Rush Enterprises Inc (RUSHB) 2007 Q2 法說會逐字稿

Good day and welcome, everyone, to the Rush Enterprises second-quarter 2007 earnings results conference call. This call is being recorded. At this time, I would like to turn the call over to Mr. Marvin Rush, Chairman of the Board.

Good morning and welcome to our second-quarter 2007 earnings release. With me today is Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; [Jay Hazelwood], Controller of Rush Enterprises; and Derrek Weaver, Chief Compliance Officer.

Now, Steve Keller will 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, 2006 and our other filings with the Securities and Exchange Commission.

Now we would like to give you an update on our progress. Let's talk about the second-quarter results. The Company's revenues totaled approximately $519 million, or an 8.7% decrease from revenues of $569 million reported in the same period last year. Net income for the quarter was $13 million, or $0.51 per diluted share, compared to $14.9 million, or $0.59 per diluted share, in last year's second quarter.

Talk a little about the truck segment. Our truck segment recorded revenues of $488 million in the second quarter of 2007, compared to $544 million in the second quarter of 2006. The Company delivered 1869 new heavy-duty trucks in the second quarter of '07, compared to 2695 heavy-duty trucks in the same period of '06. Revenue from Class 8 truck sales decreased approximately $82 million, or 27%, to $226 million in the second quarter of '07 from $308 million in 2006.

We continue to aggressively develop our medium-duty truck business and our efforts are showing results. In the second quarter 2007, 1324 new medium-duty trucks were sold versus 1185 new medium-duty trucks in the same quarter last year. Revenue from medium-duty truck sales increased approximately $7 million, or 11%, to $73 million in the second quarter of 2007 from $66 million in 2006.

The Company delivered 984 used trucks in the second quarter of 2007, compared to 954 used trucks in the same period in '06. Revenue from used truck sales increased $6 million, or 13%, to $52 million in the second quarter of '07 from $46 million in '06. Parts, service, and body shop sales increased 7% to $112 million in the second quarter of '07, compared to $105 million in '06. Gross profit margins from back-end sales increased to 44% in the second quarter of '07 from 42.9 in '06.

The Construction Equipment segment recorded revenues of approximately $26 million in the second quarter of '07, compared to $20 million in the second quarter of '06. New and used construction equipment sales revenues increased 32% to $20.7 million in the second quarter of '07 from $15.97 million in the second quarter of '06. Construction Equipment parts, service, sales increased 26% to $5.3 million in the second quarter of '07 from $4.7 million in the second quarter of '06.

I'm going to talk a little about our absorption rate. We remain focused on our absorption rate. Our second-quarter absorption rate held steady at 109% compared to the second quarter of '06, despite fewer Class 8 truck deliveries. Even more encouraging was our same-store absorption rate, which increased to 106.2 in the first half of '07 versus 105.3 in the first half of '06. This illustrates our commitment to implement necessary expense reductions while continuing to provide the highest levels of customer service.

We expect to maintain or slightly increase our absorption during the remainder of '07, despite the decrease in the Class 8 truck market, while keeping my eye on the stated goal of achieving an absorption rate of 110% in 2008.

Talk a little about the industry outlook. As expected, we continue to experience the softening of Class 8 truck market in the second quarter. While we previously expected United States retail sales of Class 8 units to be weaker in the second and third quarters of '07, we now expect industry Class 8 deliveries to remain soft for the remainder of the year. We anticipate Class 8 order intake will increase beginning in early '08.

Additionally, we believe industry conditions, including normal customer trade cycles and new diesel emissions regulations scheduled to take effect in 2010, will result in a prebuy beginning in '08.The magnitude of the '08 and '09 prebuy will be largely dictated by the economy, among other factors. If general economic conditions in the U.S. are good in 2008 and 2009, we believe 2009 will be a record year for U.S. Class 8 deliveries.

We are now prepared to answer any questions you may have. Operator, please review the procedures for asking questions.

(OPERATOR INSTRUCTIONS) Chaz Jones, Morgan, Keegan.

