Rush Enterprises Inc (RUSHB) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Rush Enterprises' fourth-quarter and year-end 2012 earning results 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 be given at that time.

(Operator Instructions)

As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Mr. Marvin Rush Chairman of the Board. Sir, you may begin.

Good morning, and welcome to our fourth-quarter and 2012 annual earnings release conference call. On the call today with me are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and CFO; Jay Haselwood, Vice President and Controller; Derrek Weaver, Senior Vice President, General Counsel, and Secretary.

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, 2011 and in our other filings with the Securities and Exchange Commission.

Let's give you an update on 2012. We were pleased to announce the Company achieved record annual revenues of $3.1 billion in 2012, net income of $62.5 million, or $1.57 per diluted share. We were also pleased to announce that the Board of Directors approved a stock repurchase program, authorizing the Company to repurchase up to $40 million in shares of the Company's common stock over the next 12 months. Our parts, service, and body shop departments accounted for 63% of the Company's total growth profits in 2012. It contributed to a record annual absorption rate of 116%. This was a result of continued service needs of aged vehicles in operation and our expanded portfolio of customer solutions.

Rush Class-eight new truck deliveries increased by 10% over 2011 and accounted for 5% of the total US Class-eight new truck sales market. This is mainly due to our diverse product lineup and the ability to serve a wide range of heavy-duty market segments. Our Class four through seven truck deliveries reached a record 7,126 units, a 30% increase, and accounted for a 4.3% of the US Class four through seven market. Our medium-duty growth is primarily the result of national fleet sales, delivery of work-ready inventory to small businesses, and strong performance by employees in our medium-duty franchises. We also increased light-duty deliveries by 35% in 2012 compared to 2011, thanks to our Ford franchises and our ability to offer light-duty product to our existing heavy- and medium-duty customers.

During 2012, the Company expanded its Rush Truck Centers network footprint by 78 -- to 78 locations. We acquired eight Navistar locations in Ohio and opened an Isuzu sales and IC Bus service location in Columbus, Georgia. We also expanded existing operations to larger facilities in Phoenix, Arizona, and will relocate operations to newly constructed facility in Ardmore, Oklahoma next month. Currently plans are underway to construct dealerships in Corpus Christi and San Antonio, Texas. We continued to grow our ancillary business by adding a second CVS location and opening two bus centers in Texas. We also expanded our Idealease and [IB] Bus operations as part of our Ohio acquisitions.

Let's look at the industry outlook. We expect US Class-eight retail sales to range between 198,000 and 208,000 units in 2013. Class four through seven retail sales are expected to increase about 12% to approximately 184,000 units. We continue to see customer confidence increasing in certain sections of the economy, such as housing. We expect stronger order intake in acceptance of Navistar's engine strategy to drive increased new truck deliveries beginning in the second quarter. We believe this improvement should continue throughout 2013 and '14. We also believe our after-market business will continue to remain strong. However, consistent with past years, we will experience increased costs related to employee benefits, which will negatively impact expenses during the first quarter.

We are very proud of the Company's record performance in 2012 and are grateful to all our employees for their contributions to the Company's success. We continue to transition the Company to being a premier solutions provider to the commercial vehicle industry, and are in excellent financial position for continued growth.

We are now prepared to answer any questions you may have.

Thank you. (Operator Instructions) Jamie Cook, Credit Suisse.

Congratulations. Two questions. One, Rusty, I was hoping you could -- you said in your press release you gave your range for 2013 on Class eight, which is a little below where we were before. At the same time, we're citing increased confidence from customers. So can you just talk anecdotally what you are hearing from customers that gives you confidence? And what is the risk we get a second-half disappointment like we did, not in your numbers, but in the market in 2013?

And then my second question is more related to Rush specifically. Can you talk about what your assumptions are behind the acceptance of Navistar using Cummins, Zendra engine, etc., what that means to your numbers? And does it take away from truck sales in other parts of your business if Navistar increases share? Thanks.

You bet, Jamie, thank you. As far as the number, it's really about the same. I think I had said 207,000, 208,000. If you take the midpoint, I think it's 203,500. Since the first of the year, we have seen -- I think -- I know I've seen quite a bit of increase in quotations. I've seen quotes up dramatically since the first of the year. Now not all that business is booked, but activity levels are extremely strong or stronger than we have seen them in a year or more than a year. So I believe that bodes well for the future.

And is that specific to a certain type of customer?

No, I would tell you it's pretty broad. When you look -- if I look at 2013 as I have told you all, the fact that I knew that oil and gas sales were going to start soft in this year, but that's why we -- that's way we built our business model and a lot broader markets, a lot broader base diving into more market segments. As you know, whether it's housing, whether it's construction, or refuse, or over the road, or the crane business we do, to oil and gas, we touch all those markets. And I was telling the guys that I like to think that the way we built it is going to come through for us here in 2013, because the quoting activity we see is pretty broad-based. So, we're not going to sell as many oil and gas trucks to two of our biggest customers, a couple of the biggest customers we have, because they have bought a lot the last couple of years.

