Avis Budget Group Inc (CAR) 2005 Q1 法說會逐字稿

Hello and welcome to the Cendant Corporation conference call.

Today's conference is being recorded.

At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Sam Levenson, Senior Vice President of Corporate and Investor Relations.

Please go ahead, sir.

Good morning, everyone, and thank you all for joining us.

On the call with me today are our Chairman and CEO, Henry Silverman; our President and Chief Financial Officer, Ron Nelson; and our Group Vice President of Investor Relations, Hank Diamond.

Before we discuss our results for the quarter, I would like to remind everyone of four things.

First, the rebroadcast, reproduction and retransmission of this conference call and webcast without the express written consent of Cendant Corporation are strictly prohibited.

Second, if you did not receive a copy of our press release, it is available on our website at www.cendant.com or on the First Call system.

Third, the Company will be making statements about its future results during this call.

Statements about future results made during the call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on current expectations and the current economic environment.

Forward-looking statements and projections are inherently subject to significant economic, competitive and other uncertainties and contingencies, which are beyond the control of management.

The Company cautions that these statements are not guarantees of future performance.

Actual results may differ materially from those expressed or implied in the forward-looking statements.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are specified in the Company's Form 10-K for the year ended December 31, 2004, and in our earnings release issued last night and filed on Form 8-K.

Finally, during the call, we will be using certain non-GAAP financial measures as defined under the SEC rules.

Where required, we have provided a reconciliation of those measures to the most directly comparable GAAP measures in the tables in the press release and on our website.

Before I turn the call over to our Chairman, let me briefly review the headlines of yesterday's press release. • Revenue for the quarter increased 10% year over year to $3.9 billion. • The Company reported first-quarter EPS from Continuing Operations of $0.06, which includes previously disclosed transaction-related charges totaling $0.20 per share. • And, as Table 3 of our earnings release indicates, organic revenue and EBITDA growth were 8% and 9%, respectively, excluding the impact of restructuring charges.

Free cash flow for the quarter was $214 million.

Note that this is $22 million lower from the preliminary amount reported in our press release last night due to a late adjustment received today from a subsidiary.

Also note that the seasonality of the Company's free cash flow has changed due to the recent divestitures and our increasing focus on travel.

As a result, we expect to generate the bulk of our Free Cash Flow in the second and third quarters.

We continue to project between $1.8 and $2 billion of free cash flow for the full year 2005, which does not include any cash generated by our discontinued operations prior to their sale.

Based upon our first-quarter outperformance, we have increased the low end of our projection for EPS from Continuing Operations for the full year 2005 to $1.35, excluding the $0.20 per share in transaction-related charges recorded in the first quarter.

The high end of the range remains at $1.42 excluding these charges.

We expect revenue and EBITDA growth for all of our core operating segments in 2005.

For 2006, we continue to project EPS from Continuing Operations of $1.62 to $1.72.

Ron will give you more detail on this later in the call.

Now, I'd like to turn the call over to Cendant's Chairman and CEO, Henry Silverman.

Thank you, Sam.

I'm going to start by reviewing our strategic accomplishments year to date and our goals for the remainder of the year, and then Ron will review our first-quarter results and our outlook for the remainder of 2005 and 2006; and then, of course, we will be happy to take your questions.

First and foremost, I'm pleased to report that we are delivering on all of the strategic commitments that we laid out at our Investor Day last December and on our fourth-quarter 2004 conference call.

Let me list these for you.

• We told you we would spin-off Mortgage and Fleet by February 2005 and we delivered on that promise, completing the spin-off of these units, along with our appraisal business, as PHH Corporation on January 31 and we delivered over $1.10 per share in value to our shareholders.

• We told you that we would IPO Wright Express by March 2005 and we delivered on that promise, raising approximately $1 billion for the Company in February.

• We told you that we would ask our Board of Directors to approve a dividend increase following the Wright Express IPO and we delivered on that promise, announcing a 22% increase in our quarterly dividend to $0.11 per share, beginning with be third quarter payment this year.

With this increase we have raised our dividend by a total of 57% since first initiating it in 2003.

And, as promised, we will look at increasing the dividend again next year, in line with our earnings growth.

And, we told you we would began decreasing our share count through share repurchases and we are delivering on that promise, including doubling our 2005 planned minimum buyback to $1 billion, plus proceeds from option exercises, which could increase that number by $200 or $300 additional million dollars.

During the first quarter, we repurchased $231 million of our stock, or $111 million net of proceeds from option exercises, reducing our fullydiluted share count at March 31, 2005 by 4.5 million shares versus December 31, 2004.