Congratulations on an outstanding quarter. My first question was just related to inventory. I was curious if maybe you can update us on where inventory stands as it relates to '06 engines. I think previously you had stated that you thought you had enough inventory to sort of last through August.

Well, I tell you, inventory is probably going to last a little longer than August. Sales -- inventory sales were a little sluggish, I would tell you, probably in the April/May timeframe, but seemed to pick up pretty good in June. And we've got some decent incentives out there that we think accelerate the inventory catch-up to be at the levels we anticipated going into the year.

So we're very comfortable with it. It has actually provided -- it looks like it is going to provide a nice focus for us to sell these pre-'06 engines. Even though we've had to carry the carrying costs of these trucks, I think they're still a very valuable commodity in the marketplace, and they are proving that out over the last 45 days. And we expect that to continue even for the next couple, three months till we deplete the inventory.

But I would tell you inventory will stretch, obviously, and we hope to have the majority -- you've always got a few pieces left. But by the end of the third quarter, we hope to be out of most of the Class 8 inventory.

Okay. Then I think previously you had expected heavy-duty sales to perhaps begin to rebound in the fourth quarter. You stated that you expected them to be flat sequentially in the third. I know there is limited visibility out there as it relates to the fourth quarter, but given what you know, do you expect Class 8 orders to be off in the fourth quarter from where they were in the second and potentially in the third?

I do not expect Class 8 orders to really -- or order intake to change a whole lot. I will be honest with you. I expect it to -- you might have a blip here, with one month here or there. But as you take it quarterly and look at it, I do not anticipate anything until probably the first quarter.

And again, it just looks like that. There's still -- with freight where it is at right now, with the softness in freight, I would tell you that I don't expect order intake to really pick up until the first quarter. I don't know that you're going to get that normal November/December order intake.

As far as deliveries in the fourth quarter for us, that is why I really didn't address it. The window is very short. You can still get -- we're still selling. I'm still selling into the third quarter, to be honest with you, right now. I can still get trucks and deliver into the third quarter without a problem. So when your window is so limited and your view is so limited, it is hard to really look at it in the fourth quarter and say a whole lot at this timeframe.

And that is the good and the bad of it. The bad of it is, obviously, with the soft order intake we have, you do not have a lot of visibility; but the good is you have the opportunity to sell. And with the past performance of our organization, I am sure we will more than do our share in the marketplace.

Rusty, are you selling any '07 engines yet or very many?

Sure, we are selling '07 engines, or we would not be taking it -- we've been selling '07 engines -- since March, we've been delivering '07 engines, so --.

-- a third of our inventory.

Yes, they are basically up to about -- they're not half of our stock inventory right now, but they're everything that we are selling that is sold.

Okay. And then last questions, some very nice improvement in the gross margin year-over-year. How much of that is related to just your mix versus anything else that might be driving that improvement?

Mix is the answer. Mix is your answer. When you look at it, you do not have all the large fleet sales, which of course are by far the lowest margin business we do. So when you look at that mix and you look at more -- a percentage more lean towards stock inventory, the inventory that we carried over, I would tell you that that's what is driving it.

Okay, great. Thanks, guys.

Jamie Cook, Credit Suisse.

Congratulations. I guess just my first question, you talked a little bit about it -- this might be the answer from the first question. But when you looked at your heavy-duty deliveries in the second quarter, I think you were down 31%. And when you talked about what you expected in the first quarter, you were talking down 15%. So can you just help me sort of figure that out? Is it just the fact that you did not sell as many trucks with '06 engines in there?

Now, say that -- now, Jamie, I don't know if I quite understood the question.

If you looked at your deliveries in the second quarter in the heavy-duty trucks, you were down about 31%.

That is correct.

And then when you looked at what you -- when you give guidance last quarter, when you talked about deliveries on heavy-duty trucks in the first quarter, talking about what you'd do in the second quarter, you said you expected second-quarter heavy-duty deliveries down about 15%.

Okay -- off of the second quarter -- off of the first quarter, that is.

Oh, it was off of the first quarter?

(multiple speakers) the first quarter, not off the quarterly call. No, that was off first quarter, and that is basically where they came in.