But there are other segments, and I guess it's not just market segments, it's also geography. We are seeing the West Coast do a whole lot better right now for us. We expect to do a little better on the East Coast. There are certain segments that have been down maybe the last couple of years that are coming back to offset maybe some softness, at least on the sales side. Now I'm not going to -- on the server-side, I feel pretty good about where we are at. The oil and gas, when it comes to mobile technicians, softened in the fourth quarter, but we have seen them start picking back up here in the month of January and the first part of February. I was talking about my rents and traps this morning real quick just make sure, and we have seen some increase in technicians that are out in the field from a service perspective.

You add all those positives up, and then we will dive into your second question about Navistar, which to me, has a very bright, positive outlook for Rush Enterprises. When you look at where -- we're in the troughs right now. Whether this is the bottom of market share right now, or it's two months away, or it's right now, I don't know exactly. But I do know one thing, that by the back half of the year, it will start accelerating back the other direction.

I have spoken and then actually spent quite a bit of time here in the last couple of weeks with some of the top management, and I am confident that their engine strategy, it's Cummins and it is their own, and they are on time with their targets, as far as getting product out. They were on time with their Cummins ISXs, and I expect them to be in time with their own 13-liter with the Cummins after-treatment here in the spring. They are already running a lot of them as far as testings goes. So that bodes well again for the back half of the year, as they get out there and try to reclaim their spot in the marketplace, and not at the levels they are running at now. I do have confidence that they will get there.

And as far as how it reflects on us, you've got to believe it reflects. If you look at my fourth quarter, let me flip to some numbers, I only delivered 121 Class-eight Navistars. Okay? We would hope that's the bottom, right?

Okay.

You've got to believe when you get into the back half of the year that that's why I've seen a year that accelerates, that starts off flattish, maybe slightly up, flattish from where we are at. We've got some increased expenses, but things are looking fairly good as we integrate Ohio into the Company, that's a pretty good chunk of business there, the market-share leader in that state. So we feel really good -- there's a lot of things I feel good about. I don't want to get ahead of myself, but there are a lot of things out there that I feel -- that our model will prove out.

Okay great, thank you. I appreciate the color.

Tim Denoyer, Wolfe Trahan.

A question on parts and service quickly, can you give us a sense of what the same-store parts and service growth was in the fourth quarter and how that trended versus 3Q?

Sure, let me pull to the -- hang on, let me flip to it. 9.1 from a same-store quarter over quarter, year over year. Not annual, but on a quarter -- fourth-quarter over fourth-quarter, same-store, it was 9.1.

How did that compare to the third quarter? Was that up a little bit?

I don't believe so. I don't have it sequentially, but I don't believe it was up. Not the sales. We had less working days. You've got to remember with the holidays and everything, so I don't have that number in front of me, but I can tell you with less working days and Thanksgiving and Christmas holidays, etc, there is really not much -- there's no way it should have been up over the third quarter.

The third quarter on a year-over-year basis, was that up? I want to say it was up about 8%. Am I --

Q3 '12 versus Q3 '11, same-store was 8%. It was 9% in Q4, if that's the question.

Remaining pretty confident about it.

Exactly. Great, that's what I was trying to get at, but still very good underlying growth in parts and service. Is that continuing into January?

I believe so.

I'll be quite honest with you, Tim, we saw some softness in the September, October -- from a sequential basis, OK. November, December timeframe. But I'm very pleased with where we are starting this quarter. I'll just leave it at that. This quarter, right out of the chute, seems to we have gotten over -- I talked about it a lot. We had the election. Man, I'm telling you, I don't think people clearly understood the hangover throughout the year from about April on of the burden that put on a lot of people's decision-making processes. And I think their minds are clear, and they're looking -- you see a lot of the public companies. Their balance sheets are pretty strong, and I expect them to get into a more normalized replacement and growth going forward.

We just had to get through that last seven or eight months of last year, and I have seen renewed confidence pretty much broadly across the marketplace. Now I'm not here to say last -- how long ago or whatever, but here in the first 40 some odd days of this year, I have seen renewed confidence.

Thanks, and then one follow-up on the share repurchase. The obvious question is does this mean that you are not really seeing much in the acquisition market right now?

Oh no, no, no Tim. Let's not go there yet. Remember, our first and always our first, foremost thing is growth. That hasn't changed with the share repurchase program. To give you a quick antidote, we closed Ohio at year-end, and a lot of things I couldn't get -- Florida, etc, etc. If you look at it, it probably cost me $52 million in cash, and I will probably pull back about $10 million to $12 million of that. If you look at the cash position of the Company, I think it would be even stronger, and that was with closing Ohio at year end.

