Herc Holdings Inc (HRI) 2010 Q4 法說會逐字稿

Welcome to the Hertz Global Holdings fourth quarter and full year 2010 earnings call. The Company has asked me to remind you that certain statements made on this call contain forward-looking statements pursuant to the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance, and by their nature are subject to inherent uncertainties, actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date, and the Company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements is contained in the Company's press release regarding its fourth quarter results issued yesterday, and in the risk factors and forward-looking statements sections of the Company's 2009 Form 10-K, second and third quarter 2010 Forms 10-Q. Copies of these filings are available from the SEC, the Hertz website, or the Company's investor relations department. I would like to remind you that today's call is being recorded by the Company and is also being made available for replay starting today at 12.30 p.m. Eastern Time and running through March 9, 2011. I would now like to turn the conference over to our host, Leslie Hunziker, please go ahead.

Good morning and welcome to Hertz Global Holdings 2010 and fourth quarter conference call. You should all have our press release and associated financial information which we issued last night. This morning we provided slides to accompany our conference call. They can be accessed at our website at www.hertz.com/investorrelations. In a minute I will turn the call over to Mark Frissora, Hertz's Chairman and CEO, also speaking today is Elyse Douglas, our Chief Financial Officer. In addition we have Scott Sider, Executive Vice President and President of Vehicle Rental in the Americas and Michel Taride, Executive Vice President and President of Hertz International. They will be on hand for the Q&A.

Before we begin I need to remind you that today we will use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers, in our press release and at the back of the slide presentation, both of which are posted on our website. We believe that our profitability and performance is better demonstrated using these non-GAAP metrics. Our call today focuses on Hertz Global Holdings Incorporated, a publicly traded company. Results for the Hertz Corporation differed only slightly as explained in our press release. Now I'll turn the call over to Mark Frissora.

Good morning, everyone and thanks for joining us. Let's start on slide six. I thought I would quickly walk you through a score card of our progress over the last two years, as we work to restore pre-recessional financial strength as quickly as possible. Let me start by saying that I am extremely pleased with the determination and fortitude the Hertz employees have exhibited during this unusually challenging period.

With revenue down 11% since December 31, 2008, we've been diligent with cost management. Between 2008 and 2010, we have brought adjusted direct operating and adjusted SG&A expenses down 11% each, and adjusted depreciation costs were reduced by 15%.

Incremental cost savings achieved over the last 24 months are roughly $1.2 billion. These are cost savings related to standardizing processes, improving work flow, and removing waste from our systems, not simply savings from reduced volume. As a result of the savings, consolidated adjusted pre tax margin has increased 182 basis points, corporate EBITDA margin is up 166 basis points, and adjusted diluted earnings per share is 24% higher than in 2008. Moreover, we have generated $452.5 million of free cash flow after fleet growth over the last two years, supporting a 9.6% reduction in total net debt.

If you look at US rental cars specifically, since the recession began in late 2008, revenue has come back from down 10% at the end of 2009, to now just down 1.5% over the two year period. Despite the revenue decline, our adjusted pre tax margin is better by 645 basis points over 2008, and exceeding even our 2007 peak levels.

And fleet efficiency is 177 basis points higher than it was before the recession, a nearly double-digit increase in airport leisure pricing in 2009. The rebound in corporate rental demand in 2010, the expansion of our off-airport and advantage business, and our Lean/Six Sigma discipline all played a roll in closing the gap on pre-recession performance.

Several weeks ago, we told you that we would exceed our latest 2010 guidance across all adjusted earnings metrics. Last night you saw the order of magnitude of that spread was pretty significant. On slide seven, you can see that the incremental upside to adjusted profits came from the disciplined execution of our strategic plan, which encompasses increasing efficiency and productivity, improving our capital structure and continuing to execute our diversified growth strategy.

In 2010 we captured $438 million of cost savings through a variety of initiatives, most importantly our Lean/Six Sigma processes. As a result, as you can see on slide eight, consolidated revenue per employee was up 6.6% over 2009. Worldwide rental car fleet efficiency gained 23 basis points, and depreciation per month per vehicle improved 8.2%, in line with our target. In the end we improved our consolidated adjusted pre tax and corporate EBITDA margins by 180 basis points and 80 basis points respectively.