We expect to continue to decrease our fully-diluted share count sequentially each quarter by about 10 million shares, or about 1% per quarter in 2005, and we expect to decrease it again in 2006.

In our opinion, there is a significant disconnect between our improving fundamentals and our share price.

We believe our equity is significantly mispriced by the market.

Accordingly, we will be aggressive buyers of our shares at current and at higher levels, as it remains a very accretive use of our capital.

Last, we told you at Investor Day that, during 2005, we would finish realigning the Company as a focused, travel and real estate services company; that we would accomplish this goal by divesting businesses where we don't have comparative advantages; and that we would replace the earnings lost by either reinvesting the proceeds to acquire strategic assets in travel and real estate and/or repurchasing our stock.

I am pleased to report that we are very near completion of this realignment, which will culminate with the expected sale of our Marketing Services division.

With respect to the sale of Marketing Services, the process is moving along as planned.

We have received a number of preliminary bids in excess of $2 billion, and we expect that the disposition will be completed during the third quarter of 2005.

Once Marketing Services is sold, we expect to have generated about $4 billion in cash proceeds from non-core divestitures ,including Jackson Hewitt, Wright Express and Marketing Services ,and will have successfully redeployed about two-thirds of this to secure a leading global position in the fast-growing and highly profitable travel intermediary vertical, with the acquisitions of Orbitz, eBookers and Gullivers.

These businesses are core to our overall travel strategy, are expected to be significantly additive to EPS and free cash flow beginning later this year, and should accelerate the Company's overall growth rate over time, as well.

As Ron will discuss, the integrations of these businesses and realization of synergies are proceeding at or actually ahead of planand, as a result, we expect to have acquired these businesses at extremely attractive multiples than allow them to be significantly accretive to 2006 EPS and Free Cash Flow.

As I have told you on the last several calls, we intend to deploy the remaining disposition proceeds and our free cash flow for additional share repurchases and acquisitions in real estate and travel.

Remember, we always balance the returns from buying back our stock with the opportunity to boost our long-term growth rate through strategic acquisitions at attractive returns.

The good news is that we have plenty of financial flexibility to do both ;, and that analytical balancing act is what led us to doubling our baseline share repurchases for 2005.

In closing, we remain committed to the mantra that “promises made are promises kept.” We believe that the strategic focus on travel and real estate that we have undertaken will significantly enhance shareholder value by simplifying our business model, allowing us to realize synergies among the business units in our core verticals, delivering consistent earnings and increasing the Company’sgrowth rate.

The travel and real estate markets are enormous and growing at rates above the world's GDP, and we are a leader in each of these markets.

And now, I'll turn the call over to Ron to discuss our first quarter results and our outlook for the remainder of 2005 and for 2006.

Thanks, Henry.

I'd like to divide my comments this morning into several parts.

First, I will briefly cover some housekeeping issues in terms of our new segment reporting structure and the presentation of certain businesses as discontinued operations.

Second, I would like to spend a minute reviewing some of the trends we see in our Real Estate, Travel Content and Travel Distribution businesses.

Third, I will highlight some of the important drivers of our first-quarter performance, including organic growth and free cash flow generation,and importantly, give you an update on the integration progress of our recent travel acquisitions.

The last item I'll cover is a discussion of our expectations for the remainder of 2005 and 2006.

First, the housekeeping.

Following the recent dispositions of non-core businesses and our investments and travel, our discussion of operating results now focuses on our three divisions and five core operating segments: Travel Content - which is comprised of Hospitality Services, Timeshare Resorts and Vehicle Rental;

Travel Distribution Services; and Real Estate Services.

The three divisions certainly characterize how we think about and manage our businesses, and the reporting delineation within the Travel Content Division actually reflects the separation of our more product-oriented businesses in Timeshare and Vehicle Rental, broken out from our pure fee-for-service businesses that are now reflected in the Hospitality Services segment.

The other piece of housekeeping relates to the classification of the presentation of discontinued operations.

While the Fleet, Appraisal, Wright Express Fuel Card and Marketing Services businesses are classified as discontinued operations, the results of our Mortgage business, unfortunately, are required to remain in continuing operations.

So, for the balance of this year, you will see the results of Mortgage, as well as charges directly resulting from the PHH spin-off, in our continuing operations for the one-month that we owned it in 2005 and for the full year of 2004.

This will skew year-over-year comparisons throughout 2005.

From January forward, however, the results of our mortgage origination venture with PHH will be reported in the Real Estate Services segment.

I now want to spend a minute on the operating climate for our businesses.

Clearly, the favorable trends of our businesses are not, in our view, being reflected in the current share price.

I am certain this has happened before and equally certain it will happen again.

