Avis Budget Group Inc (CAR) 2014 Q1 法說會逐字稿

Good morning and welcome to the Avis Budget Group first-quarter earnings conference call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the meeting over to Mr. Neal Goldner, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Kimberly.

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

On the call with me are Ron Nelson, our Chairman and Chief Executive Officer, and David Wyshner, our Senior Executive Vice President and Chief Financial Officer.

Before we discuss our first-quarter results, I would like to remind everyone that the Company will be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause actual results to differ materially from the forward-looking information.

Important risk assumptions and other factors that could cause future results to differ materially from those expressed in the forward-looking statements are specified in the Company's earnings release and other periodic filings with the SEC, which are available on the Investor Relations section of our website at www.avisbudgetgroup.com.

We have also provided slides to accompany this morning's conference call which can be accessed on our website as well.

Our comments will also focus on our results excluding certain items and other non-GAAP financial measures that are reconciled to our GAAP numbers in our press release and in the earnings call presentation.

Now I'd like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.

Thanks, Neal, and good morning.

There were a lot of good things to feel good about in our first quarter.

Strong revenue and adjusted EBITDA growth, margin expansion, the doubling of our earnings per share excluding items, and all of this despite inclement weather, thousands of flight cancellations, difficult year-over-year pricing comparisons and numerous vehicle recalls.

But there was one thing that stood out that we feel better than good about, and that is the increased volume and pricing in both the leisure and the commercial segments of our business in North America.

In North America, the positive pricing trends we experienced throughout 2013 continued in the first quarter with our average rate up 2% excluding Payless despite a comp last year that was up 4% overall, including 8% on leisure.

In fact, pricing increased broadly year over year along a number of different axes, both on and off airport, in both our leisure and commercial segments, in each of our brands, and in each month of the quarter including March, which had the additional challenge of the Easter shift.

It's worth calling out our commercial segment, where we have been vocal about the need for greater pricing whether through rate increases to our existing book of business or through our initiative to shift our mix to more profitable customers and channels.

During the quarter, this began to bear fruit as we saw particularly strong growth in our small business segment with revenue up 8%.

Commercial also benefited from the knock-on effect of higher leisure pricing.

We experienced the lowest level of commercial travelers flipping to leisure rates in at least the past five years because of the continued upward movement of leisure rates.

The net result was a 2% increase in our realized commercial pricing.

It's been a while since we've seen commercial rates at that level.

On the leisure side, we continue to see pricing wherever available and initiated a number of price increases throughout the quarter with moderate success.

As important, however, is that we are already getting meaningful benefits for the pricing automation phase of our integrated yield management initiative, which we have been developing now for the last two years.

Today, the system is active in more than 70 markets, making us more nimble by enabling us to change prices more frequently and surgically.

The benefits of doing this have been significant, particularly for our Budget brand which skews more to leisure customers.

The combination of price increases, yield management activities and a continued focus on changing customer preference for premium vehicles all helped us achieve the 2% increase in leisure pricing in the quarter excluding Payless.

We will continue to roll out the pricing automation phase of our yield management system to cover the 100 largest rental markets in the US by the summer and over time to all of our other geographies.

It's also worth noting that we achieved our 2.5 points of price growth in North America excluding currency without giving up market share.

We believe our 4% growth in non-airport volume significantly outpaced [implayment] growth in the first quarter.

And while pricing was up nicely, there's more to the story.

Mix plays a big role.

Our conscious efforts to shift our mix have been a key part of our strategic initiatives, particularly our focus on accelerating profitable growth.

For example, revenue from our higher-margin specialty and premium vehicles increased 13% as we continue to make our signature fleet more prevalent on our proprietary websites and provide more premium vehicle inventory to increase upsell capability at our rental counters.

International inbound, our most profitable customer segment, saw revenue increase of 17%.

Revenue from associations increased 17%, primarily due to our expanded exclusive agreement with AARP which we announced in August.

And finally, ancillary revenue per day increased 4%, helped by our in-car Sirius XM satellite radio product launch which is significantly exceeding our expectations.

Changing mix to has also been responsible for solid growth in our local market operations by shifting our emphasis from replacement to general use leisure and commercial business.

We've seen our local market operations grow from $750 million of revenue, delivering little or no margin, to more than $1 billion in revenue, generating a substantial contribution margin.

In the first quarter alone, off-airport revenue increased 9% with both higher pricing and volumes contributing to the growth.