In terms of our capital structure on slide nine. We have been extremely active over the last 12 months, successfully refinancing our US fleet debt, which now has a blended interest rate on our fixed rate notes that's about 0.5% lower than before and our floating rate notes are almost 1.6% lower. Our European fleet debt also has new funding in place, and while the blended rate is about 400 basis points higher, we are pleased with the result considering the highly volatile credit markets that we faced in the EU last summer. And of that we have funded a majority of the debt with longer term fixed rate debt.

In addition to these refinancings, our treasury group has been actively monitoring US credit trends as they continue to improve. As you have seen, we have been opportunistically capitalizing on the strength of the high yield market, in particular, to replace existing higher coupon notes with new bonds that have a 2.15% lower combined interest rate. Elyse will give you the details on what this means for overall annual expense savings, but these are the type of financing actions that get us closer to our stated goal of attaining investment grade status.

Cash flow is another important piece of our capital structure and last year we generated nearly $270 million of free cash flow after fleet growth, or what we referred to as levered after tax cash flow after fleet growth. This was an $86 million increase over 2009. We're using this liquidity to pay down revolving debt and invest in the growth of the business.

On the next slide, as I'm sure you know by now, we've got a lot of irons in the fire when it comes to growth. Last year, we made further progress developing new markets and new customer segments for both the rental car and rental equipment businesses. In the rental car market, we're continuing to penetrate the deep value market globally with our Advantage brand. In 2010, Advantage revenue increased approximately $90 million over 2009 with 21 additional locations. We now have 46 locations and 14 affiliates worldwide.

In the off-airport market, we made a lot of headway building our relationships with the national insurance agencies and capturing new business from local renters who are getting back on the road. We opened 230 incremental US off-airport locations in 2010, bringing our year-end total to 1,928. Total US revenues in that business grew 13%, with same store revenues up 13.5%. The profit margins of off-airport continue to expand year-over-year, as the combination of a low cost infrastructure, minimum overhead, more economical vehicles, and longer length rentals allow us to capture more of the incremental revenue at the profit line.

In the global markets, industry reports show that international long haul travel increased 6% in 2010, for Hertz Corporate locations inbound travel to the US delivered 18.8% revenue growth, and 6.3% higher revenue per transaction, with strong demand coming from Latin America, Asia Pacific and the Middle East. All of these rental car initiatives were supported by 18.3% more advertising spending than in 2009, and additional capital to update our facilities with innovative technologies and a fresh new look. We're already getting the return on our investments, as evidenced by our higher customer satisfaction scores in 2010.

On slide 11, overall in US rental car, our 2010 adjusted pre tax margin of 11.6% exceeded peak 2007 levels on 6% less revenues. Revenue was up 9.4%, however, over 2009. Our growth initiatives in this business provide us with the capability to surpass the historic top line peak. Consequently, the incremental revenue flow through will drive even higher margins.

In the equipment rental business, we continue to execute a roll-up acquisition strategy to build our position in the industrial market, expand our geographic coverage, and develop new revenue streams. This is on slide nine -- slide 12. This is on slide 12. We completed 5 acquisitions in 2010, with an average price of about $9 million, and average annual revenues of roughly $6 million. Now 43 of our existing facilities offer pump and power generation equipment.

We have an initial position in Hawaii, which is an important non-residential construction market. And we added two new entertainment services businesses in key markets like California. Our equipment rental business saw the bottom of the cycle early last year and began its turn around in the third quarter when revenue and volume showed positive year over year growth. The recovery in this business was jump started by new and resurrected industrial projects and that trend continues.

What makes all of our 2010 accomplishments even more remarkable is that they were achieved in one of the most volatile macro environments we've had to deal with, and it's not just the economy I'm talking about. Let me quickly remind you of what we are up against in 2010, and you'll see that despite last year being the recovery period after the recession, nothing came easy. In addition to unstable economic conditions all year, early in 2010, we overcame the recall and grounding of more than 57,000 Toyotas, representing nearly 20% of our US fleet.