All right, sorry. That was my misunderstanding. Can you talk a little bit about on the truck side how used equipment pricing is holding up?

Used equipment pricing is sort of the same comment I gave during the first quarter. Appears to be holding up nicely. If there is one sector from all the different profit centers that we deal with in our -- there is more than one that we're pleased with. The one that has actually surprised me as to how well the valuations have held up, it is the used side.

So currently, our used margins are in line with expectations and we have really no issues in our used inventory. And we're still actively out procuring used inventory.

Okay, then just my last question. When I look at the margins on the Construction Equipment side, they were much better than my expectations. I think they were about 11.1%. So is anything in particular in there? I know before you were trying to gain share. Can you just walk me through the margin improvement and whether that is sustainable?

Jamie, this is Marty. As you know, we're principally a John Deere Construction Equipment dealer in that territory, right? We do offer a few ancillary lines as well. When we have those ancillary lines as a larger percentage of our sales volume, our mix will increase in margin from that perspective. So that ancillary product line and mix within the John Deere line, certain pieces of equipment have better margin than others. So what you're really seeing is more of a mix issue than it is anything else.

Are you still aggressively trying to gain share within the Construction Equipment?

We are. We're clicking along in the upper teen range. We would like to be in the low 20 range. We're not there yet, but that is our target. And we are very aggressively pursuing it. We're selling, as you can see, a lot more equipment than we did a year ago, but the market in Houston seems to be taking off pretty rapidly this spring. So we are chasing a pretty rapidly escalating market.

All right. Great. Congratulations.

Peter Nesvold, Bear Stearns.

Maybe, Rusty, I want to push you a little bit on the absorption ratio. I think it was in Marvin's opening comments how you expect the absorption ratio to sort of hold at this 109% as the year progresses. You look at it to '08 -- I mean, 110 at one point started awfully aspirational. At this point, it seems like maybe you're not challenging yourself enough. So at what point do you kind of challenge your folks and raise that absorption ratio target even higher?

Let me start at the first of your question there. The 109 is not what we refer to as maintaining. If you'll look back historically, the second quarter is our strongest quarter, okay? The 109, I do not anticipate maintaining the rest of the year. I will not make that statement. Maintaining, as I've said all along, for a year or so now, more than a year, our goal was to hit 105 last year. We did it. Our goal this year is to maintain around that 105 mark for the year.

You must remember, there are fewer working days -- when I say working days -- actual business days, Monday through Friday -- in the calendar in the third and fourth quarter. The third quarter, for example, has two less business days. And that equates to quite a large sum of gross profit and ability to get it. Yes, we're open on the weekends, but you still don't push the volumes through your shops like that. Then you have the holidays in the fourth quarter.

So our goal is to maintain within that 105, give or take a point so up or down, as we ends the year, when you take a twelve-month look at it.

So I beg to differ a little bit. But challenging to 110 next year will be -- will not be the easiest thing in the world. But given our past performance, I have no doubt in our ability to achieve it. But I would not look for 109 in the third quarter, Peter. Please do not do that.

Seasonally, I can understand, which is why I guess I was surprised. It was my misinterpretation. But even still, Rusty, to keep at 105 into really what is a freight recession right now -- granted, you're growing your parts business, you're growing your medium-duty business organically, and for other reasons other than just the economy. But that is pretty remarkable, to keep your absorption flat into a downturn. And I just wonder, why shouldn't we start thinking something better than 110 as we go into '08 and '09?

I love the thought, and don't think I don't think it every day. But I am also a realist at times, even though I push the envelope pretty hard around here, there will be a lot of people that will tell you. But -- you know, that is possible. We still have not really seen the effects of the medium-duty truck sales from our parts and service perspective.

You have to realize, the medium-duty truck -- we've been after this for what -- 3.5 years now, 4 years, but we really did not get kicked off until, say, the beginning of '04. But once you start pushing, and the volumes have really increased a lot the last two years, it still takes those products through year 3, 4, and 5. They really do not starting having more service, other than normal maintenance and breaking down, a medium-duty truck does, until you get out into the third, fourth, fifth years.

