Sonic Automotive Inc (SAH) 2009 Q1 法說會逐字稿

Good morning, and welcome to the Sonic Automotive first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question-and-answer period. (Operator Instructions)

As a reminder, ladies and gentlemen, this call is being recorded today, Friday, May 8, 2009. Presentation materials which management will be reviewing on the conference call can be accessed on the Company's website at www.sonicautomotive.com by clicking on the For Investors tab and choosing Webcasts and Presentations on the left side of the monitor.

At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the Company's products or markets, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made.

These risks and uncertainties are detailed in the Company's filings with the Securities and Exchange Commission.

Thank you. I would now like to introduce Mr. Scott Smith, President of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you, Maggie. Good morning, ladies and gentlemen. I am Scott Smith, Co-founder, President and Chief Strategic Officer. Welcome to Sonic Automotive's first-quarter 2009 conference call.

Joining me on the call today are the Company's Vice Chairman and Chief Financial Officer, Mr. Dave Cosper; our Executive Vice President of Operations, Jeff Dyke; and Greg Young, our Vice President of Finance.

If you will please turn to the first slide, Sonic Automotive Q1 2009. Today, I will be discussing an overview of the quarter, and then I will turn the call over to Dave Cosper for a detailed financial review. Jeff Dyke will follow Dave and give an update on our same-store performance, as well as operational trends. I'll then summarize and make closing statements, and we will open the call for your questions.

If you will please turn to the slide Quarter in Review. We had an excellent performance in a tough environment. Our continued focus on executing the basic blocking and tackling of our playbook produced solid results in a most difficult automotive environment in at least a generation. We made money and moved the business forward, demonstrating the power of Sonic's ongoing business strategy, our playbook execution, including preowned, e-commerce and fixed ops, that needed support as the new vehicle environment continued to struggle.

We are very pleased that despite the adversity in the new vehicle environment, Sonic set all-time new car market share records during the quarter. Our advertising and Internet marketing initiatives resulted in 83 of our dealerships taking share by exceeding their local markets for the quarter. Our used vehicle business continues to outperform the industry, confirming the fact that our preowned strategic initiatives are having a positive impact on our overall revenue mix and generating the intended results.

Traffic to our Internet websites were up 36%, and we posted the fourth highest customer pay quarter in our service department history.

On the cost front, our SG&A expenses were down over $23 million compared to the first quarter last year. And adjusting our business model to respond to the current economic environment continues to be our primary focus.

We made significant additional progress after announcing our cost reduction initiatives in March, and have raised our targeted annualized cost reductions to $135 million compared to the previously disclosed projection of $125 million. We believe that when SG&A is adjusted for rent, that we are a top performer among our peers.

We successfully restructured our debt. We believe the successful refinancing of our May 2009 notes is an indicator of the confidence that our syndicated lenders and bondholders have in Sonic Automotive's business model. I never want to miss an opportunity to thank our bondholders, syndicated lending group, Moelis, Dave Cosper and Steve Coss, and the many other individuals who are involved in our successful restructuring of our '09 debt. Thank you all very much.

This restructuring has provided us with some breathing room, ensuring liquidity. Our current intent is to retire the debt prior to the August 11 -- excuse me -- August 2011, and Dave will have more on this later.

The team is aligned and looking to the future. Our performance this quarter is a result of great teamwork and leadership from our associates. Eight months ago, we realigned our operational management structure, and we are now one voice with one message and one playbook. Our team is aligned, focused and in lockstep.

You've heard me say many times that we are in the people business, and those who have listened regularly to our calls know that I am a firm believer that (technical difficulty) business, and my goal is to be the employer of choice.

Sometimes return on investment in good people takes time to realize. Through attrition and targeted cuts, to consolidate responsibilities, we have lowered our number of associates by roughly 10%, or 900 people, over the last six months. One area where we did not cut our SG&A is in associate compensation. We believe that paying people what they are worth and not what we can get away with is the right thing to do.

