, 4 percent? Probably so.

Final question. You've had ATS really for only a month and a half. But as you have gone in, as you have looked at the actual -- you know, getting your hands in it is different than looking at it from outside. What do you think in terms of the synergies and what you can do? Can you make any comments as to surprises, either good or bad, that you've seen in the first 6 weeks you have been in there?

John, I can give you a very broad comment, that I'm pleased. We are pleased with we are getting what we saw. I would like to have the rest of the quarter, though, okay? Before I get any more specific with those comments.

But in generally, we are pleased with where were at it and we are excited about the acquisition. Things that it brings to the table. I will be quite honest; I have learned a few things from their operation and how they ran it. I'm sure that they would say likewise.

As we continue to integrate those organizations, that organization into ours, we are going to take a best practice approach with theirs, with the way they have run their business, as we integrate it into our systems.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS) George Milis, (ph) (indiscernible).

I'm sorry I came on late on the call, so maybe you've talked about that. But I'd like to get some sort of clarity -- or not clarity but sort of color on the absorption ratio. I understand we are talking about an average here, and some of these stores are way below average, some are way above average because of geographic location and different things like that.

I am trying to understand; how do you get the absorption ratio up from 95 to 100? Is it all boats rising? Or are some going to rise a lot more than others? Are you trying to put more service capability in some regions that have had little of it? Just trying to get sort of general discussion on that.

Be happy to address that. Obviously when you've got that many boats in the water, sometimes some of them have a little -- spring a little leak and take on some water, George. Not all of them run like switched lights all the time. So I would tell you that some of the stores went backwards last year. That always happens.

Now fortunately that is in a small handful, okay? The majority obviously increased absorption levels. That is always -- that's an ongoing battle you fight when you're managing any business or anything. Obviously what's going on at the local level; I wouldn't call it really geographic driven, but more what's going on at the local level.

As far as going forward, anytime you're doing some greenfield -- some of these stores, remember, we just started in '99, 2000, so they may not be but 4 years old. They're not going to be as strong as, say, a mature store that's been in place for 30 years, okay? So you're constantly growing, you're working on that.

Most of these stores that have been made nice, nice, significant progress. So when you talk about getting to 100, if we stop growth, just totally stop growth, we could get 100 without any question. But when you continue to make the capital investments we make in existing, and putting in larger facilities, you just don't snap your fingers and automatically all the business shows up. What you do is you set the table and you grow your business to the size of the table you've made.

What it does is eventually gets you more net dollars and allows you to get over that 100-plus percent absorption. We have stores that run over 120 (inaudible), George. And we have some that might run in the 80 range. But a lot of it depends on the maturity of the store and where it's at in its own individual development.

Does that suggest that -- I mean, maturity is the key factor that you're talking about there. So I think that is very reassuring because it means that it is very likely that these stores will mature as they get older.

No question. But we will continue to add at the same time. But on top of that we also have other agendas going at all times. Our mobile technician side has started to flourish quite nicely, especially during the last half of this last year, as a lot of my stores have taken on. I have signed many a CapEx request for mobile tech trucks over the last 6 to 8 months to add into there.

What you are doing then is you may take a smaller margin percentage but you're doing it outside. You're doing it off-site. So obviously it is just incremental cost for that. Is it going to cost me a little bit more to -- will I make the same gross profit percentage as I do on service work in my shop? No, but it is still incremental business being pushed through that dealership, even though it's off site. Do you follow what I am saying there?

Yes, yes. Does that make more sense in the West, where the distances are greater or that doesn't matter?

No, I think most of that you won't see it done with large truckloads fleets or something like that. Most of it will be done with your Redi-Mix companies, your local garbage companies, businesses such as that. Okay? We will go around town.

You have got to remember the other thing I touched on earlier, with the medium-duty side. The medium-duty as I said, as much as it is a part of our truck sale growth, even more of a story we believe -- I can't prove it to you right now. But I know it will prove itself out over the next 2 to 3 years as we populate that area with product.

The medium-duty customer, remember, it's not a revenue producing item. It is strictly an expense item. It gets goods from point A to point B, considering 85 percent of medium-duty trucks stay within a 50-mile radius. So they want that truck to crank every morning when they go out there at 6:00 to deliver their flowers or their furniture or their meat or their frozen goods, whatever it may be locally around town.

So the key is to continue to put that product into the field, then go out and call on those customers, and work on their parts and service and body shop stuff at night.

Right, right.

Our shops aren't as busy. But we are in the process of populating our areas right now. The growth in the back ends in the parts and service is coming; but obviously that has a -- you know, the truck is warranty for the first year or 2. You've got to get them older. They keep their trucks longer, too.

Right, right, right. So that is a small part of the business at this point, on the service and parts side.