Because that customer keeps that truck longer, but he doesn't drive the miles and doesn't put the wear and tear on it that a typical Class 8 truck customer, especially one that's in vocational, or even one that is over the road, does. It takes a little bit longer. But they typically do not have that until the third, fourth and fifth years, really get into that.

Also, we have got some large store expansion going on that will take effect in '08 in a couple of our large stores. So, for example, in Phoenix and Oklahoma City, we're going to be adding footprint that is upwards of 75% to doubling the size of it, where we're currently at. So those also take a little ramp-up to fill the shops up as you get into them. Those will start coming into play as we get into the first quarter of '08 and '09. Right now, we're spending cash and starting to build them and build them out. But they will come into play in '08 and '09.

So I do believe the ability -- we like to believe the ability is there, Peter, but I do not like to give anybody any misguidance as to what our internal goals are.

Okay. Switching gears for a minute, I want to say I saw a headline recently that Peterbilt is introducing a new Class 5 product.

Yes, sir.

What is the timing of that, and, based on your understanding of the product, how well does it match up to your footprint? What might it mean to Rush as you look out over the next couple of years?

Well, if there is anything we've learned in our 40 years of being a Peterbilt dealer, we've been pretty successful with Peterbilt. And I'm sure that their success in the Class 5 market will show. Now, starting into that market is not always -- like I talk about putting a store in and give an analogy like when we do, when we double the size of a footprint. Anytime you go into a new market like that, there is a ramp-up period. And I would anticipate that it will complement our lines, our other lines, nicely as we go forward.

The Peterbilt product obviously speaks for itself, and they have never not been successful in anything they have really undertaken from a model perspective. So we are excited about adding that to our lineup. Right now, we're starting to promote the product and sell it as we speak. So I might be able to give you a little better guidance as we get (technical difficulty) get into the third quarter call.

Yes, because I would be interested to understand how sizable it might be, if it is just kind of a rounding error or if it could really be a big growth area for Peterbilt.

Last question, clearly the trailer dealer -- and I'm glad you're not -- but you certainly talk to a lot of customers that buy trailers. And I was just wondering, any perspective you can give us what is happening in that end market. Because just demand continues to -- is bad and getting worse. So I am curious -- you seem optimistic about what tractors look like in '08. Any perspective from your customer base what trailers are looking like?

Peter, I would have to tell you, I would be sort of half shooting from the hip. But I do not look for trailer demand to follow truck demand as strong in '08 and '09. I think there's some changing things in the freight and the logistics of how things are being moved around this country right now. And to be honest with you, I really do not have a strong handle on it. But I personally believe that I do not expect trailer demand to follow truck demand in '08 and '09.

Okay. Thanks for the time.

[Vic Kumar], [Soundpost] Partners.

Great quarter. Question on -- by our calculations, I guess if you sort of strip out the debt that you have for your leasing business, it looks like you have about $4 a share of excess net cash on the balance sheet. Just wondering what you're planning on doing with that and when you see that potentially reversing.

Well, I would tell you we're obviously looking all the time. This is the time -- the environment they are going into right now, it is extremely important to be able to be nimble and have the ability and the access to capital. We believe that we have set ourselves up. Because right now, as you know, this downcycle that we're in may last longer. And the longer it lasts, the more opportunities that present themselves in many arenas, which I am not going to dive into on this call.

But we believe we are prepared -- more than prepared to take advantage of any opportunities with that cash -- any opportunities that show up -- by having that cash on the balance sheet. So we're very comfortable with it. We would love to deploy it in the proper manner, and we are sitting here and listening.

By the way, was that calculation right, about $4 share in net cash if you strip out leasing?

For what we believe we need to run the Company, I would say that is probably true. You might be a little light, I would tell you. You might push up a little bit on that. We could -- $4 to $5 a share would probably be a good answer.

Okay, but no specific timeline on when you're looking to deploy, but you're actively looking, I guess, is the answer?

We're in a changing environment on a daily basis at the moment. When you talk about manufacturing's building a third of what they did the prior year, we're on the tail of the dog. And obviously, we feel it at the dealership level further down the line. So the tail from the '06 prebuy has just finished working its way through most of all the -- most of the truck distributors or truck dealers across the country. So it will be interesting to watch as we go forward.