A lot of it has to do with the quality of earnings. We believe the quality of the earnings of the Organization with a shift from where we were, say 10 years ago, to where it's 60%, plus 60% parts and service, and well back in those days, it was plus 60% pro gross profit, has changed the free cash flow of the organization. We believe we can fund both easily, both acquisitions and share repurchase, because we strongly believe in the organization and where we are at right now. Without any problem, we believe we can fund them both with the growth of the organization over the last year and the quality of earnings change.

One last note, Tim. I saw your note this morning and tax was only $0.01, not $0.02. Okay?

We had 39% as an estimate. I guess we were a little high there. Sorry.

Neil Frohnapple, Northcoast Research.

Congratulations on a great quarter and year.

Hello, Neil, thanks.

In the investor presentation, it looks like you're expecting total parts and service growth of around 14% in 2013. I was wondering if you guys could break that down a little bit further between same-store sales growth and how much is coming from the recent Ohio acquisition?

I don't think we have it in front of us right now. I would tell you -- I would tell what, Steve?

What we looked at is we have the acquisition of Ohio we made on the last day of the year, which is going to be the bigger piece of it. I think internally, same-store, we are budgeting mid to upper single-digits growth in the parts and service area for on a same-store basis.

We believe we are taking that approach with what we see now, and we will let the year unfold as it goes forward. But right now, that is what we budget, to Steve's point, in the 8% range, something along where we have been the last couple of quarters.

Great, and then Rusty, what are your expectations for Class-Eight deliveries in the first quarter versus the fourth? I think you had maybe mentioned flattish to slightly up, but I want to clarify if that was for Class eight?

That is.

Okay great, and then one final one. Steve, do you have the gross-margin breakdown by truck in the quarter between heavy duty, medium duty, light, and used?

Sure. Yes. Heavy-duty in the quarter was 6.6%; medium duty was 4.8%; light was 3.5%, and used was 7% flat.

And just to add a little color, you've got to remember that heavy went down and medium went up. So the overall truck margin, I'm sure as I've noticed some of the notes, everybody said it was down slightly. That had to do with mix. As we know, medium does not make the margin, the heavy does. But medium sales went up, while our Class eight was down. It was a mix issue.

Okay, so then for 2013, obviously, with medium expected to grow at a faster rate than heavy, should we expect overall gross margins on the new and used truck side to be flattish to maybe slightly down just because of mix?

Maybe on the overall annualized basis, but I'm not -- don't worry, I'm not giving up on eight growth. We are still pretty bullish about eight growth, so I'm going to let it play out where it does. But medium, because of some of the acquisitions and because I think in the back half Navistar's product is out and stronger, there are reasons that we might have a little more increase from a units perspective on the Class-eight side. But we will see. Right now, there's like I said, this first 45 days has cause for some pretty good optimism. Obviously, it still has to play out, but our quoting activity seems to be stronger.

Brad Delco, Stephens.

I want to ask you a question, Rusty. I think one of the things that really stood out to me in the press release was a lot of emphasis on growth and where you guys are investing. I was trying to get your sense as to what impact you think that has had on your operating margins, ie, expenses. And how you think that those margins will trend in '13, knowing that you are not done with growth, but any color as to how you think that those will trend with what investments you have already made.

Well, give a step back and look at where we are at. I go back to January of 2010; we have trimmed down, and I can see about January of '10 that the margin was coming back. We had pared down through '08 and '09. We'd gone from 3,100 folks to about 2,400. We have since, through acquisition and through growth, we're going 4,400 and 4,500 people across the network. It has changed dramatically the organization, and all for the good.

But the continued requirement of investment on our part to tie all this together, I think I mentioned this a couple calls back. I am going to continue to invest heavily to make sure that we have the proper structure, the proper processes and communication inside the network, and that's going to take investment. But at the same time, it's driving towards a customer solution. It's what I see in our vision for 2020. What a customer wants. And that's going to continue to require investment, and we are going to continue to do that and try to stay out on that leading edge. I'm not going to quantify it for you, but I can tell you our investment will continue at record paces, at a record pace of what we have historically done. Because I am pretty bullish on the market in '13 and '14, to be honest with you, the back half of '13 and '14. And to tie -- continue to tie all these stores together, to continue to add to our footprint.

We are not through by any stretch. This has been a pretty methodical process of ours for the last 20 years and only continues to accelerate from where -- because the basis continues to grow. So the acceleration continues to accelerate at a faster pace maybe than it did 10 years ago. But to answer your question, I would expect operating margins to be pretty consistent with where they had been historically. I don't look for it to make a huge, dramatic shift. I'm going to say they are going to be pretty consistent with what they've been historically. We're just going to continue to make just a lot larger dollar investments, given the size of the organization.

