Good afternoon, ladies and gentlemen. Welcome to the Penske Automotive Group First Quarter 2014 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through May 1, 2014. It's on the company's website under the Investor Relations tab at www.penskeautomotive.com. I'll now introduce Tony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, John, and good afternoon, everyone. As John indicated, a press release detailing Penske Automotive Group's first quarter 2014 results was issued this morning and is posted on our company website, along with the presentation designed to assist you in understanding our financial results. Joining me for today's call are Roger Penske, our Chairman; Dave Jones, our Chief Financial Officer; and J.D. Carlson, our Controller. On this call, we will be discussing certain non-GAAP financial measures, such as earnings before interest taxes, depreciation, and amortization. We have reconciled EBITDA to the most directly comparable GAAP measures in this morning's press release again, which is available on our website. Also, we may make forward-looking statements on this call. Our actual results may vary because of risks and uncertainties outlined in today's press release, which may cause the actual results to differ materially from expectations. Additional discussion and factors that could cause results to differ materially are contained in our public filings, including in our Form 10-K. I will now turn the call over to Roger.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that PAG achieved a record first quarter performance, delivering another quarter of double-digit growth in new, used retail unit volume, revenue, operating income, net income, and earnings per share. Our performance in the first quarter highlights the benefit of our brand mix and certainly, the geographical diversification of our revenue base. Income from continuing operations increased 15.4% to $66.1 million and related earnings per share increased 15.9% to $0.73 per share. Each area of our business produced solid performance despite the challenging weather conditions that persisted in many of our U.S. markets during the quarter. During the quarter, our dealerships in the Northeast and Central Midwest lost approximately 280 days of operations due to the weather-related business closures. Now let's turn to specifics of our record first quarter. First quarter results were driven by a 13.1% increase in total retail unit sales to 95,700 and a 20.9% increase in total revenues to $4 billion. On a same-store basis, automotive retail revenue increased 14.9%, including a 7.5% increase in the U.S. and a 28.2% increase internationally. The effective foreign exchange rates increased revenue by approximately $200 million during the quarter, largely due to the March registration month in the U.K. Excluding the effect of foreign exchange, same-store retail revenue increased 11.7%, including 19.3% in our international markets. Our total revenue mix during the quarter, U.S. was 58% and international was 42%. 97% of our revenue was generated through our automotive dealerships, while the remaining 3% came from our commercial vehicle car rental and other business. In automotive dealership business, our brand mix was Premium/Luxury, 72%; volume foreign, 24%; and the Big Three, 4%. Looking at new vehicles, new units retail increased 11.6% to 50,300…

[Operator Instructions] And first on the line is John Murphy with Bank of America Merrill Lynch.

Just a first question on capacity, both in the dealership itself and then also in the service space. If we could think about North America or the U.S. and the U.K. markets separately, I mean are you capacitized correctly as far as your store base, as well as your worker and salesforce base within your dealership for the sales part of the business as it ramps up? And then also, capacity utilization in your service base, how much room do you have left to go there? Sort of if you could take that both in the U.S. and in the U.K. separately.

Well, let's talk about -- on the sales side of our business, I would say that every one of our retail outlets is looking for more sales people as this market has moved towards $16 million. We're probably short of the proper sales associates and many of the manufacturers have opportunities for us, BMW with our product geniuses, we've got other people that are delivery specialists. So we're reaching out, in some cases, for a different type of person to take on the sales process. And I would say this is similar, not only in the U.S., but internationally. When I look at the service capacity from a standpoint of bricks and mortar, we've invested over $2 billion in facilities over the last 7 or 8 years and I think our capacity is in good shape. The issue is again, to try to attract mechanics that want to make it a career and we're utilizing UTI and other places where we can get young people to move in to be apprentices in our business. I know in Europe, in many cases, we have 10% of our workforce, which are operating as apprentices not only in the fix side, Parts and Service, but also on the sales side. So I would say we have capacity from a bricks-and-mortar standpoint. We're obviously looking at more people on the sales and also on the technical side. Our fixed absorption during the quarter from a Parts and Service standpoint was approximately 73%. So again, I think we're right-sized. We could use more land as we expand our used car business but other than that, I think we're meeting or exceeding, in most every case, the requirements for our planning potential from each of the manufacturers.