Our acquisitions are also making a positive contribution to our results.

We closed a small but attractive acquisition in late February, acquiring our Budget licensee in Edmonton.

This roughly $30 million tuck-in acquisition allows us to participate in the significant growth in the area from the oil and gas industry while growing our global footprint and enhancing the experience for our Budget customers -- again, two of our strategic growth initiatives.

Together with putting the customer first and driving cost savings and efficiencies throughout our organization, the benefit of altering our mix of business and expanding our global footprint have resulted in meaningful growth in revenue and adjusted EBITDA over the past few years.

Finally, I want to address some questions that have come up about the effects of the severe winter we experienced.

There are over 100,000 flight cancellations this past winter not to mention a number of announced manufacturer recalls.

Despite these headwinds, we were able to honor virtually every customer reservation by keeping the airport locations open late to serve our customers, shuttling cars to where the demand was, and offering one-way rentals to help our customers get home when flying simply wasn't an option.

This doesn't happen without an enormously committed workforce, and the men and women of our Company truly distinguish themselves by delivering under the most adverse of operating conditions.

So while it's hard to qualify the effects of whether precisely, for those reasons, we don't think it had a material impact on our overall results.

If anything, the loss of volume and incremental operating costs were substantially offset by increased one-way revenues.

Zipcar.

It's been a little more than a year since our acquisition of the world's leading car share network, and we're just as excited about the possibilities of this business today as when we acquired it, if not more so.

In the quarter, we took several important steps to grow the business, not only on the topline, but also profitably.

We expanded Zipcar into Houston, added seven new college campuses and made Zipcars available on airport in Minneapolis.

We expanded and enhanced Zipcar's good-better-best fleet paradigm by making the popular BMW 5 series available to members.

And we announced plans to roll out one-way availability to Zipcar members beginning in Boston.

We think this is a big deal on two fronts.

First is the pure business opportunity that one-way by itself represents.

It is essentially a new revenue stream for us and a new service proposition for our members.

And second is the opportunity one-way represents to produce revenue for what would otherwise be a shuttle cost to move fleet between the airports and the city locations to service peak demand needs.

In New York alone, we will be sharing some 1500 cars weekly during the summer months to meet the spike in Zipcar's demand.

As a result, Zipcar had the most profitable first quarter in its history on record revenue.

In the one year since our acquisition of Zipcar, we've launched the brand in seven additional metropolitan markets, 30 airports and more than 30 college campuses, shared fleet in 19 markets and increased membership by 11%.

At the same time, we eliminated redundant overhead costs, delivered operational efficiencies, and expanded margins, all the while remaining true to its unique member experience and brand promise to ensure that Zipcar remains the clearly leader in car sharing industry.

In our international segment, volume increased 3% as our initiative to grow the Budget brand in EMEA made further strides, and APAC's continued to expand nicely in the Asia-Pacific region.

Despite weak demand in certain countries, we were able to increase our international utilization by 150 basis points.

But what I'm most encouraged by has been our ability to continue to deliver integration synergies in Europe.

This allowed us to increase our international adjusted EBITDA by $9 million or more than 50% in the quarter before the effects of currency exchange.

Within international, our European operations had several successes in the quarter, growing revenue 3% excluding currency in Zipcar, despite surprisingly sluggish demand in Germany and the shift of Easter into April this year.

Among the achievements, first our aggressive expansion of the Budget brand continued with revenue up over 50% for the quarter.

In February, we reacquired the rights for Budget Portugal from our former licensee, enabling us now to operate both Avis and Budget in that market in a much more cost-efficient manner.

We announced a three-year extension of our highly successful exclusive marketing partnership with British Airways.

Our focus on increasing ancillary revenue per day gained momentum, increasing 8% with upsells up even more.

And we continue to consolidate fleet management activities resulting in record first-quarter utilization.

Finally, we continue to make progress in capturing the $100 million plus of synergies we outlined at our recent investor day.

In our Latin America/Asia-Pacific region, revenue increased 10% excluding currency with gains in both rate and volume.

Our operations in New Zealand had just a terrific quarter with revenue increases in both Avis and Budget brands as well as from our Apex deep value brand.

In Australia, we have taken steps to mitigate the effects of a weak economy.

First, we aggressively went after inbound volume which ended the quarter up 10% and helped to offset weak domestic demand.

Second, we continued to grow Apex, expanding its presence from one market in Australia to five over the past year.

Third, we took a strong stance in favor of increased pricing in order to generate satisfactory margins and returns.