And last spring, you'll recall that volcanic ash shut down European air space twice, at the same time the sovereign debt crisis was further dampening consumer confidence there. In the summer, the Gulf Coast oil spill disrupted vacation travel for several weeks in the important Florida rental car market.And our largest European travel market was disrupted in the fall by strikes and boycotts in Paris in response to government pension cuts, which ultimately interrupted fuel distribution in the region. Finally, after unusual winter weather curbed travel in Europe, the US got hit with a blizzard that blanketed more than half of the country with over two feet of snow at the beginning of the compressed holiday period. The timing of this storm magnified the impact. It occurred during what should have been one of the highest volume, highest rate weeks of the year for car -- rental car. The week between Christmas and New Years. We estimate that worldwide these December storms cost us nearly $10 million of net revenue in the fourth quarter.

Ultimately though, our unwavering commitment to cost management and capital administration, and our focus on growing multiple revenue streams carried the day. And while we had our hands full, juggling all the puts and takes of 2010, our strategic road map kept us on track and our investment plan. The catalyst of future growth wasn't short changed, we invested in new business opportunities in innovative technology, as well as employee development and greater customer satisfaction. These investments will continue to pay dividends in 2011 and beyond. Now, let me turn it over to Elyse, so she can give you some details around the fourth quarter and our capital management initiatives.

Thanks, Mark. I'm going to run through the highlights of the fourth quarter and then discuss our balance sheet and cash flow results. On slide 24 of the presentation, we have summarized the fourth quarter consolidated results. Highlighting the key metrics, consolidated revenue was up 5.5% on continued strength in worldwide rental car. Adjusted pre tax income improved 73.5% on the higher revenue, coupled with lower adjusted direct operating, SG&A and depreciation expenses as a percent of revenue. And corporate EBITDA in the quarter it was up 20.2%.

On the next slide, you'll see that the consolidated revenue increase was primarily due to 6.1% higher US rental car revenue. European rental car revenue was flat, entirely as a result of negative currency translations. Excluding currency, Europe was up 7.3% over the 2009 fourth quarter.

in US rental car, off-airport was the key driver of the revenue growth, representing 55% of the total increase. Our airport leisure business, which usually gets a big boost in price and volume during the holidays of the fourth quarter was negatively impacted by the winter storms across the country. We estimate the storms impact reduced December volume by 3%.

I think it's noteworthy to point out that US airport leisure pricing was flat year-over-year, despite having to overcome a 9.6% price increase last year. Corporate pricing in the US continues to be under pressure due to aggressive competition and the slower recovery of higher priced small business accounts. You'll recall commercial volume began rebounding in the fourth quarter of 2009. So, the year-over-year comparison got a little tougher at the end of last year, compared with the first three quarters of 2010.Still, commercial volume was a solid 6.7% increase in the latest fourth quarter.

Consolidated adjusted pre tax margins expanded by 140 basis points in the quarter. As you will recall, last year we benefited from an $18.5 million VAT refund, and this year we incurred $12 million of incremental interest expense, as we pre-funded the redemption of higher coupon debt which didn't occur until January. Adjusted for these two items, profits actually increased by more than 275% in the quarter and margins expanded by 320 basis points. Key drivers of profit improvement include the reduced maintenance and depreciation in our worldwide rental car operation.

In the US, on slide 27, we achieved a 4% reduction in monthly depreciation per car from sales into the strong used car market. In fleet efficiency, on slide 28, increased 340 basis points in the US in the fourth quarter, in spite of a 5.1% increase in commercial transaction days where rental length is typically only 3 days, on average. This was more than offset by growth in off-airport and Advantage, which has the longest rental length, as well as improved efficiencies on the airports.

In Europe rental car on slide 29, monthly depreciation per unit improved 6.8%, due to strategic procurement actions and improving car sale markets in most jurisdictions. We expect fleet costs to continue to decline as the new 2011 fleet becomes a bigger piece of the overall fleet mix and car sale markets continue to improve toward pre-credit crisis levels.