We know that as we continue -- and that 3,000 number, I am telling you in my own mind, it better be understated, okay? Because I plan on a lot more by '06. But we try to stick with something conservative there for a goal.

I have a larger internal goal you will see of 3,000 that we talk about. We're very excited about where were at in that piece of the business. Because all you have to do as we add other franchises is purchase a franchise, bring it in, all it takes is a little parts and tooling and training for your people and sales staff, and get out and promote that product in the local markets you are in.

Right. Okay. Sounds good.

Ken Perlman (ph), Sharvis (ph) Capital.

I have a question about the gross margin on truck sales, which improved almost a couple hundred basis points in the quarter. I was trying to see how much of that was due to mix. When I looked at the 9-month numbers, medium-duty sales were almost up the same amount as in this quarter, which was my first thought, that medium-duty sales, which had a stronger gross margin accounted for. But again they were at little bit stronger in the fourth quarter than they were for the 9 months; but not that much stronger.

And used truck sales, which had the best gross margin increase for the 9 months weren't as strong in this quarter. So it didn't seem as obvious that it was mix as I might have thought. So let me just ask the question. What was the reason that gross margin on truck sales alone were up as much as they were in the quarter?

Are you comparing third quarter to fourth quarter or --?

No, I'm comparing the 9-month gross margin on trucks to the fourth quarter.

So the 9 months ended year-to-date versus just what the quarter ended 12/31? And it's in new trucks. For example for a year-to-year, fourth quarter of '03 versus fourth quarter of '04, new truck margins were up 1.5 point.

And that was new trucks meaning heavy-duty as well as medium-duty?

No, that is just heavy-duty. (multiple speakers) Medium-duty was up about half a point. And used was up a couple points. That is from the fourth-quarter comparisons of a year ago.

Was that different, though, for the 9 months?

A lot of what you're going to find in the truck margins is going to depend upon what mix and percentage of the sales are deliveries to large fleet customers. If large fleet customers are taking a large percentage of sales, like in the, say, second or third quarter, your margin will be affected by that. Versus owner-operator purchases versus vocational type markets.

I have to say, you said used were down but I believe --.

No, I didn't say -- I said used were actually the strongest increase in the 9 months. Since used was sort of flattish this year and they were up for the 9 months, if anything I would have thought that might have hurt the gross margin a little bit, because used were not as strong.

Okay. No I don't see any effect on that.

Thanks very much.

Jason Green, Moore Capital.

When you all took us through your CapEx expectations for '05, and I appreciate the detail there, you didn't talk at all about information technology and what initiatives you might have in '05 or in '06 in terms of improving the infrastructure of the dealer network. Could you maybe give a little additional color on that?

The biggest thing we are working on right now from a standpoint in the dealerships is -- there's two things. We just introduced -- we spent about a million bucks on it, and we just introduced an automated truck deal paperwork flow process. So we took from the beginning of the first call to a customer contract all the way through the invoicing and automated that process.

We spent probably 9 months last year working on that. We just introduced it in the fall at last year and it really went online strong January of this year. Like I said that was about $1 million. Most of the first half of this year we will spend time fine-tuning that process from an IT standpoint.

At the same time as introducing wireless and barcoding; we've got that in some test stores now and we're going to be expanding it into more stores as the year progresses. So right it's in 5 test stores and we will start expanding that as the year goes forward.

But quite honestly the basic business system and the hardware that we have right now is pretty solid. We had to upgrade some storage capacity as the result of the ATS transaction; but we really don't have any major IT expenditure needs going forward at least over the next couple of years. I don't know if that answers your question.

Other than trying to go towards a more automated dealership process, as Marty was saying, that will have a lot of our focus. Where your service writers use PC tablets, where you try to cut out some of the --.

We are trying to bring some efficiencies into the back-end side, putting in wireless systems and barcoding so we don't have guys running around writing on pieces of paper and trying to input it into the computer every 59 seconds.

Understood. On the order entry and invoicing process, do you have some internal targets there in terms of what you're expecting from that? Should it be -- sort of meet your expectations? Or said differently, how are you measuring success on that?

What we're really after is capturing data and getting a 360-degree view of the customer. If you think about it in a parts and service sales guy, who is your most likely customer? The guy that bought a used truck or a new truck from you, right? So what we are trying to do is capture the data and the history.

Unfortunately, the business system we had really was not designed on that side of the business. It was designed on the parts and service side. Being with the number of locations we have, we basically decided to develop our own. The primary objective there was data and getting a better idea who are customers, what our relationships are, when their practice occurs, and a database of that information. Then apply that to the parts and service side of the business.

Got you. Thank you very much.

John McGinty of CSFB.

A couple of follow-ups. When we -- just trying to get a handle on margins as we go forward. Will fleet sales be down in '05? In other words, if demand is as strong as it is and backlogs are rising, are you guys going to be less likely to go out and sell the fleets? Or is Peterbilt going to be less likely to sell the fleets? So does that come down and inherently help margins in '05?