Fourth, we actively managed our fleet, resulting in lower per-unit costs in the quarter.

And finally, we are focused on winning more profitable rentals in the region including our emphasis on growing our small business rentals.

Before turning to our outlook, I want to review our thoughts on capital allocation.

As you are aware, our board authorized a $200 million share repurchase plan last August which we immediately began to execute on.

Through April, we repurchased more than 3 million shares at a cost of a approximately $140 million.

Last month, our Board of Directors approved a $235 million increase to our remaining share repurchase authorization.

Returning cash to shareholders is one of our major objectives for the significant free cash flow we generate.

As we announced last night, we expect to repurchase between $200 million and $300 million in outstanding shares this year.

We anticipate that a second and equal if not more important use for a portion of our free cash flow will be tuck-in acquisitions.

Examples include recent acquisition of our Budget licensee in Edmonton, the reacquisition of the right to operate the Budget brand in Portugal and our purchase of Payless Car Rental last year.

These transactions offers significant synergies, often with enhanced revenue opportunities, enabling us to generate strong returns on our investment.

But while we are always actively searching out new tuck-in acquisitions given the attractive returns they offer, we don't think we will spend much more than $100 million or so on such acquisitions in 2014.

Moving to our outlook.

Although we are not raising or [tiding] our guidance at this time, I'm increasingly optimistic about our business and growth prospects for the remainder of the year.

In North America, we expect volume to increase 4% to 6% including our Payless and Budget Edmonton acquisitions as implayments look to grow only a couple of points or so this year.

The growth we experienced in the first quarter has continued thus far in the second quarter, with both pricing and volume up nicely as our strategic initiatives continue to bear fruit.

I would say we now expect overall pricing to increase at least 1% this year.

While we ended up not giving any pricing back in March despite the shift in Easter, we did enjoy the expected pricing benefit in April from its timing.

May is always a challenging month to forecast, but the first weeks' results would suggest that overall year-to-date trends are continuing by providing support for our optimism.

While we aren't expecting commercial pricing to be up 2% for the balance of the year, we do expect at this juncture to sustain at least a 1% gain in commercial pricing for the balance of the year.

In our international segment, we expect to see mid single-digit volume growth in our Latin America Asia-Pacific region, driven again by good growth in New Zealand, inbound demand in Australia and the growth of our Apex brand.

In Europe, our sense is that the overall economy has stabilized with some countries having good growth, others not showing real signs of recovery.

And Germany being somewhat of a head scratcher following a soft first quarter for car rental there.

Ironically, Germany is probably in the best shape of the European economies, making the unusual results more difficult to understand.

Nevertheless, we continue to expect international volume to increase 4% to 6% this year, driven by our efforts to grow the Budget brand while increased ancillary revenues in synergies from our European integration efforts should allow us to show solid international EBITDA growth this year.

With that, I will turn the call over to David.

Thanks, Ron, and good morning, everyone.

Today I would like to discuss our first-quarter results, our fleet costs, our balance sheet and our outlook.

My comments will focus on our results excluding certain items.

As Neal mentioned, these results are reconciled to our GAAP numbers in our press release and in the earnings call presentation on our website.

This quarter marked our highest first-quarter earnings per share ever, coming in at $0.16.

This was double our first quarter 2013 results, principally as a result of higher volume and increased pricing in North America, as well as positive contributions from our Zipcar and Payless acquisitions.

Adjusted EBITDA grew 26% year over year to $117 million in the first quarter, with margins expanding 80 basis points.

Currency effects were a $9 million headwind for us, so our local currency results were even stronger than our 26% EBITDA growth would suggest.

Our trailing 12-month adjusted EBITDA now stands at $793 million.

And for those analysts who run valuation models based on EBITDA before deferred financing fees and stock-based compensation, our trailing 12-month adjusted EBITDA would be $46 million higher or $839 million.

Revenue in our North America segment grew 13% in the quarter and was up 6% excluding the acquisitions of Zipcar and Payless.

Total volume increased 7% in the first quarter while pricing was up 1%.

Excluding the acquisition of Payless, volume increased 4% and pricing was up 2.5% in constant currency.

On slide 14, we have laid out our North America volume and pricing metrics with and without Payless for your convenience.

Leisure revenue increased 7%, with volume up 5% in the quarter and pricing up 2%, both excluding Payless.

Commercial revenue increased 5%, including a 3% increase in volume and a 2% increase in pricing.