While many other companies put a pay freeze on or hiring freezes and across-the-board pay cuts, we chose to go in the opposite direction. We now have fewer people making more money. It is a very positive thing with our culture. The investment we've made in our people, such as training, is beginning to pay off. The investments we made to launch our e-commerce strategy is beginning to pay off. Simply put, with lower turnover comes better execution of our processes and playbook, which generates more revenues.

As a result, we are proud to say that our associate turnover is at an all-time low, and our associate satisfaction levels have never been higher, all of which complement our all-time-high customer satisfaction scores.

At this time, I would like to turn the call over to Dave Cosper for an in-depth review of the numbers. Dave?

Thank you, Scott, and good morning, everyone. Well, it actually feels really good to be sitting here right now. We've been extremely busy on many fronts, and this call almost feels like a breather to me.

So looking to the slide, as you can see in the left box, we earned a profit after tax of $4 million from continuing operations, or $0.10 a share. This includes a $0.03 charge for FSP 14-1 and a $0.03 charge for debt restructuring costs. Without these charges, we earned $0.16 a share, and you can see that in the box on the right.

I would like to say one good thing about this economic environment, and it is that we are proving what we've been saying for a long time. The business model for retail automotive is a lot different from those of the auto manufacturers, and, frankly, most other retailers. We can make money and generate cash in this environment with sales declines of 20% to 30% or more. The fact that we are making money and generating cash was key to our debt restructuring effort.

Next slide, please. For the quarter, total SG&A dollars were down $23 million or 11% compared with the first quarter of 2008. SG&A as a percent of gross was 83.2% for the quarter compared with 79% last year and 92% last quarter. And you can see that on the chart above. And excluding those restructuring charges that were included in the quarter, it was 82.2%.

Controllable expenses, including all compensation and advertising expense, was 55.9% of gross, down 10 basis points from last year's 56%. And I really think it is great performance considering the tough operating climate.

We have been able to significantly reduce our ad spend and increase our market share at the same time, and Jeff will talk more about that. Importantly, we are better investing our ad dollars. Our advertising campaigns are more targeted, and we are channeling more of our spend into the Internet and digital marketing channels. Rachel Richards and her team have done a great job on this front. Basically, we are spending smarter and optimizing our cost structure to support and complement our revenue generation. And Jeff Dyke will talk about that more in a few minutes, as well.

Next slide, please. This slide shows our revenue makeup by brand. And if you add all those things up, just over 81% of our revenues are derived from brands other than the Detroit Three. Chevrolet contributes 8.2% to our revenue and Cadillac is just over 5%. Other GM brands, like Saturn, Saab, Buick and Hummer contribute less than 1%. Chrysler is less than one half of 1%, and Ford [provides] just over 4% of our revenue.

In my mind, Ford is not an issue in either the manufacture, performance nor the sales and profitability of our Ford stores. And Chrysler really contributed so little to our portfolio that we don't view that as much of an issue either.

Our Chevy portfolio contains some very strong dealerships, particularly in Houston and Alabama markets. And our Cadillac stores have struggled, and leasing has been an issue there, where leases have dried up and it's difficult to get the payment (technical difficulty) who want to buy.

And we recognize that many domestic dealerships are going to close over the next couple of years, and that is going to be difficult for many. But overall, I think it is positive for the manufacturers and for the stronger dealers that will benefit from higher throughput, as well as increased service business. We've assessed our GM stores and feel we have very few franchises that are at risk.

Next slide, please. This slide is really just for your information. It shows our store count inventory and receivables with Chrysler, GM and Ford. And as I mentioned, the dollar exposure for Chrysler is small. We obviously are monitoring the situation ongoing and are managing our exposures carefully, and personally I am optimistic that each of the Detroit Three will successfully navigate through these tough times.

Next slide, please. As you know, we successfully restructured our 5.25% convertible notes, and that settled yesterday. We worked closely with the members of our syndicated credit facility and with our bondholders to reach a really pretty good outcome for all parties, and I want to thank all our lenders for their support. I also want to thank the more than 9000 associates who hung in there with us and delivered very strong operating results during a very trying time.