Whether it's the market's fear of a real estate bubble, or lack of conviction with our travel strategy, or some other concern, we're not going to try and dissect market sentiment.

But let me share some of the business dynamics we see.

First, on the real estate front.

We have for some time now been predicting moderating growth, and in fact, that is what we're seeing and what we continue to forecast.

Growth in 2004 was the best on record and we have consistently said that we don't expect 2005 to exhibit a similar increase.

We do believe that our results in 2005 will show gains, largely driven by a continued low interest rate environment, a forecast of reasonably modest GDP growth and the compelling demographic trends that will benefit this industry over time.

The results for our first quarter reflect all these conditions, and the impact was predictable and positive.

I would remind you that our franchise business, given its breadth, is a fair proxy for what is happening nationally.

You can't judge our real estate business by what is happening in New York or Los Angeles, as we unfortunately see in the media everyday.

In our franchise business, price was up 15% and sideswere up 9% on an organic basis.

What we have to remind ourselves is that these are year-over-year comparisons; they are not sequential;and there's a tendency to want to relate to real estate prices sequentially.

With prices up an average of 13% each of the last three quarters, mathematically it would have been a challenge, absent some extraordinary event, for price not to show strong gains in the first quarter.

This is especially true with NRT given that the second quarter last year was really when the market started to accelerate :we saw over a 70% gain in profitability, driven by a significant increase in price in sides.

We think second quarter 2005 will start to reflect more visible signs of moderating growth in real estate.

When you look at our businesses geographically, it also reflects a portfolio-like quality:in the North and Southeast, prices are strong and demand remains strong;we expect these territories will have continued gains in 2005.

As you move to the Midwest where the economy is arguably a little softer than on the coasts, price and volume gains are more moderate.

Markets such as Minneapolis, St. Louis, and Cincinnati are all up 5% to 7%.

Atlanta is actually down 4%.

On the West Coast, price increases are reflecting a real shortage of inventories, with less than two months' supply in some regions in California.

These regions will clearly be more volatile in 2005.

But all taken together, over the course of 2005, we continue to forecast growth in our real estate group reflecting a forecast of flat to slightly declining sides and high single digit to low- ouble digit price increases, with our revenue and EBITDA increases augmented by growth of our franchise systems and NRT broker acquisitions.

Attendant to that view is a forecast that mortgage rates will rise steadily but modestly over the course of the year.

So… we don't look at the first quarter as evidence of a balloon about to pop, and we certainly don't see the real estate market falling off a cliff,but we do see moderating growth especially in the second quarter, and year-over-year gains in the single-digit area.

In other words, more of a soft landing.

But, if we are wrong, I will remind you of just one fact you have seen before:every 1% full-year variance in either of our price or sides, up or down, is a little less than $0.01 per share.

So, it would have to be a fairly significant departure from our expectations to have anything approaching a material impact on our results.

On the travel side of the house, I can only point to our metrics.

Our RevPar and Lodging was up 13% - 10% if you factor out the inclusion of Ramada International.

The industry data would suggest that the economy segment, which is where the majority of our rooms fall, was up about 5% in the first quarter.

Clearly we are making up for some lost ground here, but it does point to the continued success of the revitalization plan that we have put in place and are executing against.

Trip Rewards, our loyalty program, is now accumulating members at the rate of more than 155,000 a month, or approximately 500,000 this quarter, and accounted for about 15% of our occupied room nights.

For most of the balance of this year we see our RevPar growth remaining in double-digit territory, or in the high single digits if you factor out Ramada International, and our RevPar will average approximately $30 for the full year.

In Timeshare, despite the modest reduction in earnings quarter over quarter, we're seeing a turnaround at Trendwest… in tour flow and Average Price Per Guest, and we believe that the marketing issues we discussed last year are well behind us.

As we noted last quarter, we expected Timeshare to have tough comps this quarter, largely because of the impact of highmargin upgrade promotions in the first quarter of last year.

Truthfully, comparisons were better than we had expected, largely because of the encouraging turnaround at Trendwest.

Overall, the combined Timeshare business showed an average price per transaction increase of approximately 15% and tour flow benefited from our expansion into premium time-share destinations like Hawaii, Las Vegas and Orlando.

Comparisons are easier in the second and third quarters, but a little more challenging in the fourth.

In aggregate, however, we're forecasting double-digit growth in Timeshare for the remainder of 2005.

Our timeshare exchange business, RCI, had its strongest first quarter in four years, certainly as it relates to financial performance, but more importantly for subscriber growth.

Up 5% in the quarter, subscriber growth is ultimately the annuity engine that drives recurring revenue streams and a greater number of exchanges.