Adjusted EBITDA in North America grew 23% year over year, primarily due to increased pricing and higher volume, partially offset by a 7% rise in per-unit fleet costs that was generally consistent with our expectations for the quarter.

Our Zipcar operations contributed $68 million of revenue, $55 million of which was in North America with the remainder in Europe.

Zipcar generated $5 million of adjusted EBITDA in the seasonally slower first quarter.

We continue to realize incremental synergies at Zipcar both through cost efficiencies and fleet sharing.

Our Payless acquisition, while small, is also delivering strong returns.

Our $50 million investment contributed $6 million to EBITDA in the quarter.

Revenue in our international segment grew 7% in the first quarter, primarily due to higher rental volumes and ancillary revenues in Europe.

International adjusted EBITDA was unchanged as incremental synergy benefits and the flow-through from revenue were offset by a $9 million negative impact on EBITDA due to currency exchange rates.

Our truck rental segment also had solid results in what is a seasonally slow quarter for this business.

As you know, we announced a restructuring program in late 2012 to right size our truck rental business and position it for substantially higher profitability and, over the longer run, reduced earnings volatility.

We completed this restructuring last year and reported a $3 million improvement in adjusted EBITDA this quarter despite a 14% decline in average fleet.

Pricing was up 4%, with utilization increasing significantly.

Moving now to fleet costs, North America per-unit fleet cost increased approximately 7% in the quarter, in line with our expectations.

Since fleet costs normalized in the second quarter of 2013, we still had one quarter remaining of difficult year-over-year comparisons, and this was it.

We saw a fairly stable and healthy used car market throughout the first quarter, enabling us to dispose of more than 30,000 risk cars at prices slightly above our expectations.

And we are encouraged by the strength of the wholesale market so far this year.

In the first quarter, we disposed of roughly a quarter of our risk fleet through alternative channels such as online, direct to dealer and direct to consumer, including our retail partnership with AutoNation.

Our use of alternative disposition channels has increased more than 50% from the beginning of last year.

And you may remember from our investor day that we expect these channels to provide an incremental benefit of at least $250 per car, so selling more vehicles this way can have a significant impact on fleet cost.

Another area of our operations that has been vital to our earnings growth has been our Performance Excellence process improvement initiative.

PEx is off to another strong start this year and is touching virtually all parts of our organization.

At Zipcar, PEx is helping to review existing maintenance procedures to lower downtime and reduce the cost of maintaining a Zipcar.

At Payless, PEx is replicating existing Avis Budget procedures to lower the cost of service and prepare a vehicle for rental.

In Europe, PEx is driving maintenance and damage repair efficiencies, one way cross-border revenue optimization and standardization and efficiency improvements in our shared service center in Budapest.

And in North America, PEx is helping to roll out the process changes associated with the yield management initiative which Ron discussed as well as improving the handling of vehicles during their removal from our fleet, reducing the downtime between last rental and disposal.

Across our regions, we are expecting our Performance Excellence efforts to contribute $40 million to $50 million of incremental benefits again this year.

More generally, our focus on improving processes, driving efficiencies and controlling cost remains intense.

PEx is a key part of this focus.

So are our efforts to relocate and standardize back office functions in Europe into our shared service center in Budapest which now has more employees than any other Avis Budget location in the world.

We've also been working to streamline and strengthen our vehicle maintenance activities which have not only reduced costs, but have had the additional benefit of making us better positioned to handle vehicle recalls.

The decisions that managers throughout our organization make every day continue to be informed by our broad-based, culturally embedded emphasis on managing cost.

Turning to the balance sheet, our liquidity position remains strong with $5.3 billion of available liquidity worldwide.

We ended the quarter with $841 million of cash, no borrowings under our corporate revolver, roughly $1 billion of availability under that facility.

We had unused capacity of $3.5 billion under various vehicle backed funding programs, and our ratio of net corporate debt to LTM adjusted EBITDA at the end of the quarter was 3.6 times.

We took advantage of attractive financing available to us during the quarter, completing a $275 million offering of euro-denominated senior notes due in 2021 with a yield of 4.85%.

We use the proceeds from this offering to redeem a similar amount of our 8.25% senior notes in April.

Given the current level of interest rates, we anticipate calling the remaining 8.25% notes no later than October of this year, which should generate substantial benefit going forward.

Before we wrap up, I would like to discuss our expectations for the remainder of this year.