And to me, the most important thing is that our business is profitable and generating cash. So the issue was one of the capital markets being closed, and not one of something wrong with the business.

For Sonic, the restructuring provides a maturity extension, a competitive interest rates and two years before the conversion option is effective. So the plan is to take the debt out without any dilution.

Next slide, please. This slide shows our covenant compliance for the first quarter. And as you can see, we were compliant with all of the covenants. And we've shown on the right-hand side the revised covenants that are effective with our amendment to our credit facility that was just completed.

With that, (technical difficulty) to Jeff Dyke.

Thanks, Dave, and good morning, everyone. As Scott and Dave both mentioned, our performance for the quarter was truly outstanding. In an extremely difficult economic environment, we were able to take market share, continue to produce sector-leading used vehicle performance and turn in a solid and improving fixed operations performance.

Total same-store revenue for the quarter declined 25% compared with last year. Our new retail volume declines contributed to the majority of our year-over-year shortfall, accounting for 63% of the overall decline. It's important to note that while our volume is down, we gained share in virtually every brand and region during the quarter.

As you can see from this slide, new retail revenue was down $263 million, or about 31%. $254 million of this decline was due to our same-store new retail unit volume decrease of 30%. Used retail revenue was off approximately $31 million, $17.5 million of which can be attributed to the price per unit decline, while the other $13.5 million or so was due to volume declines. Same-store used retail volume declined 4.3%.

F&I revenue was down 28%. And while F&I per unit was down $112, or about 10%, the majority of the overall F&I revenue decline can be attributed to decreased retail volume. Limits on advances and increased chargebacks offset our gains in product sales.

Same-store fixed operations revenue was down 4.3%, driven primarily by a double-digit decline in internals. As you are all aware, over the last several quarters, we have had a renewed focus on our service process, and I'll expand on fixed operations progress here in a minute.

Next slide, please. As you can see from this slide, we have done a great job in expanding Sonic market share, setting an all-time record for the quarter. This is one area which you can see that our investment in training and e-commerce strategy have reaped excellent returns on investment.

Eight months ago, we began to change the culture of Sonic and made a real commitment to reduce turnover and create wealth for our associates. Since then, our sales professional turnover -- and I'm very proud to announce this -- declined dramatically, ending the quarter down 33% from this time last year and down 34% from last quarter.

The training that we invested is staying with our people, and our productivity has gone up. Higher productivity has enabled us to right-size our dealerships. In other words, as Scott said earlier, we have fewer people making more money. This is driving higher associate satisfaction and loyalty, which in turn is driving higher CSI.

A year ago, we invested in our brand-centric websites. Since the launch, our traffic has been up significantly. We recognized then that our customer is no longer coming through the front door; they are coming through our virtual door. The customer is changing, and our sales professionals will be there, ready to handle the challenge.

We've been in the process of marketing and merchandising our inventory. Our goal is to have pictures, videos and unique liners of all of our inventory online. We've made great strides in this area and continue to improve. Our inventory display will allow our customers to get a virtual feel of our cars, which is the next best thing to being on the lot.

We are keeping very close tabs on our new car inventory. We've centralized our ordering approvals, and since the fourth quarter we've reduced our new car inventory by $139 million or about 23.5%. Our new vehicle days supply at the end of the quarter was 76, which was right where we said we would be on our call last month.

Next slide, please. Turning to our used vehicles segment, same-store used vehicle volume was down 4.3%, and within this, our certified preowned volume was up 7.4%. Regionally, our Florida, California and Houston dealerships increased their used volume, our Dallas, Oklahoma and Las Vegas markets were down, while the rest of the regions remained flat.

Overall used vehicle gross per unit was down slightly from last year, but up from last quarter. At the end of the quarter, our used vehicle days supply was about 29 days, and our used-to-new ratio was 0.9-to-1, a record for our Company.