Got you, that makes sense. I appreciate the color there. And then maybe more so for Steve, there's been a lot of growth in the leasing business, and I think it does look like there's a lot of CapEx being spent. I imagine most of that is on the leasing side. Do you have any guidance or expectations on what you expect to expand in the lease fleet and how much CapEx you're budgeting for '13?

I will break it into a couple pieces for you. On the leasing side, we have budgeted -- and these are gross adds, so some of it is new business and some of it is replacement. But as you look in the cash-flow statement, you'll probably see roughly $125 million of spend on leasing and rental CapEx, which as you know is 100% -- it's non-cash. It's 100% borrowed from our providers. The second piece of it, the maintenance CapEx, we are budgeting roughly $18 million. That is just to keep the lights on, keep the business running, updating vehicles, computers, shop tools, and all that kind of stuff. ¶

And then we have got a few growth projects. We continue to roll out SAP and to develop that, but we're really at the tail end of that. That is only $1 million or $2 million of it. There is always some ongoing IT projects. And as you heard in the comments, we are getting ready to open Ardmore. We've got plans, I think we've actually started moving some dirt in Corpus Christi to spend $5 million or $6 million; I consider that growth CapEx. And we have got plans to increase the size of our San Antonio store here. That will probably break ground by the end of the year, so we will have some spend on that. And that's growth. And we also have one in Orlando that we are working on to relocate some facilities there.

So, we have the constant -- we label that greenfield expansion. And as you know, it's always about adding shop capacity and service capacity when we do the greenfield piece. So that -- we will keep you updated on what dollar spend is at as these plans evolve.

And one other point, to Steve's point about real estate. You take this Ohio acquisition, let me step back a second and talk about it. Very under facility. We are going to have to probably build three new facilities over the next year to two years there with some updates and expansion. We've got to bring more shop space to that territory. But that's good stuff. So we will be -- we will continue to be looking in that arena and spending some cap money. But you remember, it's nothing more than what we've consistently, historically done in whatever market we have come into.

Yes. Well, that is good color, and I think it says a lot that you guys implemented this share repurchase with the amount of dollars it sounds like you guys are looking to spend. Quite a testament to the management team. Thanks guys, I will turn it over.

Bill Armstrong, CL King & Associates.

Just wanted to revisit the share repurchase decision. You haven't really been active in share repurchases historically, and I was just wondering if you could share the thought process that went into making this decision at this point in time?

Well Bill, we continue -- our free cash flow, as I mentioned earlier, continues to be extremely strong. So we don't believe this puts any dampening on our ability for acquisitions. Because as I said earlier, growth will continue to (inaudible) our number-one objective with our cash. We just felt it was a good investment over a long term. We wanted to wait until we could consistently do both. It's not something that we just talked about in the last month or so. It's something we have been talking about for a year or two now that we believe strongly in the organization and where we are at.

And we're going to -- we want to put a share repurchase program in because just for those reasons, simply. But we wanted to be able to do it consistently. And not just some one time, there was no one-time thing. We didn't want to do that. We wanted to put a program in, and consistently do that over time. So the Board approved up to $40 million this year. So, that's really where we are at, because we believe we can fund both.

Was any thought given to a dividend instead of a share buyback?

That was thought -- there was thought given to it, no question. But we felt that downstream, the dividend may come into play. But right now, the share repurchase program we felt made more sense for us on the front side to begin with, that we can consistently fund that. And I am sure -- hopefully I will be able to talk to you in a year or two, or whatever that time frame is, and say look, I've instituted both plans. But right now, that was our choice. We thought it was best for the Organization, best for shareholders to start with the share repurchase program, since we were able to fund both growth and that at the same time.

Got it, okay. And just on current business trends, to get back to some of your earlier comments. It sounds like you are getting more inquiries, but they haven't yet translated into orders. And maybe that's going to come in another quarter or so? Is that how to read that?

I do want to go there. I want to say some have translated into orders, no question. But as we have translated orders, the activity level continues to increase, the amount of units that are quoted out there. So as I look out, I say, well hopefully we will capitalize on more as we go forward. I expect deliveries, as I mentioned, that I expect deliveries in Q2 to be rising and possibly -- Q1 over Q4, and then to continue to accelerate from there. And as important as anything is the comeback of Navistar. I said I delivered 121 Class-eight units in the fourth quarter, my friend. That is nothing. You hope by the back half of '13, the acceptance starts to come back of the Navistar product, given the issues that have been dealt with, over especially the last 18 months or so.