Okay, great. Those are my questions. Thank you.

[Clinton Maynard], [Morehead] Capital.

Congratulations on a great quarter. Just a couple of quick things for you. As far as your average Class 8 margin this quarter, do you know what that was roughly?

You're talking about our personal market share or --?

The margins you got on your Class 8 truck sales.

Oh, our Class 8 margin was -- because of the mix of business, it was around 8%. Remember, because we took -- the fleets are not involved anymore. So you've got to understand the mix of business changed dramatically from the second quarter of last year. That is the excess -- I think we delivered 2700-and-something units last year. So when you look at that, most of those were all fleet units, which drive margin down. So when the mix changes, obviously the margin changes.

Absolutely. Regarding your absorption rate, and this might be obvious, but I just have not been able to quite get my hands around. When you're comparing your system absorption rate to your same-store sales absorption rate, can you -- is that because of remodels that are getting pulled out of the same-store number, or what really drives that to be a couple points lower than the 109 you talk about?

Strictly acquisitions, more or less.

I guess I was just under the impression that until -- when you acquire a business, the absorption rate improves.

Yes, but it does not improve with a flip of a light switch, okay? It takes people. It takes training. It takes capital. It takes a lot of things. You do not just turn a light switch on and drive your absorption rates. We've learned that. If you look at where we were six, seven years ago and where we are now, you can see that did not just happen with a light switch. It happened with a lot of planning and a lot of effort on a lot of people's parts -- a focus, an extraordinary focus to drive it up to these levels.

Because remember, if we did not want to do -- if we stopped acquisitions or the startup stores and things like that, Greenfield type opportunities that we take advantage of every year, we could grow our absorption rate faster. But at the end of the day, this is an absolute dollar game. So there's a balancing act between just driving percentages and driving absolute dollars into this organization. So we're constantly watching that.

Sure thing. On the medium-duty front, are you seeing any potential out there for acquisitions that you can roll into your existing truck centers?

As I said earlier, opportunities are increasing daily, okay?

How about Chrome Country? Any outlook there?

Well, we're actually, from a Chrome Country perspective, we're exploring right now doing a stand-alone in certainly a couple areas of the country, or especially one area of the country. So it has worked well for us there in conjunction with -- in that one store. We have been a little slower than maybe we anticipated in rolling them out, but we're looking at a couple different models so that we get this right as we do it.

But in general, customer reception on that being pretty strong?

Sure, it has been profitable for us. There's no question about that. Because it plays -- it is a double thing, because obviously you're using it as a draw to get more customers to sell trucks to. And obviously by having a large, nice facility it is attached to, it works both ways -- from a truck sales and a chrome perspective and a parts perspective.

Fantastic. Thank you so much and, again, congratulations on a great quarter.

(OPERATOR INSTRUCTIONS) Milan Gupta, [Southpoint] Capital.

Great quarter. I just had a question. Obviously, the absorption rate was very good. But just looking at the SG&A, it was up -- it looks like 10 or 12%, if you back out the variable component of the G&A. What is driving that and how should we expect that to grow over time?

Okay. Well, SG&A, if you look at six-month view of it, SG&A was up 3.9%, from a six-month view. Sometimes it is hard to look just quarter to quarter, as we're constantly doing things inside the business. If you look at it from a quarterly basis, SG&A, I think, was up about 5.6. We normally would anticipate SG&A to be up in the 5% range, 4 to 5.

We're not going -- remember -- if I view this downward trend we've got going on, this tough part of the cycle, it is important to us, yes, to manage expenses as we go through. But we're not willing to cut -- we're not going to cut too deep. It is important to trim the excess fat, but do not cut too deep. Because this is just a speed bump. This is not an '01 and '02 and '03 where you've got a three-year downturn.

This, we believe, is still just a ten- to twelve-month downturn. And we do not want to have to ramp up -- the rebuild process to ramp up to catch a two-year or an 18- to 24-month, which we [believe] a big market. And really in the second quarter of '08 we believe through '09 and into first quarter of 2010.