Additionally, RCI improved its ability to utilize splitweek inventory by enhancing its existing systems and making it easier for the RCI Vacation Guides to facilitate member rentals.

This was a key factor in the 16% increase in member rental revenue in the first quarter.

Also of importance is that RCI rolled out the first phase of the technology that will eventually allow us to fully leverage inventory both within RCI and across our online travel agencies.

A first step, but an important one, nonetheless, especially for our proprietary distribution outlets.

Vehicle Rental is reflecting signs of improving travel economy.

Factoring out the restructuring charges, revenues were up 9% and earnings were up 8%, both healthy increases.

More importantly, results in Car Rental in particular are reflecting the continued success of the Budget repositioning.

Budget volume was up 20% during the quarter, outpacing a strong leisure environment.

For sure, we gave some of the volume gains back with price at Budget, but that is an intended consequence of the repositioning.

Commercial volumes, which are obviously a good indicator of business travel, were also up at both brands in the mid single digits.

Under our management, Budget, which was historically a large government vendor, is now regaining the government volume it lost during its bankruptcy.

For two quarters now, volume gains in both brands have outstripped pricing softness, and as we look at our forward reservation builds, we're seeing a continuation of the same revenue trends in the next quarter.

A note on second quarter in Vehicle Rental: while we expect solid volume gains, the P&L will only reflect modest EBITDA growth.

In the second quarter last year we benefited from a true-up of vehicle costs that won't be repeated this year.

The trend should start to look more normal beginning in the third quarter.

Let me talk about our Travel Distribution unit both from an integration context as well as the marketplace performance.

Starting with integration, Orbitz has been the primary focus for most of the quarter, inasmuch as we closed on ebookers in late February and Gullivers on April 1.

With Orbitz, we are comfortably ahead of our integration schedule having accomplished the management realignment, delivered on all the non-technology headcount reductions, renegotiated certain supplier contracts as well as partner marketing arrangements, and substantially outsourced the call center and fulfillment operations.

All of this has been accomplished well within the pre-acquisition synergy projections we committed to.

We're also substantially complete with populating the Orbitz merchant hotel inventory with lodging.com and Flairview inventory.

The major project remaining is the implementation of a common technology platform for CheapTickets and Orbitz, and this has been scheduled for completion in July of this year.

With ebookers, although only one month into integration and early in the process, we are nonetheless on target: call centers have been outsourced, the merchant hotel platform has been integrated into Flairview, the majority of our Vacation Rental Group inventory is now available on the ebookers platform and the planning for conversion to the Galileo GDS is on target for the third quarter.

Overall in Travel Distribution Services, we achieved continued strong growth in revenue as well as higher margins at our online travel agency businesses.

On an apples-to-apples basis, if we exclude the $10 million restructuring charge and the $10 million of integration costs in the first quarter of 2005, and the $11 million expense reduction in the first quarter of 2004 related to a one-time benefit plan change, EBITDA would have increased an impressive 32%.

On an organic basis, which excludes the impact of Orbitz and ebookers, online travel agency revenues increased 44%, driven by a 43% increase in online bookings all substantially at CheapTickets.

In our drivers you'll see that online bookings were up 19% in the quarter.

That primarily reflects activity associated with Orbitz, given its relative size to our other online services.

In addition, the acquisition in 2004 of Flairview Travel continues to perform well above our acquisition forecast, and has contributed to revenue and EBITDA.

Flairview, the Australian online hotel merchant we acquired last year at about 12 times EBITDA, will comfortably earn in 2005 at a level where our return on invested capital is already about 35%.

The GDS business, generally, mirrored the environment.

Segments were up in the US market, reflecting increased enplanements, but the volume impact was fully offset by yield declines.

Mix is generally at the core of that result.

Europe continues to be soft, with segment declines being the primary driver, reflective of both a weaker travel economy and the growth of lowcost carriers in certain markets.

Both AsiaPacific and the Middle East, where Galileo has a leading presence, remain healthy, growing and strong, despite some impact from the tsunami.

Looking ahead, comparisons become easier in the second quarter and we expect Galileo to show growth for the remainder of the year.

Although the 2005 full-year volume growth projections that we gave you at Investor Day have been impacted by the tsunami and general weakness in Europe, we are confident that we can grow Galileo's worldwide segment volume by approximately 6% in 2005.

In the Americas, growth is being driven by renewals and new sightings of National and Multinational accounts, and by growth at CheapTickets.com.

International growth of 7% is being driven by account wins and solid market growth in AsiaPacific.

Just a couple of final words on our overall results.