We expect rental days in North America to increase 4% to 6% and that pricing in North America will increase approximately 1% .

I know some of you are wondering why we aren't changing our pricing guidance given the strong results we've achieved in the first four months of the year and our ongoing focus on pricing and yield management.

There are a few reasons.

First, the tough winter weather clearly created some incremental insurance replacement demand which we think made the industry somewhat tighter fleeted in Q1 than we can assume it will be over the balance of the year.

Second, given the short booking window in our business, we have only a tiny portion of our summer reservations booked at this point.

And the summer is a critical period for us.

And third, our up1% projection includes Payless, which is going to generate a pricing headwind of at least a half a point this year.

On the flip side, as Ron mentioned, our commercial pricing is clearly shaping up to be stronger than we had initially anticipated.

The net result is that while we feel good about pricing so far this year, we have not yet decided to change our outlook.

Therefore, as we announced last night, we expect our 2014 revenues to be approximately $8.4 billion to $8.6 billion, a 6% to 8% increase compared to 2013.

We expect total Company per-unit fleet cost to be $295 to $305 per month in 2014.

In North America, per-unit fleet costs are expected to be approximately $300 to $310 or flat to up 3% compared to 2013.

This implies very modest year-over-year changes for the remainder of the year.

We expect adjusted EBITDA to be a approximately $825 million to $900 million and our 2014 pretax income excluding items to be $455 million to $535 million.

We expect our effective tax rate in 2014 will be approximately 38% and our diluted share count will be between 111 million and 112 million including the effect of repurchasing $200 million to $300 million of outstanding shares this year.

Based on these expectations, we estimate that our 2014 diluted earnings per share will be $2.50 to $2.95, an increase of approximately 14% to 34% compared to 2013.

We project our capital expenditures to be around $200 million this year as we continue to invest in our business, particularly our digital presence in North America and Europe as well as yield management.

We expect our cash taxes to be approximately $70 million this year.

In fact, given the NOL we have on the balance sheet, our corporate interest expense, our anticipated growth and existing tax laws, we don't expect to be a regular federal cash tax payer through at least 2017 which is the extent of our current tax planning horizon.

We could be an AMT taxpayer from time to time over the next four years, which would be at a cash tax rate after applying our NOLs of only 2%.

And finally, we continue to expect our free cash flow to be approximately $400 million this year absent any significant timing differences.

As is typical for us, most of that free cash flow will be generated between July and October.

So to wrap up, we achieved higher pricing and increased volume in North America in both our commercial and leisure segments.

Our international operations had several important successes despite soft economic conditions in certain countries.

One year after our acquisition of Zipcar, we have made significant advances in our integration and operation of that business.

On the capital allocation front, we are pleased to have returned $75 million of free cash flow to our shareholders in the first quarter in the form of share repurchases.

And we expect to repurchase a total of $200 million to $300 million of stock this year.

And finally, we are well aware that one quarter, particularly the first quarter, doesn't make the year.

Controlling cost, investing prudently in our business, pushing for pricing wherever we can and delivering benefits from our strategic initiatives will continue to be our focus in the months ahead.

With that, Ron and I would be happy to take your questions.

(Operator Instructions)

Chris Agnew, MKM Partners.

Thanks very much, good morning.

Thank you for the color on why you aren't changing pricing guidance.

Can I ask on one of the things you mentioned there that you can't rely on industry fleet levels being as tight through the Summer.

Is there any particular reason why you would think that industry fleet levels are going to be loose through the Summer?

Is there anything in particular you're seeing?

No, I don't think there is, Chris.

As a matter of fact, industry fleet levels through April and even into May have actually been fairly tight.

I just think that the Winter was so harsh, and there were so much insurance replacement volume that more than likely got generated, I just think it's an abundance of caution to do that.

I think one of the underpinnings of that view is the fact that volume at the auctions was actually fairly light in the first quarter, and I think people were holding on to fleet for that incremental demand.

But, no, there is nothing specific on the horizon.

It is just being cautious.

Thanks.

And a follow-up: On fleet costs, with better program vehicle deals this year, you've got stronger Manheim or used vehicle index.

I know it's only a proxy.

And then, you've got more vehicles selling through alternate channels, and David mentioned that there is a benefit there.

I guess I'm maybe a little surprised fleet costs aren't trending lower.

Maybe to ask it this way: If the used car market stays where it is today, is there potential benefit to lower fleet costs as we head through the year?