Great. And second question. Do you think there's any opportunity on the used car side or is the market coming at you as we see a rise in leased vehicles being returned particularly for the luxury brands over the next really 6 to -- 6 months to next 3 to 5 years?

Well, as you know, 66% of our revenue is Premium/Luxury. And of that, BMW, Audi, Mercedes, Lexus, Porsche, probably 50% to 55% is leased. So the good news is, those are 30- to 36-month leases and we see those cars coming back and we get first choice on those. So that's a nice pipeline of vehicles for us from the standpoint of opportunities. So I know there's been lots of discussion about a big search coming back. We look forward to that, specifically as we go forward to build our used car business. So to me, the pipeline is good from the standpoint of volume foreign. We're getting the benefit from the 6,000 cars that we have in our rent-a-car fleet and we'll turn over probably somewhere between 3,000 and 4,000 of those over the next 12 months and those will provide us excellent cars for retail. Those have been spec’d at the time of purchase with sunroofs and some of the things that make those cars more desirable in the marketplace. So used car opportunity, I think is there. We must use the technology now that's available to us. I think we've now opened up used car market, not just who drives by but with the power of the Internet and what we've done to reengineer some of our websites, call to action, some of the tools we're using is going to make a difference. And certainly, the CPO programs offered by the manufacturers, we're running at about 35% CPO and those get the benefit of all the typical finance and benefits on leases and also financial transactions that are covering the CPOs. So to me, that's a big advantage when we're in the Premium/Luxury side.

And then just lastly, Buick is becoming really invoked to open standalone used car stores, is that something you would consider sort of maybe in conjunction with your auto malls or really on a true stand-alone basis or is that just something that wouldn't make sense for your business mix?

Well, we've watched CarMax over the last 10 years and they've been able to build a brand, which is significant in the marketplace to get the benefit of not having to worry about specific guidelines on franchises and market areas. But from our perspective, I've looked at it and we've taken a couple of sites in the U.K., which were formerly locations where we had new car franchises but too small to meet the market requirements and we've opened up other mix -- used cars there. Now I think we have 3 today and they proved out to be successful. On the U.S. side, we've probably taken a little bit different approach by increasing the footprint from a geographic standpoint in on our used car business. I think that today, if I do a better job in getting utilization of my existing facilities and an example of that is in the central area specifically in Atlanta, we have 2 BMW stores, which sold approximately 120 new at each 1 of those during last month, in March. 1 sold 450 used cars retail and the other sold 250. So we're proving that using the right tools that we're able to drive the used car business to our local sites. So what I see, you have a cost associated with going to a separate site. You've got heat, light, and power, you've got additional management. And obviously, you've got to build a brand. And to me, I like the halo, the umbrella effect of the brand sort of representing in that particular market. Now I'm going to watch, stand by in the curb, watch this and obviously, if it looks like it's getting traction and it's the way to go, we have the benefit of moving forward but today, we're going to focus on other areas of growth, one being a commercial vehicle platform or geographic footprint internationally. I think we would probably continue to invest there before we'd open up standalone used car operations. We've invested, as you know, over $2 billion, I said earlier, in facilities.

Our next question is from Rick Nelson with Stephens, Incorporated.

Roger, PBT has probably more exposure to those weather-affected markets than any of your peers. Is there a way to quantify the impact that you saw the EPS in the first quarter?