Whether taken together or looked at separately, our core real estate and travel businesses generated solid organic growth this quarter, as evidenced by the gains in revenue and EBITDA.

This is not reflected, ultimately, in our bottom-line results, largely due to the non-cash impairment charges and restructuring charges related to the ongoing simplification of our operating structure.

As a result, in order to more accurately gauge 2005 performance, we would encourage you to focus on the organic growth of our revenue and EBITDA on a comparable basis excluding these charges, which are the metrics that really demonstrate our businesses’ strength and positive growth trends.

Second, on the restructuring charges.

We are under no illusion that these are not ordinary business expenses and have properly reported them as such.

Most of them are related to actions taken to rightsize our overhead for the more focused company that we have become through our divestitures and reinvestment.

Some of them are not, however, and relate to actions that otherwise would have been taken over the course of the next few years such as facility closures and licensee terminations.

I would point out that all of the restructuring charges are good investments: on a composite basis, the charges we are taking will ultimately result in a composite ROI in excess of 50%, so while it was P&L pain, it was economic nirvana.

The final element I would like to cover is cash sources and deployment.

The easiest way to summarize this is to focus on net debt.

Net debt decreased by approximately $300 million.

On the plus side, we generated $214 million of free cash flow and supplemented it with approximately $1 billion of proceeds from the WEX IPO.

The $1.2 billion was deployed as follows. first, ebookers and real estate acquisitions accounted for approximately $400 million; second, we spent just over $200 million on dividends and share repurchases, net of proceeds from option exercises; and, finally, we funded the PHH spin off with PHH's existing cash plus a cash infusion from Cendant of approximately $100 million.

The net of all this and a few smaller items leaves us with approximately $300 million, which results in the reduction in the net debt that you see on Table 8 of the Press Release.

What you should also note is that we ended the quarter with almost $1.3 billion of cash, and $1.3 billion of revolver borrowings.

Because of the April 1 timing of the Gullivers close, we had to accumulate British currency prior to the quarter end to pay for that acquisition.

On April 1, we closed on Gullivers, And cash declined by $1 billion, so consequently net debt increased by approximately $700 million, subsequent to the quarter's end.

We expect net debt to decline to our targeted ratio of net debt to total capital in the mid-20's later in 2005, as a result of our free cash flow and expected proceeds from the disposition of the Marketing Services Division.

Those are the facts; let me summarize the impact.

First, between spin-off, share repurchase and dividend, we directly or indirectly returned $1.4 billion of capital to our shareholders during the quarter -- some 6% of our equity market cap.

For the full year, we continue to project returning to shareholders over $2.5 billion, with the additional capital coming by way of dividends and additional share repurchases.

Second, including Gullivers, we invested some $1.3 billion in our businesses: that $1.3 billion should result in the contribution to 2006 EBITDA of over $200 million and we have acquired businesses that will be growing at least at mid-teens rates.

And third, with our spin-off and related divestitures, we have simplified our balance sheet, reduced our earnings volatility and refined our business to two core verticals.

As to our outlook, we have increased the low end of our full-year 2005 forecast by $0.01 to reflect the outperformance in the first quarter.

So, our 2005 EPS from continuing operations forecast is now $1.35 to $1.42 for the year.

This projections do not reflect the non-cash impairment charge to Continuing Operations related to the PHH spin-off of $0.17 per share, nor the $0.03 per share charge due to restructuring activities, both of which were booked in the first quarter.

As we discussed at Investor Day, 2005 clearly is a transitional year, in terms of reported EPS growth.

Results will be distorted by integration costs, discontinued operations treatment of some divested businesses but not Mortgage, gains on sale of Wright Express and Marketing Services, non-cash impairment charges resulting from the PHH spin-off, and restructuring-related charges.

As a result, we firmly believe that our 2005 EPS from Continuing Operations understates Cendant's inherent earnings generating capabilities.

Our core businesses are solid, and are expected to perform well in 2005.

In terms of the second quarter, keep in mind that we are presented with our most difficult year-over-year comparisons in Real Estate, Hospitality Services and Vehicle Services.

Accordingly, we do not expect much organic growth to be visible in that quarter.

For the full year, however, organic revenue and EBITDA growth are forecasted to be about 9% and 7% respectively, excluding the restructuring charges.

Looking at 2006, the combination of this strong continuing organic growth, the significant year-two earnings contribution from our acquired travel distribution businesses(once the integration expenditures are completed), and the impact of shares repurchased in 2005 makes us confident in our projection of EPS from Continuing Operations of $1.62 to $1.72, especially if you factor in the impact of our increased share repurchase program.

To be clear, part of this 20+% plus year-over-year growth will come from incremental earnings as a result of cash redeployment and some will come from the organic growth of our businesses.