The consistency in our used vehicle performance over the last several quarters is a direct reflection of the effectiveness of our Sonic pre-owned and e-commerce playbooks, and especially our team's ability to execute those processes. I am very proud of our team, our team's continued success and sector-leading performance.

Please turn to the next slide. Diving into our fixed operations performance, overall same-store fixed operations revenue was down 4.3%. As you can see from the slide, customer pay revenue was down 2.6%, the majority of which was Detroit Big Three driven, and department-wise, body shop driven.

When adjusted for selling days, our same-store service and parts revenue actually increased slightly. The implementation of our standardized grids, revived attention to executing our sales process and our attention to customer satisfaction is paying off.

Total same-store warranty revenue was down 0.5%, and due to recalls, our Lexus dealerships experienced a large increase in this segment. The increase was offset by declines in our other brands.

In overall basis, warranty continues to hover around 18% to 20% of our total fixed operations revenue, and we don't see this very much in the future. Same-store internals were off 16.2%, and that is primarily driven to lower PDI, in line with our new vehicle volume declines.

For the quarter, same-store fixed operations gross profit was down 4.6% and same-store gross margins was down 49.5%, or 10 basis points from last year. However, in the month of March, margins actually improved year-over-year. This was the first month we experienced a year-over-year increase since November of 2007.

Before we move on from fixed ops, I would like to take a moment to expand on our body shop performance. Last July, in a short-sighted effort, to cut costs we eliminated the national body shop director position. Since then, our performance has steadily declined. We actually cut into our muscle. This is an example of how cost-cutting for the sake of cost-cutting will eventually catch up to you. The cost that we saved upfront has long since been overrun by the revenue lost.

I also want to emphasize this in no way should reflect negatively on our accomplishments of our fixed operations team. Their time has been concentrating on executing our service and parts processes. The body shop is a specialized area (technical difficulty) being able to devote their time exclusively to our 31 collision centers.

We're currently in the process of filling this position and do not see this as a threat to SG&A, as the cost will be more than covered by increased revenue and (technical difficulty).

We take costs extremely seriously, and those of you who have followed us know that we consistently finish near the top of the sector in having the lowest SG&A as a percent of gross.

Next slide, please. On our third-quarter call, I walked you through several slides outlining our strategy for used, service and e-commerce disciplines. At that time, I had just taken the Executive Vice President's role, about a month and a half prior. Now six months later, I want to take the time to outline our progress and lay out the focus for the rest of the year.

During the last eight months, we had a two-tiered restructuring period, a tactical phase in conjunction with a strategic phase. On the tactical side, we visited every dealership. On the West Coast, we introduced the Sonic culture as it should have been introduced early on, evaluated the talent and implemented our used, F&I, service and e-commerce playbooks. We centralized the approvals of new vehicle inventory ordering, and conducted regional e-commerce and traffic management training.

On the strategic side, we established service playbook and fine-tuned our used and e-commerce strategies. Additionally, we rolled out our standard pay plans at all levels that tie compensation to our Company goals.

As you saw from our Q1 numbers, the results speak for themselves. The regional and field support staff are completely aligned and understand the message and are executing. We are one company with one culture, not one company with many cultures. The steps that have driven -- these steps have driven lower turnover, higher associate satisfaction and enabled us to sustain our record high CSI levels.

Now that we've established a culture and clearly defined expectations for the next eight months, our focus will be on monitoring the execution of our playbooks and implementing the next phases of our strategies.

On the execution front, we will be conducting playbook tours. These store visits will allow us to evaluate the progress of our playbook execution expectations. The visits will not only give us a chance to celebrate success stories, but they are also designed to give us a chance to teach the stores that need our help or fall short of our expectations.

In conjunction with our playbook tours, we will be implementing the next steps of our e-commerce, service and used vehicle strategies. I am very pleased to report that in all three of these areas, we are on target with the timeline that was presented on the third-quarter call.