Well, I think I touched that when you look at the markets, they were impacted all the way in Atlanta, Washington, New Jersey, Connecticut, and Rhode Island, on the East Coast. And then when you look at the Central area, you have Cleveland, obviously, Indianapolis, Madison, Wisconsin, and Minneapolis, so a significant part. And when we looked at our numbers, we had no flow-through in those particular markets for the quarter. Yet we had strong flow-through, almost 30% in the West and almost 40% internationally. But what I did was take a look at January and February against the budget that we've set up. These budgets are generated based on previous year's metrics and history. And when we looked at February year-to-date, we're about $8 million behind on our earnings before taxes in both the Central and in the East and we caught about $2 million of that back during March because of the strong close on March. So I think before any other cost, we probably had $0.04 impact. That's the easiest way for me to explain it. Obviously, had impact on our SG&A but obviously, there's nothing I can do about that. We'll get some of that business back. I think the new car business probably sits on the sideline, waits for better days to shop. People want to buy a specific used car, certainly, probably went ahead, did some buying through the Internet. The service would be the most area that was affected. And from that standpoint, because our mechanics work on a flat-rate hour, they want to continue to get business. I think we'll see that creep back in. The business that we lost during the quarter obviously, would be the service business, the consumable business, the oil changes, the tires, the mufflers, and some of that work, obviously, went off to some of the other providers. More work will come back to us. So overall, I think it will flatten out. There's no question. And this impacted our flow-through and our gross profit. But again, we had a great quarter and we're moving on and that's the last weather report I want to give you this year.

Okay. Also, used car counts have really broken out the past 2 quarters. You're used to new ratio, 0.9:1. The drivers there, you've touched on, is it the off-lease and rental fleet availability that's the driver there and do you think it's sustainable?

Well, the off-lease, I think you got to look at the different manufacturers and what's the penetration by the captive and I think if you look at our peers, most of the peers that are dealing in Premium/Luxury are leasing. And those leased vehicles, we get the opportunity from the captive finance company to buy those and with those, gives us a strong chance to grow our used car business. The rental vehicles are key for us. That was the strategy from the beginning. The business will generate a nice profit for the full year and yet, we get the benefit of leased vehicles from a sales standpoint when we sell them off to the dealerships. So -- also, we're going to auctions. We're using e-commerce to buy vehicles and there's no question that retail first is a term we've used that we've gone with a metric, what's our wholesale to used retail, not what's our used-to-new ratio. And I think we're starting to sell vehicles. If you look at our PenskeCars.com, we have cars under $5,000. So we're running the gamut from $5,000 to $250,000 on the super premium. So we've really opened up the field for us so we have the benefit, where we're going. We're using first look and we're looking using vAuto be sure we're pricing right in the marketplace and from a CRM perspective, we've standardized a dealer socket across our network, which has proved to be very beneficial plus some of the mobile apps that we've been able to integrate and the used car process has been -- I think that's key. We're really driving this.

Our next question is Brian Sponheimer with Gabelli & Co.

I just wanted to talk a little bit further into the future with you about acquisition opportunities. Your balance sheet is now levered at 2.1x. Your EBITDA this year roughly speaking, will be about $550 million, maybe $600 million next year. What's the leverage target that you think you're most comfortable at from a growth standpoint?

Well, we've set our debt-to-capital, we've said kind of 50% would be a top, we'd like to be in the 40% to 50%. I think the capital markets are very open to us from a standpoint if we wanted to put in some more subordinated debt, we've looked at that over the last several months. But from a growth perspective, I see strategic and opportunistic acquisitions here in the U.S. Only 10% of the U.S. market today has been consolidated and we see a good pipeline as far as deals are concerned, looking at us in the face here in the U.S. We've got a new Toyota store opening up in Surprise. We've got an open point for Hyundai in Texas. We've got the Florida point for Porsche, which we've signed, which is good. And then we look at Western Europe, where our BMW business continues to grow and we have opportunities now in Spain. And then our Commercial Vehicle platform, which we've started in Australia has really opened up an opportunity for us to grow in those markets and our investment we have in a freightliner dealership here in the U.S. is giving us some good ideas from a standpoint of growth. So I would say keep our leverage below 50%. Obviously, we want to watch interest rates from the standpoint as we fund some of these acquisitions. But the cash flow has been strong and I think what we want to do is have a balanced balance sheet from a standpoint of automotive, trucks, retail and leasing and I think the distribution business will add another value to us in Australia. So overall, we're open for business and pricing is -- on the good deals, is certainly higher than it's been in the last couple of years but I wouldn't walk away from a business like we bought in -- certainly in Greenwich, the BMW business.