In addition, it will be aided by the absence of close to $160 million of integration costs and other items that run through our P&L and depress earnings in 2005 but will boost our growth in 2006.

Moreover, while our long-term organic growth targets remain 8% to 11% on the EBITDA line and 12% to 13% on the EPS line, our recent acquisitions of high-growth online travel businesses may cause those targets to prove conservative.

With that, Henry and I would be pleased to take your questions.

(OPERATOR INSTRUCTIONS).

Jeff Kessler, Lehman Brothers.

If you will bear with me, I do have a couple questions here.

First, CheapTickets -- you began to see acceleration in the CheapTickets growth a couple of quarters ago, but it appears that CheapTickets needed either Orbitz or something else to turn it into something that the investment community actually cared about -- in other words, something that was growing, that people thought was going to be a continued growth vehicle.

What has gone on with CheapTickets over the last six months that has turned it into something that we just basically ignored for a while, and something that was mentioned over and over again as one of your earnings drivers in the GDS area?

Well, Jeff, it's consistent with what we told you last year, which was we needed better content and better functionality.

The latter, the functionality, will materially increase even further when CheapTickets is on the Orbitz platform.

But we worked very hard to improve both of those and that is what you are seeing in the results.

Secondly, and I know I've asked this question before, but last week -- and I'm not trying to be glib about this -- Expedia was out there saying that it and TUI are going to be the premier participants fighting over the European market.

I realize that one person can say what they want to say.

And the fact is though, what is your reaction and how do you see the European market developing when you have a US company basically saying that the largest company in the industry is not going to be one of those two big participants?

Well, I don't think it's appropriate to comment on what some other company said.

We clearly have a pie that's growing quickly.

As you know, online travel is lagging in Europe behind the US, and you have more people and more people traveling, especially leisure travel, in many of the countries where you are precluded from working more than 35 hours.

So the demographics are obviously very strong.

We have our entrant, in ebookers, and we have plans to grow that business quite significantly.

I would point out that the largest online travel player today in Europe is lastminute.com, which I gather was not mentioned by our competitor.

So we'll do just fine.

Within your GDS segment, I think we have gotten already a couple questions on the 50% increase in offline gross bookings.

It appears concerning, but obviously this is misleading if you take a look at the online gross bookings and have GDS performed all-on.

Could you go through what is going on in offline gross bookings, Galileo and online gross bookings, so perhaps all the investors can understand what the dynamic here is?

Well, I think Ron covered online bookings, as well as the GDS segments.

We are trying, like all of our competitors, to get people to book online, as opposed to offline, because the costs per transaction rise dramatically when you have to interact with a human being.

And so you basically need a Ph.D. in computer logic to get to a human being, by design, on Orbitz or Expedia or any of the other online travel sites.

The goal is to get people eventually to book virtually 100% online, which will bring costs down quite dramatically over time.

Justin Post, Merrill Lynch.

Could you talk a little bit about Hertz and what Ford has announced?

And do you think there could be some consolidation in their rental car market and could that help pricing?

Well, we don't think there will be consolidation in the sense that if Ford does sell Hertz, we don't believe it could be acquired by -- certainly, we couldn't buy it under DOJ issues, and I don't think any of our competitors could, either.

So I don't see it as consolidation.

The benefit is that presumably, a private equity buyer of Hertz will act responsibly in pricing.

Otherwise, they will not receive an adequate return on their investment.

So that can only be good for the industrybut I don'tthink it leads to any further consolidation.

And then, the GDS numbers were a little bit below our forecast.

What do you see really turning that around from negative to positive on the bookings number?

And do you think you gained or lost share in the quarter on the GDS?

I guess you probably have internal numbers and system numbers.

Well, I think we are probably gaining share, it appears to us, on traditional travel agencies, as Ron indicated.

There continues to be a migration either to low-cost carriers, which typically don't use GDS's to distribute their product -- at least, many of them don't -- as well as significant online bookings.

For example, the increase in Orbitz bookings will show up in Worldspan's numbers, because they are the GDS behind Orbitz -- not, at this point, Galileo.

So it's a combination of those two factors that are driving any increase or decrease in share.

Do you think channel shift is pretty much equal for all the competitors in the GDS area??

Well, I think Worldspan is benefiting to some extent by channel shift, because they are providing both Orbitz, Expedia and Priceline with GDS services.

And I would assume that, therefore, their share gains -- I'm not talking about profitability, I'm just talking about pure share -- their share gains may in fact be slightly higher than they would be ordinarily.