I look forward to updating you on our progress next quarter. As you can see, we are not staying static. We at Sonic will continue to move forward by ever improving the execution of our processes and ever improving the processes themselves.

This last quarter has been challenging, not only because of external economic factors, but also due to internal stress caused by our debt restructuring. Our character as a Company was tested at every level, and we came through with flying colors. Our team stayed focused to produce fantastic results once again.

I want to thank all of my Sonic teammates for their efforts and my sincere congratulations on a job well done. I will now turn the call back over to our leader, Mr. Scott Smith.

Thank you, Jeff. This is no doubt in the first quarter has been one of the most challenging periods in the economic history. And as you can see from our results today, we've adapted to the current economic conditions well.

Coupled with the external challenges that we faced, Sonic was faced with an equally challenging hurdle in our bond restructuring. I think you heard today, and you've heard in the past, that it wasn't a question of whether or not we could service our debt. It was a question of whether or not the markets were open. And we are just happy to have that behind us right now.

The noise around this obstacle could have caused the team to lose sight of our goals. Our team didn't allow themselves to become distracted. They just kept their heads down and kept working, and I couldn't be more pleased with the results. I really cannot say enough about the perseverance that the entire team has shown. We are strengthening our operations and strengthening our balance sheet.

We've told you an awful lot of great news today. If you could see our faces, there are smiles on them. All of our associates, we are very proud of you. And just before we open the call, I want to say thanks to each and every one of our outstanding associates, who kept working so diligently to make all of our success possible. Thank you, team, very much. It is an honor and a privilege to lead our Company.

At this time, I would like to open the call and take your questions.

(Operator Instructions) John Murphy, Merrill Lynch.

As we look at these cost cuts and the ramp up to $135 million, that is pretty impressive. And I'm just wondering as we think about the future here, when hopefully the demand environment improves, which I certainly believe it will, how much of that $135 million do you think you will be able to maintain as we get into 2010 and 2011 and demand does normalize? How much is sort of variable and how much is structural that you will be able to capture going forward?

We think about it just that way. In the last call, we had the $125 million split 75% structural and 50% variable. The increase that we've been talking about today is on the structural side. So that is moving the 75 close to 85. And I would say it is not perfect, but I will bet we can keep 75% to 80% of the structural savings.

The variable piece is largely going to come back, because that is volume driven. But I do like to think about it between fixed and variable. And the way we are thinking, if we make money at this volume level, when it ramps up, we are going to make a lot of money.

So that is a plus out of this. I think it has driven some efficiencies and creative thinking on the parts of our teams.

John, this is Jeff Dyke. With the turnover reductions that we have, we are able to expect more out of our associates. We -- they are earning more. And with the training that we have going on and the consistency there, I think that the old tradition, nine to 10 cars per sales associate, we are pushing that number up, and we are asking our team for 12, 13, 14 cars per sales associate, and they are responding. So that is something that I also think will help keep the headcount down and more stabilized as we move further along.

So in simple terms, I think, if we think about 2010 as being a market similarly sized to 2008, where you guys did a little bit better than $1.00 in earnings, I mean, we should, all else equal, assume that you could earn materially more than $1.00 in 2010 -- all else equal, obviously.

Absolutely.

Okay. Second question, just on the convert refinancing. You did the 5.25's successfully. The 4.25's you will have to deal with between now and, I guess, August of next year. Was there any reason that you guys didn't try to take care of this all at once, or was it just really a timing issue? I realize it was a big deal in the first place to get these guys done. So is it really just a timing issue or was there anything different going on with that set of holders on those converts?

At one point, we contemplated trying to do it all. But I think it would have been just too much for us to tackle.

Okay. And then lastly, we look at your Chrysler exposure, not too material, so not too big a concern. But in the worst-case scenario, in an absolute meltdown there, assuming that Chrysler wasn't making vehicles and delivering vehicles to you going forward, what could you do with the inventory and those assets, meaning the stores themselves, going forward?