Chris, certainly some of the things you mentioned, such as selling cars through alternative disposition channels, we had counted on and factored into our guidance.

So, I wouldn't see that necessarily changing the -- or having an impact that changes what we expect for the year.

I think the favorability we see in the Manheim index and a little bit of favorability we experienced in the first quarter, that certainly has the potential, if they continue to move us down closer to the lower end of the range rather than the higher end.

I don't know yet that they could actually move us below the low end.

Great, thank you.

John Healy, Northcoast Research.

Thank you.

Ron, I wanted to ask for a little bit more color on the corporate market.

Really encouraging to see the progress there, and I appreciate the color on the trends in terms of the flipping versus leisure, and some of the growth in the SMB market.

But was hoping to get more color on the contractual side of the market, with the larger accounts.

Are you seeing much different there in terms of the competition?

I know you guys have tried to pull back from some of that competition and lead the industry that way, but curious to know if you're seeing any more discipline amongst the big contracts that come up for renewal?

I think, we have seen the most progress, John, in mid-market.

I think those are accounts where we are better able to control pricing.

And we've certainly seen an improvement in all of our mid-market accounts in terms of the percentage that are renewing at equal or higher rates.

As a matter of fact, in April, 100% of the accounts that we renewed were all at equal or higher rates.

So, I don't think that will persist throughout the year, but I think we said over the last couple of quarters, 50% were higher and then 60% were higher.

And in the first quarter, I think the number is 65% were higher or equal.

So, it's slower progress, quarter by quarter, month by month.

And I think a lot of what you have to think about is -- is that a lot of these contracts are layered in.

You could have some contracts that we entered into two or three years ago that are now coming up for bid.

And the market level is just different.

So, even though you're negotiating a lower price, it could well be a market level that is higher than the price -- it could be a price that's lower than what you originally entered into, even though it may well be higher than the current market level by some modest amount.

I think, in general, the competition is always going to be there for the very large accounts.

I think a lot of what we saw in the first quarter, and what we are forecasting in terms of our at least 1% in commercial, is going to be a function of keeping leisure rates high, keeping flipping low, and changing the mix and focus of our Business.

We're going to continue to push for rate gains in our very large accounts.

But I can't tell you that we've made significant improvement in the real large accounts.

But overall, the large accounts are probably a quarter to a third of our commercial book.

The biggest gain to be had here is in mid-market and small business.

Okay, no, that is extremely helpful.

I wanted to ask a little bit about the European business.

I'd love to get a little bit more color.

And it sounds like you're feeling good about where the market is heading in general, but a little bit more color just in terms of how it feels competitively in Europe.

I know there's been some commentary that some things might be going on with some of your larger competitors there, but just some flavor how fleets feel over there, and just how some of the smaller players seem to be either growing their fleets or maybe they are retrenching from the market.

What is happening on competition in Europe?

When you look at the European business on a constant-currency basis, and you focus primarily on Avis because it's significantly larger than Budget at this juncture, you have to conclude that fleets are generally in pretty good sync with demand because, on a constant-currency basis, our total revenue per day is up modestly in Avis, and we've been able to grow volume modestly in Avis.

Pretty good proxy for, I think, the market.

Budget is obviously a different story because you are starting with a different base.

I think the only thing that has really given us a little surprise is: Germany is the strongest economy.

And while volumes were generally flattish in Germany and up everywhere else, pricing was down a couple of points in Germany.

And it's not clear whether it's a fleet issue in Germany.

There is just decreased demand that is driving lower pricing.

I think we are all working hard to understand what it is we can do to turn that around.

Germany is an important market for us, but -- where we make all of our money is really in the Summer months in Italy, Spain and France.

We are not horribly concerned about it, but we do want to figure it out, and make sure we make the right moves with our fleet and with our pricing there to optimize what economic activity is there.

Great, thank you, guys.

Brian Johnson, Barclays.

Yes, good morning, Ron and David.

You had a chart on slide 16 I found interesting, albeit it's just for trucks.

It talked about revenue per vehicle.

If you look at that on domestic, it looked like it was up 5% of revenue per vehicle.

That's a metric that balances rev per day with utilization.

I guess more broadly, how are you thinking -- obviously, there was the one-way issue, but how do you think about utilization as a metric?

How do you think about the interplay between utilization and pricing?

And then, as you roll out all these new initiatives and technologies, is that the metric you are targeting, or is it still pricing and volume?

Good morning, Brian, thanks.

I think you are right in how you describe revenue per vehicle.