Got it. Okay.

If you look at -- you've got to remember, there's acquisitions in there. So there's acquisitions in there, so you have to strip those out too, to get a true look as to where you're at.

Yes, how much of the increase do you think that was?

From an acquisition --? Same-store was 5.6 in the quarter. But year-to-date -- as I said, don't take a quarterly view -- we view it on a yearly basis -- is 3.9. I expect maybe a little better expense management with what I see expense control in the third quarter as we go into that.

We were still finishing delivering all the tail of the '06 engines and stuff through the first and the second quarter. So I would tell you I would look for overall absolute growth to be probably tempered in the third quarter, we hope.

Got it. Thanks a lot. Good quarter.

We have to. Absorption, again, is a numerator and a denominator, and it is important that we understand -- if I cut the denominator too much, I will never grow the numerator. So there is a balance between the two -- as I said, with acquisitions and maturing stores, it is always in balance of absorption. Never get too caught up on one side. You've got to have the revenue growth continually or you'll never save your way to it.

John Barnes, BB&T Capital Markets.

Rusty, I got on a little bit late, so I apologize if I'm being a little redundant here. But given the inventory that you took on in kind of preparing for the new engine, can you give us kind of an update as to how much of that inventory have you worked out? Are you pretty comfortable with your inventory levels, given your comments about what the back-half demand is going to look like?

It is interesting. Yes, we are behind -- I am behind delivering the inventory that we carried over from where I anticipated going in January -- and we built for. Yet at the same time, there seems to still be very strong demand for the trucks that we have on the yard, so the extra interest costs that we may have incurred in the first and second quarter I think bodes well for us going into the third quarter.

We would anticipate disposal of the majority of most of this inventory by the end of the third quarter. Not absolutely everything -- but by the end of the third quarter -- we never dispose of all of prior-year inventory by the end of the third quarter. But I would dispose of the majority of it in the third quarter. And I think that relates to the comments that I had about deliveries in the third quarter compared to the second quarter.

Okay. And in your used inventory right now, your comfort level with that, have you seen any build there or is there still pretty decent demand for used equipment?

Used equipment, as I mentioned earlier, values have held up nicely so far. So we're looking forward to that. Even if there was to be a valuation deterioration, our inventory is not excessive and we do not have excessive commitments out there or in the future right at the moment.

Okay, let's see. In terms of your medium-duty franchise, you have employed a strategy thus far of numerous medium-duty brands in your locations with Peterbilt. I briefly heard some of your comments about Peterbilt and their move into medium-duty. Given that you're an exclusive dealer with Peterbilt on the heavy-duty side, are there any limitations with them on the medium-duty side? Is there any limitations with any brand that you're dealing with that would put a cap on this? Or are you still at this point pretty comfortable with the growth potential in medium-duty?

I think we're still very comfortable with where we're at. Medium-duty, again, understanding the model of medium-duty, it is a totally different market to sell into, and that is why we use a separate sales force. It is a price point game, and a little bit more of a commodity business than Class 8 without as much brand loyalty. And hitting all those points is extremely important, to make sure that you can cover the breadth of the customer base.

So I really see no limitations. I mean, the only limitations would be if we underperformed for a manufacturer. And I think if you would talk to any of the manufacturers, the six manufacturers we represent currently in different areas of the country, you would not see that to be the case.

Okay. And then lastly, in terms of your comments on acquisitions and looking at opportunities, I think one of the components of your business that gets overlooked a lot of times is your Deere construction business down in Houston.

I'm just kind of curious as to other kinds of companies that you think would make sense that you could put together with what you're doing today. Have you pursued Deere in terms of other franchise opportunities with them? What else is out there that you could layer in that kind of augments what you're doing on heavy-duty and medium-duty in the dealer network you already have in place?

Right. Because I think you go back to the comment when we look at us, as we order our strategic planning inside the organization, we look at what we have that is most valuable. We believe the most valuable thing we have is our distribution network to a contiguous customer base across the southern part of the United States.