Last question -- just on Orbitz, can you give us any disclosure on year-over-year growth in bookings, just for that business (indiscernible) that you have to separate out at this point?

Yes.

The growth in Orbitz bookings was up in the midteens.

I think that number was in the script.

Paul Keung, CIBC.

Specific to Orbitz, Gullivers and ebookers, what trends are you seeing in market efficiency right now in the online channel?

And then, the second on that is, if you look at your net revenue per gross booking for the businesses, how do you think that sort of net revenue per gross booking or take rate is going to trend in '05 into '06?

Well, clearly, the marketplace is evolving.

We are seeing increased traffic from the search sites like Google and Yahoo!

But I wouldn't want to get into the specifics, for competitive reasons, of your question, Paul.

I think that's proprietary information I prefer not to share with the people that we are competing with.

So can you just comment whether the channel is being more efficient or less efficient?

I think we, like all of our competitors, are more efficient as we learn how to deal in an evolving marketplace.

And certainly, from a bottom-line perspective, as Ron indicated, we are at or above our estimated metrics.

And then net revenue per gross booking?

Any view on that, long-term?

No.

I don't think we're going to get into that speculation.

And I'll give you a softball question here.

Can you give me the short-term and long-term indications of like the GM downgrade?

And particularly if the auto manufacturers continue to seeing erosion in their business, how do you think that could impact the car rental business long-term?

Ron will handle the first part, and then I'll come back for your second half.

I think that the impact of a GM downgrade is more than likely going to cause us to have to put a little more collateralization into the securitization trusts.

At this juncture, we look at it and have looked at it fairly carefully and talked to the rating agencies about it, and frankly don't see it as a material impact on our P&L.

We are about to go to the market with an issue in the next month or so, and we will certainly see whether or not it has had any impact.

But our sense is that, at least for the near-term, it's not going to be significant.

On the second question, as you know, our OEM agreements generally have a long tail.

If GM decided they didn't went to sell cars with a putback, they'd have to give us lots of years of notice.

So I think it's too soon to figure out what happens.

We are still the largest customer of GM -- and Ford, for that matter -- the largest outside customer of Ford, largest absolute customer of GM.

We are a good customer; we keep two or three factories busy at all times.

So we'll see how that plays out.

Chris Gutek, Morgan Stanley.

A couple of quick questions.

Looking at the use of cash going forward, I think the doubling of the share repurchase, I think, is a good thing from an investor perspective.

I'm curious -- given the weakness in the stock price, as well as the feedback that I think you guys are getting from investors, does the corollary to more share repurchases imply a declining appetite for acquisitions?

And if so, specifically, could you also update on your desire to do acquisitions in the hotel area, the VRG area and maybe travel distribution technology, as well?

Well, we think we're going to have between $1 billion and $1.5 billion of what I will call for the moment excess cash available when the MSD sale closes in the third quarter.

So that, by implication, means that your question is really one that we need to answer two conference calls from now, as to where those proceeds might be appropriately deployed.

And if you know where our share price will be and what the acquisition opportunities will be six months from now, I think we could answer your question.

But since you can't model opportunity, it's really impossible to speculate, so all we can say is what I said in the script.

That is, at these prices, we think our shares are significantly mispriced; and we, as soon as we are able after this call, will become an aggressive buyer of our shares at these current and higher levels.

As a follow-up to that, given how cheap the stock is, I believe you guys do have a Plan B, to some extent, on the shelf.

And if the stock, hypothetically, were to stay around $20, for how long would you guys be willing to wait before you might move forward with another strategic direction, maybe splitting the Company in two or something else more dramatic, given how cheap the stock is?

Well, that's a discussion we'll have with our Board when it's appropriate.

Again, it's not appropriate for management to discuss that on a first-quarter conference call.

We have not become a pure real estate and travel company yet.

I'd like to think we will be a pure real estate and travel company for at least an hour before you ask that question again, and we will try to figure it out as time goes on.

And one more, more specific on the auto rental business.

I think, Ron, you did break out the volume growth on the Budget side.

I don't think I heard the volume growth on the Avis side.

Do you have that number?

And then, could you also just talk more generally about the pricing environment overall?

It seems as if demand in the auto rental industry is reasonably healthy.

Are you seeing any improvement in the industry-level pricing dynamic?

We are trying very hard to simplify our drivers.

And thank you for putting that out in your release this morning.

So that is why we have combined Avis and Budget.

But in this transitional period, the answer is that Avis volume was up between 4% and 5% during the quarter.

I think pricing still remains an issue.

Pricing was off on a composite basis -- I think 2% during the first quarter.

We continue to watch it very carefully.