Right. So I guess my math, not yours based on your cash flow, if you want to take it to 50%, that gives you about a $700 million debt cushion, buys roughly $3 billion, $3.5 billion worth of revenue?

I'm going to go with your calculations. So let's say that's right.

All right. So that's $0.40 of incremental EPS for 2015 if you get there.

I'll have to put that on the board, yes, okay.

Our next question is from Brett Hoselton with KeyBanc.

I was hoping to touch base a little bit more on the gross profit, too, but I understand that the Eastern European is impacted by -- still look at the Western European number -- Western number that you had there and you've got 29% throughput and that's a little unusually low. I mean, you guys -- I kind of tend to think you guys are going to be at least to 30%, maybe up in that 40% range or something along those lines and it varies quite a bit. But what are your thoughts there? I mean, is -- do you have an expectation or hope that you can get to a specific number?

Well, let me be sure. The 29% was our West U.S. flow-through and 39% was our international. Just to put it in perspective. I think our target is 35% overall for the company and obviously, we had negative flow-through in Q1, both in the East and in the Central area.

And as you think about the 29%, was there anything that -- in the Western U.S. portion, was there anything that caused it to be below the 35%? Was there anything unusual in that or is it just kind of one of these quarters that you kind of fell a little short of the target?

Well, I think for sure, I know we spent more money in advertising in the West during the quarter. We were carrying some excess personnel as we're opening up the Toyota store in Surprise on May 1. So we probably had 60 days of hiring people and going through the training process, which we would add some extra cost there. So to me, those would be areas that might have some impact but I think when you look at a same-store basis, we're probably fairly close to our prior target.

And then talking about gross profit per unit, Luxury obviously performing reasonably well, volume foreign still seeing some pressure. I was hoping you could kind of talk about gross profit per unit in both of those segments. What's driving the outperformance or the improvements in Luxury and then what's pressuring the foreign volume numbers in your stores?

Well, when you look at Luxury by itself, we were at $3,900 of vehicle in the first quarter last year and almost $4,200 this year. And when you look at that, that's a very good result and I think that's due to a number of things. A lot of it is leasing. We don't have the inter-brand competition with the Premium/Luxury. We've got 300 BMW stores plus the same thing in Mercedes, probably half of that in standalone Audi, and Lexus has over 184 partners. So we see that as an advantage. They've given us the chance to cover the markets with more geography, what we would call our PMA or primary market area. So to me, that's a benefit in the Premium/Luxury side and I think you'd see that within all our peers. If we put our numbers up, you'd see Premium/Luxury being stronger. There is some pressure in that middle segment, which as we see with Honda and Toyota and Nissan. But again, those pressures produced some very good used cars on trades, which we, I'd say the residual value both on Honda and Toyota's never been better. And those are cars that we get nice profit and good customer reception from, from a standpoint of used. Domestic, we only have 4% domestic, so I don't think we really -- we don't move the bar at all on the domestic side.

And then as we think about your F&I per unit, obviously some very nice improvement, both in the U.S. and international operations. I was hoping you could talk about what's driving that and then your expectations going forward?