John, I will tell you this. We won't be out prospecting probably for new fleets. But in a business that is this cyclical you have to know who your customer base; you have to take care of them in good times and bad times, okay? So that is a managing process. We will take care of our customer base in a 360-view.

I would tell you that any excess that we might have, of course will be directed into more profitable segments of our truck sales. So we will take care of our customer base, yet at the same time grow -- if the existing customer base does not take care of all the growth of trucks that we have available to us, then we will target that obviously towards the more profitable sectors.

On used trucks, as used truck availability gets to be more difficult, in other words, used truck prices rise substantially in this kind of a marketplace, does that mean that you actually sell fewer trucks but you make more money on what you do sell? Or do you actually end up making less money because it costs you more to get your hands on the used truck?

So far we have been pretty good in this type of environment, we did during the '90s, our margins rose. As you can see from '03 to '04 they were up about 1.8 percent. So we would (technical difficulty). Now you know you reach a level that you cannot get beyond, okay? I would expect there to be a little more margin, I would hope accretion. But it is not going to be in the 1.8 level like it was from '03 to '04, John.

On the absorption rate, with the pro forma -- in other words when we're talking about 95 going up, are we pro forma-ing ATS in there? Is that about the same level? Does that change things?

No, they are really in the same range, within a couple points of where we were. So on the whole macro look it doesn't have that much effect. Because their parts and service, even though they were 30 percent of revenues if I remember, more of their business was derived from the truck sale and less from the back ends.

We are very excited, very excited I can tell you about the opportunity for growth in the back ends. Even though they do a good job, there are certain areas, especially in part sales, things like that, where we can be pretty effective in growing that side of the business.

And then on the construction equipment, in the Houston area in particular it's been strong for a couple of years. Are you all looking for the Deere part of the business to flatten in '05?

The latest information we've got, John, is that it ought to be up about 8 percent.

Finally, is 23-9 current share account to use going forward?

It's going to be closer to 25.

That's 23-9 actual shares, 25 with the dilution.

You are talking about fully diluted?

I'm sorry. Fully diluted.

Fully diluted should be 24-6-ish.

24-6, okay. Just wanted to make sure I had the right number. Thanks very much.

John, one last thing. I pulled third quarter for you. The average sales price of a Class 8 from the third quarter went up 1.8 percent to the fourth quarter.

Okay. That's the average truck price on a Class 8 truck third quarter to fourth quarter?

It was up 1.8 percent.

What about the medium truck?

The medium truck was up 5.6 percent.

That's, I assume, got to be mix.

A lot of that is mix because of all the bodies. Everything gets a body on it, John. So a lot can be the difference in the price of the more -- a different, reefer unit and say just a plain box is quite dramatic.

Okay, that is pretty impressive then to still hold those gross margins when your product -- because that's got to be passed through and less margin on that body.

Very true.

Thanks very much.

(OPERATOR INSTRUCTIONS) Dennis Skannel (ph) of Rutabaga Capital.

Real quick, can you give some statistics on ATS for 2004? I have through the first 6 months. Do you have like a total sales and EBITDA?

Dennis, I don't have that right in front of me. We've got it in the third-quarter stuff. We updated the stub (ph) when we filed the third quarter -- or the offering. I will have to get back to you. I don't have the end of the year information for them.

We will be happy to get back to you with it, Dennis.

Terrific. Marty, when you went through the numbers on the CapEx on the expansion side, I think I didn't fully understand what was being spent for Nashville. Was the 11 million spent in '04 just on Nashville? Or that's what is left to spend?

Let me back up. We spent in '04 $11 million in construction in progress. Nashville's addition was $7.5 million.

Which was in the fourth quarter?

That is not in construction in progress.

Got you.

(multiple speakers) I'm sorry, that --

That is part of the 11.

It is part of the 11.

There is more spending in '05?

'05 we will spend another couple million dollars. We bought it right about in November-ish of '04.

November 30. Yes, we closed November 30.

Got you, okay. So a couple million in Nashville. Then was it a couple million in Florida too, or was that higher?

Florida will be about 6.

6 million, okay.

Now remember we get to lay off 80 percent of that for cash flow discussion purposes.

Got you. Then Mobile was another 2 million?

Mobile is like 2.5, right.

Fair enough. I think that is it for me. Thanks a lot. Look forward, Marty, when you have those numbers, that would be great. Thanks.

Okay.

There are no further questions at this time. I'd now like to turn the call back over to Mr. Marvin Rush.

Thanks for talking to us, thanks for listening. (inaudible) Got anymore questions, please give us a call. We look forward to talking to you pretty soon in the future.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your call. You may now disconnect.