In worldwide equipment rental, we saw a continued improvement in volume and pricing on a sequential monthly basis, reflecting the beginning of the turn around. This is on slide 30. For the quarter, total revenue was up 4.4% over last year on 10% higher volume. Pricing in the fourth quarter improved to negative 1.3%.

If you look over a three year period on slide 31, since the beginning of the downturn, you'll see we have maintained strict pricing discipline. So, our comparison for base pricing will be higher than the industry's, and the year-over-year increase in pricing is a tougher hurdle to clear. Corporate EBITDA margin for equipment rental was 40.1%, relatively flat to the prior year, as we continue to experience higher maintenance and transportation expense to meet increased demand. We should start to see these issues normalize in mid-2011 as more equipment is repaired and moved to the ready line, and as we increase our investment in new fleet.

Now, let me move from operating performance to our financial performance. Interest expense net of interest income was $199.5 million in the quarter, up $29.3 million over last year, in part due to the one-time $12 million negative carrying incurred on high yield notes issued prior to the January redemption. Also adding to interest was the European VAT refund in 2009, as well as higher revenue earning equipment and higher rates on the European fleet refinancing.

Turning to slide 33. Full year 2010 cash interest expense was $578.5 million, up $86.1 million over 2009, or up $74 million if you exclude the fourth quarter incremental high yield interest. More than half of the increase was driven by higher fleet levels. The balance is due to a full year's impact of the convertible debt interest and a reduced benefit from the buy down of the ABS swap interest rate executed in 2009.

In 2011 we estimate incremental cash interest expense will increase by about $25 million to $35 million over 2010. Though this can fluctuate depending on fleet growth. The positive impact of our refinancing including the run rate annual savings of $28 million from the high yield transaction, and savings of approximately $26 million from our worldwide fleet refinancing are offset by expected higher rates on our corporate credit facilities, the loss of the swap rate benefit and potential fleet growth.

On the next slide for the year ended 2010, the GAAP income tax expense was $17 million, compared with a tax benefit of $59.7 million last year. Cash income taxes paid in 2010 were $50.7 million, $19.4 million more than the prior year. The increase is primarily due to higher earnings. For 2011 we estimate cash taxes to be in the range of $45 million to $50 million in line with last year.

Now let's move to capital expenditures. In the equipment rental business, purchase of revenue earning equipment in 2010 were $147 million net of disposals. This year, we estimate our net spend to be between $300 million and $350 million, as demand continues to improve and we look to reduce the average fleet age which was 49 months at year end.

On slide 35, purchase for property, plant, and equipment, were $178.4 million in 2010, a $59 million increase over 2009 purchases. This was mainly related to previously deferred improvements in both on and off-airport locations and IT systems.And as the economy continues to improve, we expect 2011 non-fleet capital spending will be between $200 million and $215 million, as we make incremental investments to enhance the customer experience. Scheduled capital projects include the continued roll out of the new logo and facility upgrades, investments in new, as well as existing, IT systems, including expanding the use of innovative technologies, and continued facility expansion.

Now let's look at overall cash flow. For the full year 2010, we generated $2.2087 billion of cash flow from operations, an increase of $515.4 million over 2009. The increase was primarily attributed to higher earnings, effective working capital management and lower cash restructuring payments.

Now on slide 36, for the quarter, levered after tax cash flow after fleet growth was $410.7 million, a $405.4 million improvement over the same period in 2009. The fourth quarter improvement is due to typical cash inflow from seasonal de-fleeting and rental car. You will recall in Q4 2009 we bought 80,000 new cars to refresh the fleet in light of the rebound in rental demand. For the full year, levered after tax cash flow after fleet growth was $269.1 million, $85.7 million higher than 2009. Drivers of improved cash flow were higher earnings and improvements to working capital.

2010 working capital days have improved 21% since 2007, as shown on slide 37. We have reduced receivable days outstanding consistently through a number of strategies, including expanding collector incentive programs, converting certain corporate accounts from invoices to credit card charges, and back office efficiency programs.

Payables, which include both fleet and operating payables improved as well in 2010. Increased fleet purchases resulted in higher payable balances. We also utilized an existing line of credit with a car manufacturer, offering effectively a 100% advance rate, and we continued to extend payment due dates by renegotiating vendor terms.