The factory receivables are less than $0.5 million, and I think we have even managed that down a little bit already. So that is a pretty small number. Parts inventory, I guess you could use it up, the $1.5 million. Service would still be there, and I think you could whittle that down. Inventory, that is $12.5 million, something like that. I think we could sell those units. I honestly do. We'd probably ramp up used cars quite a bit more. Jeff, you may want to --

John, we are in really, really good shape, both on a GM and a Chrysler front, and both from inventory on parts and new car. And from a Chrysler perspective, I'm not worried at all. I mean, we'd ramp up used cars. We've got a really strong used car team, especially centered around those Chrysler stores. And we'd move through the inventory, and it is just not a big blip on our radar screen.

So as sort of an interim solution, you could probably even ramp up used and make those points profitable (multiple speakers).

Absolutely.

Okay, great. Thank you very much.

Colin Langan, UBS.

Actually, just following up, are you currently in discussions with -- for the next bondholder, and isn't your credit facility up next year? Is that a priority right now, or is that something you are waiting to do later?

I am going to take a rest over the weekend (multiple speakers). I'm still in a bit of a fog. But it is not too far away in our thinking, Colin, of course. I mean, we are going to start planning here shortly.

So what are your current priorities with cash flow right now? Obviously, there is a lot of benefit from paying down the new convert early, because of the dilution.

I mean, more is better. It always is. Cash is king. We are focused on reducing our CapEx. Generating cash obviously is a major priority. Sooner or later, the markets are going to open, and that's an option. We are just going to continue to focus on generating cash any way we can.

Okay. And in the fourth quarter, you announced a lot of dealers were going to be divested. What is the status of those, and do you have any guidance as to how much cash you anticipate on raising through those divestitures? Could that go a long way in terms of repaying some of this debt?

It could certainly help. We actually didn't sell any in the first quarter. So far in Q2, there is three that generated roughly $6 million in cash. And there is another one on -- before too long -- it's another $8 million.

It's interesting. I think with the successful restructuring of the business here, certainly our equity price has come back. I expect the bonds to move similarly. And we are not on the edge and desperate, and people aren't viewing us that way, and I think that's a positive thing for the value of our Company and all our assets. We've got some land for sale. We are going to start looking at things like that. But that desperation feel is behind us there.

If you look at our disc ops, we would have made $6 million more for the quarter. So a lot of those deals that are in there are some deals that are not profitable that we need to fix so that we can dispose of them.

But we are not looking to dispose of any of our well-run operated stores at this point. If somebody makes us an offer we can't refuse, that is a horse of a different color. But we are focused right now on trying to turn these deals that are in our disc ops around and get them to be profitable.

But to be clear, again, as I mentioned in my prepared remarks, that debt is coming out before we convert. It is $85 million, $86 million, something like that. And that is the commitment I've got.

So you are committed to -- but you would need to probably hit the credit market to refinance the 2010 -- the puttable bond in 2010 before you could do that, right?

There is a lot of options. I'm not going to get into our entire strategy on the call, Colin. But I will be thinking about it.

Okay. And then this is probably more of a technical question. Should the impact from the APB 14-1, will that get worse in the second quarter? How should we look at that for the remainder of the year?

I think after we get through the second quarter, Colin -- this is Greg -- that we are going to start to see -- and again, we are talking about the existing debt at March 31. We haven't figured out all of the impacts on the restructured notes. But I think that is going to start to decline as we get through the second quarter, because one of the notes will start to tail off here pretty quickly. And then obviously just through the normal amortization period, it will go down.

But we are going to, as Dave said, kind of rest over the weekend and then start figuring out all of the accounting implications of the restructuring, which on the new notes, there may be some similar derivative type accounting.

Just to make sure, that dilution from the new converts, we will see that in the second quarter, though, the additional share dilution, or --?

Yes, I believe we will.