It clearly takes into account both pricing and utilization.

I think the direction you're headed in is the right one.

Most of the improvement we have seen in revenue per vehicle is driven by the pricing growth that we've had.

But utilization was strong in the first quarter, and your suspicion is spot on.

Our yield management activities, we think, are helping both pricing and utilization; and it really does show up in revenue per vehicle.

And in particular, we think the yield management activities are helping to drive additional volume during the weekly shoulders, during the weekends and in shoulder periods, particularly on the Budget side.

So, we are getting some additional utilization as a result.

And when we look back at the first quarter, and the vehicle recalls that we had, the fact that we achieved improved utilization in the quarter is something we feel very good about.

And as you suggested, and as I said, a big part of that was driven by the yield management initiative, which is helping generate some volume when otherwise cars might have sat.

The last point I'd make is one we've made before, and that is that we like utilization, other things equal, but it is not our sole focus.

We continue to invest in premium, and in some cases, luxury fleets that typically have below average utilization, but higher revenue per vehicle and higher profitability.

And as a result, we are trying to be very careful never to focus solely on utilization, but rather on the role that it plays in the broader calculus of maximizing profitability.

Right, because premium would do well, I assume, on revenue per available car.

That's right.

Related to that, it sounds like the benefit you're getting now is from filling the shoulder periods.

As you go forward, to what extent is your focus on revenue per vehicle changing the way you might think about the size of the fleet and tuning the fleet size through the quarter?

Sure.

Just to be clear, I would say the utilization benefit is what's coming through on the weekends, where the yield management benefit is impacting utilization on the weekends.

We think it's impacting price favorably during the week and during peak periods.

And that's all part of the double benefit we'd look to get from this.

As you look at our yield management initiative, what we've done so far is really pricing automation.

And that's the first phase of a multi-phase project, and that's having significant benefits.

But the next phase is a greater integration of demand forecasting, fleet planning and pricing in order to be able to adjust those various levers more interactively and more optimally, more surgically than we have in the past.

And so, what I think you will see over the next year or so is that the feedback mechanisms into tweaking of the fleet for us will become more sophisticated over the next year to 18 months, allowing us to do some more of the things that you are alluding to.

Final question, same topic: Where do you think the rest of the industry is on total industry supply, and either using blunt tools to make sure the fleet is right-sized or these more finer-grain technology tools?

There's been one competitor who has been talking a fair amount about excess fleet in their system for a bit; we have less visibility (inaudible).

So, just overall where you think it is, and then, as people buy the same -- write the same code, write the same technology, do you see room for that to improve?

On the yield optimization, yield management front, we feel good about where we are competitively, and how we are using the information we have to manage our fleet.

I think the work we are doing, which has required a lot of thinking and building of algorithms, as well as management tools and processes to implement them, positions us to be ahead of the curve relative to our competitors in the future.

But I am not privy to all the things they may be doing to work on yield management.

Question is: Do you see an improvement in fleet tightness across the industry, beyond your own fleet and what you're doing?

I think it's hard to tell what will happen going forward.

Clearly, in the first quarter, I think each of our competitors was working through a different issue.

One of them -- or both actually probably having some incremental insurance replacement demand, and then one working through a fleet integration issue as well.

Okay, thanks.

Adam Jonas, Morgan Stanley.

Hey, thanks, Ron and Dave; and again, this is excellent color.

We all really appreciate it.

Just to follow-up on the tech question, can you give us a sense of where your tech spending is, in either absolute terms or percentage of sales, or how much is already done where you're going to need to go as you transition from legacy systems like Wizard to open architecture and the things you've just talked about and roll out connected car to larger parts of the fleet?

Sure, Adam.

I think as we think about our technology spending, it is an area of focus for us, and we are investing more there than we ever have before.

And I think it takes a variety of different types of spending.

First, we have been investing in the digital area.

Our mobile capabilities, whether it's our apps or our websites, we've been doing that both in North America and Europe, and that's an important focus for us.

We continue to do incremental spending to build additional capabilities, here or there, through our core systems.

We are investing fairly significantly to increase the longer-term nimbleness and agility that we have with our systems, including some very significant work on Wizard to make it more agile, and to allow us to be more agile to implement changes more quickly and at less cost.

And that's a multi-year initiative for us.

And I think we are continuing to look at customer-facing elements of our technology because we consider that to be very important.

Our customers expect us to provide good, solid, reliable, helpful technology to them, and I think we've got a number of things that work very well.