And given that we've got 23 full stores and a couple collision centers, and we still anticipate further growth in that division. You would expect that to have a pretty significant impact along with our continued solid execution on the Peterbilt side. For example, I am going to ramble on here little, but I -- it's some of the things I am proud of. For the second year in a row, you take a look at Peterbilt's market share. Their market share is 14%. If I'm just almost one-third of their business, my market share is 19.1% last year. You do the math.

We look forward to being able to do that same thing with a quality product with Navistar as we go forward. Given our way to go to market and our customer solution focus and where we believe what the market is going to want. Service is going to continue, we believe, to drive everything we do. Yes sales, but sales will -- there's an old saying in this business, the sales is going to sell the truck the first time and service sells it second. But for years around here, I've pounded and pounded, service sells the truck the first time and the second time and thereafter. And that's going to be our way to go to market, and we hope it works as we continue to diversify our geographic footprint and our attack on every different market segment.

Got it, yes, the Navistar opportunity seems like that could be really big. What you see Navistar doing to regain the market share that they lost over the last few years?

First off, you get an engine platform that will be accepted, right?

Right, right. Aside from that. Now that you've got to get these to the customers.

Well I think you are going to have to get out. I think you are going to have to cede the market. I really don't want to get into all the details. I would tell you that I think they've got the right mindset. I've had some good conversations the last couple of weeks with their top, top management. And I feel they are understanding -- and the product is just coming out. And it's going to take some ceding of the marketplace. It's going to take some regaining or working with customers, regaining their trust, regaining their confidence. And you're going to have to approach, we've got to take care of the trucks that are going to have to be traded in the market place, and I think they understand that. And I think they are prepared, to we've discussed the things we have to do to do that.

So that's really about -- I'm not going to get any deeper than that, but that's all I can tell you. I don't usually care -- I don't usually say something unless I mean it. So I'm confident that they will follow through on the things we have talked about.

Chaz Jones, Wunderlich.

Rusty, I wanted to circle back around to the operating margin comment, where you thought they would be fairly consistent. I know historically, if you went back to '06 or '07, they have been as high as 4.7%, 4.8%, and certainly understand the mix changes and medium duty probably being a bigger piece of the overall pie now. When you talk about them being consistent, are you saying more like more in the 3.5%, 4% range? Or is there something that's going to change moving forward that would allow you to get back up into the high 4%s?

I would sure like to get there, wouldn't I Chaz? You've got to remember, that was on a 290,000 US market, Retail market back then. I don't see the market going back to that. Which actually, I kind of like. The government regulation of the last decade caused quite a few spikes in the market. But I will tell you yes, I don't see -- I would hope that we could get our margins -- I don't know if we get to 4.7% again, but somewhere in the low to mid 4%s in a -- I don't want to talk about '14, but I wouldn't be surprised, if you look at ACT's numbers, around 230,000 units next year. That being the case, maybe something along those lines that I just touched on. I don't want to give you hard numbers unless I can back them up. But I do believe if we got a market of that size, we could get up into something like that.

That's really what I was looking for. I just wanted to make sure there wasn't anything that was holding you back.

No, no.

Change of the composition or anything like that.

No, I see nothing holding us back. I just want to continue to obviously, selling the truck is a very important piece of the equation. But servicing the truck will only allow us -- servicing a customer, not truck, but servicing a customer in ways different than most folks go to market is what is going to continue to drive us through the next decade. And I'm tell you that's our focus every day we come to work here.

And then you spent a lot of time on the press release outlining the after-market solutions. And I was just curious, are you having to train more technicians in-house? Or is labor becoming challenging in terms of hiring those service techs as we ramp that business?

It is always a challenge. It's like truck drivers in the truck business, right?

That's what I was thinking.

It's always a challenge. But the good thing is, is I think we have done a pretty good job here of getting after it the last year, being on CareerBuilders, spending a lot of money, recruiting around the country, trying to show the benefits for working for Rush, some of our programs that we have in place. To at least differentiate ourself from our competition. I can't create more technicians, but I can try, but the most thing is that if a good, qualified, what we will call a level-five tech is out there, that he would look at Rush as the most beneficial place to work with our technician rodeo, with the stuff we do, the training we provide, the tool purchases. We have many programs that we like to think differentiate us and set us apart in the market place.

But I do believe looking even further out, working on a truck is not what it used to be, Man. It's like -- pretty soon it may be like working in the Geek Squad for Best Buy because of the complexity of the products. I think it may broaden the market of potential candidates as we go forward. I'm not here to say that it is here now, but boy, it's accelerating at a fast pace. It becomes more appealing to today's younger generation.

Got it. And then with all the different, moving parts on the parts and service side, has that margin profile changed there at all, when we have historically thought of that gross margin at 38% to 40%?