Okay. And then I guess one last one. You talked about increasing the share in your market. How did you do that with holding your margins? Because usually you tend to have to give up margins to do that. Is there any sort of change in the way you are operating to do that?

We targeted e-commerce spend I think a lot better. Our e-commerce strategy, what Rachel Richards and her team have done for us. We've been much more effective with handling our leads. Our customer satisfaction scores are a whole lot higher, and our people are happier. They are spending more time with our associates. And all of that effort drives higher margin. And so we've been very, very focused on both ends of the table -- not just driving and taking share, but also retaining margin.

And then one other thing is our inventories are in pretty good shape. And so when you have clean inventories, it allows you to -- and younger inventories -- it allows you to make more margin. So we've been working on this for several quarters now, and it's all sort of coming together for us, and I appreciate you pointing that out.

Thanks for taking my questions.

Rich Kwas, Wachovia.

Good morning, guys. Discontinued ops, Dave, it seems -- your comments seem to imply that these stores, if you improve them, you will be able to move them back into continued ops. What percentage do you actually plan to sell versus what quarter -- what is the percentage that you are looking to improve?

When they are in assets held for sale, technically they are all for sale. And we try to improve every store. It doesn't matter where it is. They are all our children.

I think the nature of the comment more, Rich, was now that we've got the debt restructuring behind us, that gives us the time to really evaluate. We've got two years before these things become convertible, so that gives us time to really evaluate all of the cash generation.

And also, it gives the market time to pick up -- not just credit markets, but the overall markets. And we tend to agree with everybody else that over the course of the second half of this year we will start to see some increases in the market, which again, should drive the profitability of even these disc op stores, which should put us in a better position down the road if we want to move forward with the marketing plans.

Okay. But the intent is to sell the stores that are in disc ops, right? Is that correct?

Yes.

And then how many -- posts the three that were sold here most recently, how many do you have left now?

I don't know the exact store count. It is about 18% of our revenue.

Okay. And then when you look at the structural savings that you talked about, Dave, the $135 million, I'm just a little confused there. You said 75% is structural, 25% is variable, and then of the 75% that is structural, 75% is sustainable. Is that right?

No -- back it up. There was $75 million of structural at the last call and $50 million of variable, for a total of $125 million. We've moved the $125 million to $135 million and the $75 million is $85 million.

Right, okay.

What I was saying, somewhere in 60%, 70% of that $85 million would stick as a savings, once volume comes back.

And then what are the big chunks of that? I mean, I know advertising, everybody is kind of taking a different approach to advertising. What else would be included in that?

A lot of structural savings in the field. We did restructure our field, as well, our oversight operations, 401(k), corporate structure savings, IT savings, service loaners, forms, you name it. Training, sales tax. We cut back just a little bit on training. That still is a major focus for us.

But you are pretty confident this is not going to creep back into the business when volumes start to pick up?

Yes, we've got the best Controller there is.

All right. Okay. And just geographically, what are you seeing in California?

California is stabilized. Our Southern California and Northern California markets are doing well, especially on a preowned front. In Northern California, our fixed operations business is gaining a lot of speed. And so I am real comfortable with where we are and the progress that the market is making.

Some of that is us just operating the stores better now that we are all one Company. But also, I think the market has really flattened out and not dropping off like it was.

What market are you worried about right now or what -- incrementally, what has changed for the worse?

The Vegas market is difficult. Oklahoma is difficult. The Fort Myers market is difficult. Michigan is difficult. Even our Dallas market has slowed just a little bit. But -- and I'm not sure what is driving that. The market has just slowed down across all brands. It has not been one or the other.

The Houston market remains very strong. California is strong. Our southeast, Alabama, Tennessee, Georgia markets have been very, very strong. And so that kind of gives you a little color on all of our regions.

Okay, great. Thank you.

(Operator Instructions) Rick Nelson, Stephens.

Good morning. Follow-up on the cost cuts. $135 million and $85 million of structural, is that for the entire enterprise, or is that continuing operations?

That's the entire enterprise.