But we also have other areas that don't work as well as we would like, and we see opportunities to improve the customer experience with our spending there.

As we look at our aggregate $200 million of capital spending this year, nearly half of that, in one form or another, relates to technology.

And is that, going forward, going to grow in line with sales, or greater than sales so that you get a yield on it and try to compensate for that?

I wouldn't be surprised if it were to grow maybe a little bit ahead of sales.

The opportunities we see to invest in technology and generate a significant return are really quite good.

And as long as those continue to be there, we're going to take advantage of those investments.

And the one reason I am cautious on that is that I do think the work we're doing on Wizard and our other systems will actually allow us to be more efficient in the technology spending that we are doing.

That may allow us to do more at essentially the same percentage of sales.

Great, and just a follow-up on Zipcar on-airport -- very interesting initiative.

I don't know if you are in a position to share.

I am sure it is starting very small, but based on what you have running now, can you give us any more color on length or revenue per rental or rates or maybe how big this can go?

Also, are these cars -- is there an agreement with the airport to pay an 11% type concession fee, or is it just the cost of the short-term parking in the facilities that the airport's compensated for?

Thanks.

We do pay a concessions fee on the airport rentals for Zipcar.

And we are in 30 airports now; I think there's probably at least 20 more that we think we can profitably put cars there.

I think in terms of the number of cars that we are renting, it is small, very small compared to the number of Avis and Budget cars that we are renting.

The thing that has really captured all of our thinking is the fact that these cars rent for relatively significant premium over Avis and Budget rentals.

Part of it obviously is the all-inclusive nature of insurance and gas and T&M, but part of it also is the service proposition that it offers to Zipcar members.

They simply get off the bus, they go right to their car, they swipe their smart card and they are off and running.

I think there's a lot of good customer experience learning that's coming out of this that's going to impact both of our brands longer term.

My sense is -- and I don't know the number exactly, but the LORs for the Zipcar airport rentals are probably shorter than the LORs for Avis and Budget probably because of the premium.

I think that answers your question.

I appreciate it.

Thanks very much, gentlemen.

Afua Ahwoi, Goldman Sachs.

Thank you.

Just two for me.

First, on the ancillary revenues, can you maybe talk about what product you are seeing a lot of traction?

I know for a while you talked about how stuff like the GPS has maybe reached its penetration potential, but maybe what else is driving such strong growth there?

And on the pricing, I know sometimes you give maybe either one month in color, so is there any color on what April was?

And then also, how much is your new yield management system adding to pricing or what benefit do you think you are getting from that?

Thank you.

Those are a lot of questions.

Let me see if I can remember them.

On the ancillary revenue side, if it was the order of value in terms of aggregate dollars as LDW, loss damage waivers, and then GPS, and then roadside protection and then the new Sirius XM radio product launch that we've had.

I think where the real growth on a percentage basis has been, has been in the XM radio.

We have now equipped something like 200,000 of our cars with factory-installed XM radios that can be activated at the counter, and the growth in that product has been fairly significant.

I think in Europe it's a little different.

I think upsells are contributing a fair amount to the ancillary revenue.

They've just begun the ancillary sales training throughout some of the markets that is giving people the tools to be able to drive ancillary revenue growth.

I think we're seeing pretty good growth across all of the products there.

I think we probably will for the next three or four years.

I think in North America it's probably more dependent on product launches than it is new products over the course of the next couple of years.

And then on the pricing side, April was strong, and as we said in our opening comments, I think it was consistent with our first-quarter trends, plus the benefit of the Easter shift.

And as a result of Easter moving, which actually creates a lot of noise in the comparables, it is hard to make a lot of sense out of the overall April number, but the trends appear to be pretty consistent.

And we do believe our yield management initiative was a contributor to that, the same way it was in the first quarter.

Okay, thank you.

Before we close, I think it's important to reiterate what I believe are the key points from today's call.

We had an excellent start to the year, with volume, pricing, margins and earnings all increasing.

The used car market has been stable, enabling us to sell the cars we want at prices slightly above our expectations thus far.

And the positive volume and pricing trends we experienced in the first quarter continued into the second, as we benefit from our yield management system, our continued shift in mix toward higher-yielding segments, and the shift of Easter.

We have a full investor calendar this month and next, and hope to see many of you during our travels.

With that, I want to thank you for your time and your interest in the Company.

This concludes today's conference call.

You may disconnect at this time.