And how we leverage off of that customer base and that network, those are the two most valuable things we have, is our commercial customer base and our distribution system. And how we continue to leverage, with just incremental cost where necessary, to push more commercial products through these customers is key to us.

Now I'm not going to get into detail. I know you're driving for better detail than that. But understand that is our growth [plot] as we go forward. We will push more commercial products across a contiguous geographic network from the Atlantic to the Pacific across the southern part of United States because we believe that is still going to be the growth area of the country as we go forward, and that has been our focus for 15 years and will continue to be our focus for the next few years.

I'm not going to dive into manufacturer representation. We would love to represent -- do more CE business, and we're constantly looking at opportunities out there to do that. Besides, if there's other commercial products that our customer base uses and given what we believe is our solid -- strong reputation to these customers in the marketplace, we are constantly looking, and this type of environment presents opportunities to us as we go forward.

All right. Is there anything you're limited to -- that you cannot do because you, your company, is publicly traded and maybe somebody you want to franchise with or something does not want a publicly-held entity to be --?

I really would not want to get into commenting on anything in specific like that, John. Right now, I think we are available. We'll talk to anyone and if they do not want to talk to us, I guess they don't have to because of those types of issues. But I see nothing like that out there right now.

All right. Very good. Very nice quarter. Thanks for your time.

Clinton Maynard, Morehead Capital.

One quick follow-up. Looking at the medium-duty service business, are you typically competing -- I know a lot of the medium-duty dealers tend to be the large auto franchisees. Are you typically competing on the service side with those guys and do they have the ability to serve the commercial customer in the same way you can?

Not even hardly. It is not even close. And we believe that is what is going to differentiate us as we go forward. A typical automotive dealer is not open 18, 20 hours, 24 hours a day; does not run mobile service; does not have pickup and delivery for their product at night. Remember, a medium-duty customer --

Well, that is correct, because I am thinking that is who the typical service competitor to you is, for medium-duty trucks.

That is the typical, but there are other, should I say -- I don't want to say just private, just parts and service nonfranchised type people that run mobile service trucks and have little garages on the side. They are a large competitor also, probably as much or more of a competitor than the automotive franchises, because the automotive franchises do not normally -- they are not normally set up to handle a medium-duty truck.

Heck, many of their doors, you can't even drive the trucks in there because the bay doors are not high enough. So they have many limitations. And their focus of how to get product to market and how to service the customer and their timeframe that they are open just does not fit a medium-duty customer.

A typical medium-duty customer wants to run his truck -- crank it at 6 in the morning and shut it down at 6 in the evening. He's delivering supplies and products, whether he's a landscaper, a produce hauler, a produce guy getting stuff around town, a restaurant supply person. I mean, there's numerous -- I could go into 15, 20 different locations that medium-term duty trucks go into. But he typically -- you will see him running around town in the daytime and he wants it serviced at night.

And we have focused and we believe that is what is going to really drive our business, on that full package of services to take care of a customer when he wants it done. Because the truck to him, that is why brand is not as important. The truck to him -- he's a truck driver, probably drives a truck 25%, 30% of the time, and he unloads product the other 70% of the time. Totally different from the (inaudible) and over-the-road truck driver, who is on the highway driving it.

So it is really just a disposable item. It is a means to an end. It is a way to get goods to market. So having it ready to crank in the morning and shut down and take care of that in the evening is our focus as we go forward. And we believe that will even drive -- it will drive our sales as we get our network built out, even -- I like to believe to where eventually we will sell more medium-duty trucks. Even in the height of a cycle, the Class 8 cycle, within five years I think we will still sell more medium-duty trucks than we do Class 8's.

That should also make it more attractive to the manufacturer, to have you there servicing the customer because they think the customer will get a better experience, right?

No question. No question about it. And we're nowhere near where we're going to get, but we are making progress every day.

Thank you so much.

With no further questions, I'll turn the conference back over for any additional or closing remarks.

Thanks, guys, for listening. We'll look forward to talking to you next quarter. You got any questions, call any of us. Have a good day.

Thank you. Once again, that will conclude today's conference. We do thank you for your participation, ladies and gentlemen, and you may disconnect your phone line at any time.