Well, let's say the first thing is focus and we have discussions at our board meeting with the board looking at what our peers are doing out there and when we look at our business again because of Premium/Luxury, a big portion of our business is leasing. And when you think about someone who's leasing a car for 30 months, it's hard to sell extended service contract on some of the things that you might sell on a 48- or 60-month contract. So we think we have some downward pressure there. In the U.K., they've been hit quite honestly, with some very low priced financing and they're only getting flats over there. But to me, we've done focus. We've put more people in the field. I think the people have done a good job, who are helping us maybe take best practices. We're doing some more training both online and Penske-to-Penske type training, which are paying off. So from our standpoint, as we look forward, we're up $82 for the company for the quarter and I think when you look at it from a U.S. perspective, we were up about 7% and internationally, we're up about 8%. So I think that if we can continue that type of growth throughout the rest of the year and end up 7% or 8% in both markets, we have done a good job. I don't think you can push it much farther, at least at the moment. Remember today, that only 67% of our finance income comes in the U.S. and of that, I think only about 40% of that comes from actually financing reserve. The balance of it is product reserves that we get for selling particular products.

[Operator Instructions] And we'll go to Scott Stember with Sidoti. Scott L. Stember - Sidoti & Company, LLC: Could you talk about on the used side, on the opportunity of the increased amount of leased vehicles coming into your market and how that impacted the certified preowned program in the quarter and maybe going forward, how that could look?

Well, a big portion of our business is used cars so at least, the supply is coming off of leases. And today, 34% of the cars that we sell typically are certified preowned and when you look at it from a standpoint by our areas, certainly the West Coast is at about 36% and the other regions following pretty much similarly. But I see the certified preowned driving one thing, it drives a loyal customer who knows that they have, in many cases, the same warranty that's available on the new vehicle. And in many cases, the same financing or lease terms. So to me, that's a real opportunity and we use that where we can. One thing we do, do however, what I don't want to do is start doing a lot of reconditioning on used cars to drive the cost of sale up because at the end of the day, the advance rate by the finance company will be limited based on market pricing. So we need to watch that. So I think the 30%, 35% is probably a sweet spot. And the good news is, as we do this used car business, we're driving our Parts and Service business up because we get the internal gross profit and I think that's been some of the benefit we've gotten as our margin on Parts and Service approaching 60%. Scott L. Stember - Sidoti & Company, LLC: Great. And on the Parts and Service business, could you maybe break out the performance, the U.K. versus the U.S. and that was a pretty healthy number that you guys put up despite the fact that you lost all those days of operation. Can you maybe also just talk about what those numbers could have looked like had you been able to capture all that business?

Well, I think when you look at the same-store and you exclude exchange, we were around 5%. And the U.S. was probably mid-4s and the international business was around 7%, which would give us the 5.3% and when you look at our revenue on a same-store basis, 70% of our revenue comes from customer labor, at least it did in the quarter. 20% came from warranty and the balance 10% came from body shops and PDIs. So the good news is, even though we hear about all these recalls, at the end of the day, customer labor is key. We got our margins there and that's the opportunity for us to grow because now what we're doing, we're looking at some of the tire business, we're looking at the oil changes and overall, to me, that's going to grow this gross profit because we have ToyotaCare, we have some of the full circle products that BMW offers and with that, that drives that service business. To me, we got to get more technicians. We've got to extend our hours and those are things that we're -- every one of our stores are working on because we have the bricks-and-mortar capacity, I mentioned earlier, but I think from a human capital standpoint and the manpower, in some cases, we're behind and that can give us opportunity. The one thing we don't know is, is recalls are not predictable. Today, I think with all the visibility at GM, you are starting to see more of these recalls at the moment. But the good news is that the 2-step distribution system being the OEM to the OEM dealer, that's what we're here for, we're here to take care of that customer, connect -- fix his car and get him back on the road or provide him with a loaner. So to me, the system is working. Scott L. Stember - Sidoti & Company, LLC: Great. And last question. Could you just talk about how April was looking comparing it to what we saw in March?

Well, when I look at the business in April, from a standpoint, we're not double-digit increasing in April from the standpoint of new. But I think we're 7%, 8% at least when we look at it over all for the business on new and probably a little bit less than that on used. But you don't really get a true number. A lot of these deals close in the last 10 days. But overall, I see a nice lift over last year.

And, Mr. Penske, you have no further questions in queue.

All right. Thanks again, John. We'll talk to you next quarter. Thanks.