And how much, Dave, would you estimate would be the continuing operation number?

Probably 80% of it.

The vast majority of it would be.

How much revenue is in discontinued operations? Is it --?

It is about -- I think it was about $250 million in the quarter.

Around $1 billion annualized?

Yes.

Or just north of, I would guess.

Yes.

The margin pressures in new cars, is there specific brands that are driving those pressures, or is it across the board?

Actually, when you look across the board, Cadillac and the GM pressure is there; the same for Chrysler, although it is miniscule to us. BMW, a little bit now; we are seeing some pressure there because inventories at BMW slowed down just a little bit the last couple of months, in particular, April.

But to be quite honest with you, I am fairly pleased with where our trucks are. They are fairly stable. Cars have come off just a little bit. But overall, I'm pretty pleased with our new vehicle markets.

Finally, Greg, can you provide some assistance with fully-diluted shares we should be using for the second quarter and the remainder of the year?

I haven't worked all the way through that, Rick. I think just on the surface, the new notes are convertible in the next -- beginning in two years and do, I think, about 21.5 million shares. And you treat those on an if-converted method, so you add back the interest. I think that math is pretty straightforward.

But, yes, we will help you. Greg has been busier than heck helping on the debt restructuring. And frankly, accounting kind of took a back seat to this. But we will get that.

Thank you for that, and good luck.

Thank you very much.

[John Hale, CWP.]

I was late to the call, so apologize if you already answered this. But how much of the structural cost saves are included in Q1?

The numbers that we're quoting were our run rates. So if I divided it by four, on the structural piece, probably $20 million and -- maybe $12 million, something like that, $12 million to $15 million on the structural side.

So if you annualized Q1, you're already getting the full impact of the $60 million, pretty close?

Well, we continued to make progress. We started this thing last year, of course, and have been working diligently. But there is still more to come.

Okay.

But we had a pretty good run rate. I mean, that was very helpful in our ability to make money in the quarter, absolutely.

Right, so you're already realizing the benefit of that (multiple speakers).

Yes, we are realizing the benefit, yes.

Okay. The majority of that, it's already been realized in Q1, would you say, or --?

I would say -- no, because we still found some in February and March that is going to help our Q2.

Okay. And just some -- can you guys provide some general color commentary on the floor plan financing market and what you're seeing there?

We haven't seen any issues from anybody. Of course, Chrysler is being pushed over to GMAC, but that is an insignificant move for us. We are on solid footing with all the captives and our syndicated facility.

Okay. Thank you, guys.

[Mark Fisher], Ahab Capital.

On the asset sales, what percentage of that has to go towards paying down the revolver?

In the near-term, 100%, until the revolver gets down to -- I think it's $25 million. Until $25 million. After that, 50% would go to retire the debt that was just restructured.

And on the revolver, that is permanently removed, right? So just kind of wondering what minimum level of liquidity do you need?

It moves from where we are -- $225 million down to $185 million. And beyond that, it just stays at $185 million. That is the floor.

Okay, and is that -- okay, I see.

And that is sufficient to provide the liquidity we need.

So that is -- when you have to negotiate a new one early next year, that's the target that you're going to be looking for?

Somewhere in that neighborhood, yes. I mean, if we can get more, that would be great, but --.

And just lastly, a lot has been made about the domestic dealership closings with GM and Chrysler. What about the foreign dealerships, if you anticipate any closings there? And if you could kind of go into your relationship currently with Mercedes. Thank you.

We don't anticipate any closing with any of the foreign dealerships, and like we said earlier, very few closings, if any, with our domestic brands. And then in terms of the day-to-day operations, our relationship with Mercedes-Benz is fine. We continue to move forward, and on day-to-day operations with all our regional teammates out there for Mercedes-Benz, we have great relationships.

Okay. Thank you.

There are no further questions at this time. Please continue with closing remarks.

We would just like to thank everyone for joining us on the call today. Have a super day.

Thank everyone for joining. You may now disconnect.