It has. We had a little mix, it was like 37.9% in Q4. But I would expect it to be similar, rise from there. There was a mix thing going on. When you look at margins in the last Q4, guys, all that was was the effect from the cause of what we went through during the summer. It was a tougher environment, so you had to get more competitive, not just on the sale of trucks.

You had -- I like to believe that we showed we are pretty fluid. We will do what we have to do to get out a pretty good quarter, given the environment we were dealing with coming through the election and what went on during the summer and order intake months in the 12 -- you know where those months were. And there was some excess -- there was some spotty freight going on, remember last summer and stuff and early fall. So we had to become competitive in that landscape, and we believe we've got a pretty fluid model now, that we could adjust to whatever the market is.

Got it, and then last question, any general outlook on the used equipment front, Rusty, maybe in terms of units or pricing as we look out to 2013?

I'm glad you asked that question. We -- used softened last year, in that last back half of the year. But I would like to tell you that I think it has flattened, and as you go forward, this is when you say let's look at most used product. People keep their trucks longer, right? So most people as first-time owners are running their stuff 48 months. But as we get into now, you start talking about 2010-year models, let's go back. Let's just talk calendar year, trading, once we've finished trading for the '09s, in 2009, which built 2010 year models, we sold 97,000 trucks in this US that we live in. The next year, we sold 110,000 trucks. So I've got to believe that the supply side is not going to grow on us yet.

Now we might have to talk about this in another 18 months; it might start to change on us again and go the other direction. But at least for the foreseeable future, throughout '13 and '14, I don't see the supply side to cause any big downturn in the used-truck valuation market. Especially when you look at the price of products, and you look at -- when we get into the 2011 model, which we are already in, in some cases, trading for, looking at, with new technology on it, especially with new SCR technology. As we all know, there was -- there is some demand out there for that stuff. I feel pretty good overall about used.

Now our used margins were off in the fourth quarter, but again, I go back to everything I reflected on a minute ago. It was a more competitive landscape. I will tell you now as I look forward, I think the used-truck margins, we have always said around 8% to 10%. I think they were 7% in Q4. We expect them to get back to more normalized margins. Okay?

Joel Tiss, BMO.

I wonder if you could talk a little bit, I came on a few minutes late, so I don't know if you mentioned this already. But how much does it cost to build a new CNG facility to work on the trucks?

That can be very, that's a varied, that is a broad question. Anywhere from $50,000 to $40,000 to $250,000, depending on the building. Okay?

Okay.

I'm not trying to run from your question, Joel. It just depends on the structure you're dealing with. Fortunately, every new facility we build will be rigged -- will be set up for natural gas. Our facility in Ardmore we are opening, when we redid the Phoenix place, was 150,000, 160,000 square feet we opened. But we did set up it all for natural gas too. Our Corpus facility -- every facility that we build will be set up for it in the future. We have got currently, I think six, five, six, I wanted to have eight or something done by year-end, but didn't get that done. We have done assessments of 38 locations, and we will, as it says in the press release, we will do them as we see necessary in the territories where the demand is there. Some territories have a higher concentration of product running. I want to be on the leading edge, just not the bleeding edge.

Have you talked about the accretion from this most recent acquisition for 2013?

No, I haven't. Let's get it under -- let me get it under my belt. Obviously, it's going to be accretive, but for me to sit here and qualify it for you right now, I don't want to do that. I would rather have it running for a quarterly, get it under my belt. We've got a lot of money to spend there, but that doesn't mean there's not a lot of business there also. So they had a revenue line of $240 million. So it's pretty good, pretty substantial, right?

But at the same time, we've got to bring some consolidation, some structure, some things to it that it really didn't have. It was a good organization, good people, excited to have them on our first foray into somewhere there in the mid-east or mid-northeast, whatever you call it. Not in the northeast, but just up there in that area. Been up there a couple times. Very excited about the potential of Ohio. And we will continue to look along -- we will continue to look for other Navistar acquisitions where they make sense for us.

And that was the last question, can you talk for a minute about the positioning in the market, because it seems like Navistar's costs are going to be going up a lot as they change their engine? And they were always positioned in the market as the more-value brand. Can you talk about how that repositioning in the market affects your profitability?

I don't know that it will affect my profitability. It might -- for me, I'm going to make sure that they will market -- customers will dictate where you are in the market. A manufacturer does not control his destiny, as much as they like to believe they do, they don't control their destiny. Customers will always drive you to a certain spot in the marketplace. I do believe that Navistar is -- how many hundreds of questions I get. What do you -- I have got confidence in their long-term strategy. Is there some midterm issues to deal with, short-term, midterm to get there? Yes. But it think their balance sheet will support the initiatives that they have to do in the short and the midterm to get them back to where they historically were, say four years ago, three or four years ago from a market-share perspective.