It is always going to be an issue when you have the volume of fleet dictated more by production requirements of the manufacturers than by the demand in the market for the rental car.

So I don't think we ever fully get comfortable with pricing.

We watch it pretty carefully.

That 2% decline, though, would include some strategic decision made at budget to bring the prices in line with the leader portion of the market.

So wouldn't it be fair to say the actual market-induced pricing pressure is something uniquely less than 2% decline?

Well, no.

I gave you the Avis pricing number because we were just talking about the Avis volume gains.

The Budget pricing number is higher than that, but still well, well below the gains in volume we had in Budget.

Just let me add this.

As the corollary to the earlier question that was asked by Paul about what happens with GM and Ford, in theory, you would think the corollary to different volume decisions by the OEMs would be better pricing.

And that, we believe, is the silver lining if there is a cloud that relates to Ford and General Motors' abilities to produce cars and give us attractive pricing on those cars.

Michael Millman, Soleil Securities.

I may be jumping into the Hertz car rental as well.

I guess Ford -- Hertz is in their finance division, and Ford seems to be particularly concerned about the effect of fleet sales on residual value.

And is that something we see General Motors being concerned about as well as if, indeed, Ford is, and change their long-term view of what they want to do in the industry?

And I have another question.

I think it's appropriate that you asked that question of General Motors, and that we should not be speaking what GM's views about their long-term strategy would be.

And regarding the growth at online travel, the 19%, could you break it out in terms of what the increase was in agency, what the increase was in merchant, and maybe talk about what you're seeing or doing in packaging, as well?

And also break out US and international?

Well, it's clearly being driven by more packages, more merchant products.

You are absolutely right about that.

And the net revenues were up by -- they were actually growing at a higher percentage.

So I think all the metrics are going in the right direction.

Is there still major growth, however, in agency in Orbitz, as they get their merchant hotel business solidified?

Well, you don't make very much money as an agent.

Basically, the profitability growth is going to come from selling packages and the merchant products, as you know.

So we are really looking at that bottom-line metric.

To what extent is the Gullivers going to help ebookers to get much more into online and much more into the merchant business?

Well, in Orbitz, to answer your last question, the hotel merchant mix went from 30% to 60% from a year ago.

So it's basically double.

Gullivers can only help that in that Gullivers, as you know, is basically 100% merchant.

And it's really a virtual hotel company, in that we get thousands and thousands of rooms on consignment every night.

So that mix percentage will only increase.

Bradley Safalow, JPMorgan.

The first question has to do with -- not to belabor the GDS division, but just wanted to see or just get some comments from you guys on the meta search engines, and how you view their role in the online travel space, and whether there would be something you guys would consider investing in.

Well, I'll answer the second question first.

No, we don't think there's any basis that would make sense for us to invest in these.

I think Ron has described this as pulling a thread out of a sweater; you pull one and the next one comes up.

I'm not sure -- unless you could buy them all for very low pricing and somehow prevent technology from creating the next one, we don't see that that would make any sense.

We think our organic growth is just fine.

We are not seeing any impact from these meta search or screen scrapers at this point.

If you ask us again in a year, we may have a different answer; but for now, it's really irrelevant.

And then, just overall with the online travel platform at this point, you significantly enhanced your presence in Europe.

Are you guys looking at anything in Asia at this point?

Do you view that as a necessity to kind of fill out your global reach, or as something you'll consider down the line?

Well, we think we are well-exposed in Asia.

We own a piece of a travel agency in China, although the business model is far different than it is here.

Most of the reservations are made over the telephone, and most of the tickets are actually bought in cash, because there are very little credit card usage in China.

But we are there, and probably X number of years from now that is going to be a huge home run.

And of course, Gullivers has a huge presence in China and particularly Japan.

So we think that we are extremely well-exposed to those markets.

And then, just a last question.

You have made a number of strong statements about your perception of where the stock is trading.

Should we extrapolate your statements to expect a lower level of options exercised, or insider selling going forward for the remainder of the year if the stock stays at these levels?

Well, I don't really know.

I don't want to comment for any of my colleagues.

I can say this -- I don't expect any of us to let options expire unexercised if they are in the money.

I don't think you would expect that, either.

And so, when options expire, it is part of the comp that we pay to people around here.

If they choose to exercise and sell, that is entirely their decision.

It reflects nothing, zero, on their confidence or lack of confidence in the Company and its prospects.

It's called diversification, and since the combination of estate taxes and income taxes -- if, God forbid, somebody passes away -- on options is over 80%, I think it's an understandable decision if people make that call.

At this time, there are no further questions in queue.

Okay, then we would like to thank all of you.

We will see you on our next conference call, after the second quarter.