Will it be probably -- it's not going to be easy, but can it be done and can it be supported? Yes. So I am confident in that. I don't expect their retail market share to continue to lag where it is, because that doesn't make sense for them either. I expect them to be back as a number two -- maybe number two at market share again within a year or so. I really do.

Art Hatfield, Raymond James.

Rusty, I want to again clarify, and I know you did this, but just want to make sure. When you say Class-eight truck sales should be up slightly in Q1 versus Q4, is that inclusive of MVI?

No.

No. Can you tell us what MVI has done on the Class-eight sales side?

I can tell you last year, and I don't know -- let's not -- don't hold me to it in the first quarter.

That's fine. I just wanted to make sure I was understanding --

If I was selling a dealership, I would make sure to sell everything I could in the fourth quarter before I sold at the end of the year. I would tell you that they did around 800 heavy-duty units last year and around 800 or so medium-duty units.

Okay.

Like I said, they have about a $240 million top line.

No, no, understood. I just want to make sure I'm understanding your comments about growth, that when you say you're hoping for growth in Class eight this year, that is ex MVI. You are looking at organic growth that you're --

In spite -- and that is what makes me feel pretty good. In spite of -- I know I am going to deliver less in oil and gas, and that's been a big, big thing. I believe given the broad, the breadth of the activity level, it's not all booked now.

Understood.

I hear most customers, now they will tell you one thing, but I will let their P&Ls and stuff speak for the other. We -- I feel pretty good about where it is all at. And it's not bad in the first half. It's more -- from a modeling perspective, it's more like about a 2011 year. Not same numbers, but it's a build up as you go into the year. '12 was, as we know, coming down -- was coming down more. Right?

Right, the reverse of '12.

Right, it's more like an '11 build-up year with I think, overall, if you look at some of the ACT's numbers or whatever, I think Q1 is the lowest delivery quarter. And I would like to think even if we are flat to slightly up on a same-store basis, that that will be the story for 2013.

Is there anything in what you're seeing in '13 that would give you a comfort level or that would be abnormal with regards to where you would fall in your historic market-share range?

No. If you look at it, yes. Everybody -- if we started off last year, like 5.6% or something, and so but guess what? I think that 4.3% or 4.4% in Q4, but I have consistently told you 5%. Some people have -- I would hope that with this acquisition, and it probably could have been higher maybe. But we've had to deal with the Navistar issues. Right? 121 Class-eight units in the fourth quarter. I don't have all those stores thinking that's all I was going to deliver, but we're dealing with those issues. So I think when they get back to more normalized rates, you lay in Ohio, then I may start talking about a larger percentage of the Class-eight market. We are not there yet. But I'm very confident in our manufacturers', both manufacturers' ability to contain market share.

Peterbilt, 14% for them is right at their all-time peak. So you've got to remember they are doing a fine job of it too. And I'm very comfortable with my Peterbilt stores, very confident in their abilities and their market place and the markets they touch. Which we tend to find that's what we like, is we have some crossover customers, but some different stuff. But we will continue to make sure that our growth is always in different territories. We don't want to be in the same territory where we have one store. I only want to take care of one master from the Class-eight perspective. So down the road, as Navistar gets their product lineup and their engine acceptance and customer acceptance into play, I would expect possibilities to grow that 5%.

Okay.

Artie, this is Steve. If you looked at our presentation, which is online, some of the questions you asked, we have guidance for you in there. We have heavy-duty and medium-duty market-share guidance, as well as some '13 forecasting for truck sales, which would include Ohio. And we try to keep it conservative, but that's in there for you to reference that would answer some of these questions directly that you're asking.

Ohio, we haven't had a chance to go through the customers, thoroughly look deeper into the information to see what individual customers are going to be purchasing in the year, where they are in their trade cycles. We just took it all in here at the end of the year, and we're just working on -- there's no business plans or anything like that. We will have to work through all of that with them in this first quarter.

Going to your lease business, and I know when you look at it compared to the other businesses, it is small. But it looks like you are gaining some critical mass there. Is there anything you are seeing, your customers where -- and I don't know really where the concentration in vehicle types is within that fleet, but is there anything that you are seeing with your customers where you can say, man, we should really be stepping up our growth in our lease products and services business? And is there anything you can do on the expansion of vehicle type in that area?

It will be interesting. I will tell you this, I think we are doing an outstanding job. My leasing guys are doing an outstanding job. Our growth last year in same -- in the same territories, we grew. Outside of replacement, we grew 20%. That's pretty strong. That's pretty strong, a little over 20% we grew from a vehicle-count perspective. I would tell you the Ohio acquisition had around 550. If I'm not mistaken, Steve, about half of them were medium duty. So I look forward to in the Idealease piece there, because we're now the largest Paclease and the largest Idealease. What do we have, Steve, 43? How many total units do we have in our lease fleet?

We have close to 500, that includes new Ohio acquisition.

Right, including Ohio, we are now up to 4,500. We closed 2011 at 3,300. So and 550 of that was from Ohio and the rest of it, that just came on December 31. The rest of it was that 20% plus growth that was saw. So as I look at -- we might have, I know with the Idealease franchises, some more opportunity in the medium-duty side to continue to grow that. But we are very excited about where we are at, and we run it very profitably. I always tell people the leasing business, we run it pretty conservatively. Not one year in our history have we ever had a total -- a loss on gain on sale. That doesn't mean on individualized basis, but when you look at the whole package, we run it pretty solid.

So I look forward, to answer your question, maybe a lot of more medium duty there. So we look forward to looking into some of the ways that they've done that. And we are continuing, and there isn't one market. I look at -- I don't have it in front of me but I looked at something about three months ago that had a breakout by market, at least of our Paclease fleet, and nothing was over 20% of the markets that we went to. Just for your information.

I noticed -- I am looking at the slides right now, and it says on the truck leasing slide that you have 851 units under contract maintenance. Are those separate from the 4,500?

Yes sir, they are. There's 4,500 power units.

And the 4,500 power units are a full-service lease, where you are doing -- you are maintaining --

The majority, 80% plus are, 85%, 90%. There are some that may be some type of unbundled situation, that we call it, but the majority are.

One final question, and I can't recall that you were asked this, but in the press release regarding the share repurchase, you did note that you had an intention or desire to focus most of it on the Class-B shares. Can you address that and what you are thinking or thought processes with regards to that?

Sure. Obviously, to us, if you -- it less affects the float. The Bs trade, as you well know. They don't have as much liquidity in them, given our ownership of them. So it has less effect on the overall float. It has the same on the float, but in the trade. So we think it's a good buy. And if you look at the amount of shares to trade, it doesn't trade that much. So it makes more sense for us to buy those back.

Got it; that is helpful. Thanks for your time, Rusty, as always.

Brian Sponheimer, Gabelli & Company.

Just to say, most my questions have an answer. You guys have done a great job with the disclosures. Just a question on the share repo. You had to overcome a pretty significant hurdle with Pac-R to get them to lower the barrier. Should we, as we're going through the next couple of years, think about any opportunities to get the Rush family ownership barrier lowered any further? Would you guys want to explore that, and how open do think Pac-R might be to that?

I think we are -- we were pleased with some of the -- you saw some of the disclosures we had out. We are pleased with where they are at, and I don't see any changes to that in the near future. Okay? I think that was what they were comfortable with, we accepted, and that's where we are at.

Terrific, all my other questions have been answered.

Brad Delco, Stephens.

Rusty, I was going to ask you about market share, but you covered that with Art. Steve, maybe just a housekeeping item. Did you have in the release what the absorption ratio was just for the fourth quarter? I know was 116% for the year.

I don't think we released it just for the fourth quarter, but it was about -- it was 116.6%. So it was pretty much in line with annual, a little more for that.

Got you. And then Rusty, just another follow-up, I appreciate the color on expectations for Class eight sequentially. But how should we be thinking about parts and service? I know there's some seasonality to that business, and I think you said mid to high single-digit same-store sales growth for this year. But should we expect that to pick up sequentially from the fourth quarter?

Sales, yes. As I said though, remember, we have some expense to offset in the first quarter. I don't want you to get ahead of it, but I expect sales to pick up somewhat here in Q1. We're seeing signs of that right now. As we got through year-end, got through fiscal cliff, after election, people just -- their outlook is better. I'm not saying that it's gang busters, but it is nice to see some of the confidence with which people speak about making decisions without saying, well I have to wait to this thing or I got to wait for this to happen.

It is more of a, let's look at my business and what do I need type of approach. Which is good, because I personally feel pretty good, even though housing is not blowing through the roof, I feel pretty good about where the economy is. Look, it's not going to be 4% GDP. But I feel pretty good about where we are, especially when we get to the back half of the year, headed into '14. That's my take on it.

I understand. I just was curious on the normal seasonality.

Yes, I would tell you that we will start to see some pickup year here in the first quarter from a revenue perspective. But as I said, don't forget I have some expense to offset. Look back at last year, my highest G&A quarter was Q1. And it always is. We have employee benefits, all those type -- equities and stuff for employees and the taxes take back over for the people that paid out etc, etc. They kick in in Q1 and everything picks back up. And then typically, our G&A is -- I know it was last year for Q1 was our largest G&A quarter.

That you, thanks for the color. I appreciate the time, guys.

Thank you. I'm showing no one else in queue at this time.

Okay. Alright, everyone, we thank you and look forward to speaking to you in April with our Q1 results. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect and have a wonderful day.