Moving to slide 38. 2010 was an active year for our treasury group. We completed nine different transactions to refinance $5.8 billion of fleet and corporate debt, extend maturities, and opportunistically take out higher coupon fixed debt. The momentum continued this year with our January issuance of $500 million of 8-year notes, at an attractive 6.750% yield. And currently we are in the market refinancing our corporate credit facilities and expect to close on them in early March.

At the end of 2010, our balance sheet, cash, and debt levels were higher by the $1.2 billion in proceeds raised from the two high yield note offerings we did late last year. In January those proceeds were used to fully retire our $518.5 million, 10.5% subordinated notes due in 2016, and to pay down $625 million of our $1.7 billion, 8.875% senior notes due in 2014. The proceeds of the new 6.750% notes will be used to retire an additional $480 million of the senior notes.

Turning to our updated maturities on slide 39. You can see that we have successfully extended and spread out the expirations of our corporate and fleet debt. While we will have ongoing fleet financing requirements, the ABS and other credit markets are in great shape right now, and you can see on slide 40 that we have ample pro forma liquidity of $2 billion at year end to support our growth initiative. All in all, the strengthening of our capital structure has significantly lowered our financial risk profile. Now, let me turn the call back to Mark.

Thanks a lot, Elyse. We have come through an extraordinary period in our economic history, and we're optimistic that 2011 will be another step closer to the peak performance metrics of 2007. Having said that, while we're optimistic, we are also cautious on the macro front.

If you look at slide 44, on one hand, we are experiences a multi-year bull stock market, corporations are enjoying healthy profit margins, recent tax measures are positive, and many individuals are reducing their debt burden. On the other hand, in advanced economies, growth remains subdued, household's incomes is weak, unemployment is still high, the US real estate market remains soft, commodity prices are rising, the Middle East is in chaos, and in a flashback of last May's events, financial turbulence reemerged in part of the euro area in the last quarter of 2010.

With these risks in mind, and the fact that GDP doesn't factor in unfavorable weather conditions or competitive pricing actions, we have based our 2011 plan on macroeconomic growth of 2%. The bottom line is that our business typically reacts to whatever GDP is. So, if you believe GDP growth in 2011 will be 3% to 4%, then there is upside to our expectations.

In 2011 we'll continue to pursue targeted growth initiatives and reinvest in our business to support future expansion. Turning to slide 45, you'll see that the scope of Hertz Global network today. Through corporate and franchise locations, the Hertz brand was one of the largest networks in the industry, we plan to further develop our rental car operations in existing markets through additional franchising, and in emerging markets like india, China, Brazil, and the Middle East, to capitalize on improving economic trends. Across both lines of businesses, we'll continue to evaluate acquisition prospects and have sufficient cash and access to capital if opportunities become available and attract evaluations. The scope of our business model is unique and allows us to look at rental market opportunities very broadly.

New technology will also be a priority for us in 2011. The future of rental cars is based on streamlining reservation systems, adding more functionality in the cars, and offering a faster, more flexible rental process. New programs in innovative products like the ones I just described, combined with other robust initiatives like off-airport insurance replacement, a deep value rental car brand, expanded customer service options, and Lean/Six Sigma process improvements are key differentiators between Hertz and its competitors. Our aggressive growth strategy balanced by experienced cost management will expand our leadership positions in the industries where we operate, and support our three-year target of a 7% to 8% compounded annual revenue growth rate and adjusted pre tax margin of 11% to 12%, and a corporate EBITDA margin of 20% to 21%.

In 2011, the first year of our three-year plan, we expect to generate consolidated revenues of between $7.95 billion and $8.1 billion, a potential 7% increase over 2010. This is on slide 47. In rental car operations, our expectations is for slightly higher rates of underlying economic growth in the US and Europe. Same store and incremental revenue growth from our Advantage brand and our off-airport operations as we expand our network and capture market share, and solid top-line expansion on airport driven by increasing transaction days, longer rental periods, and continued growth from our inbound/outbound global travel.

The industry is forecasting another 6% increase in demand for inbound travel to the US this year. Hertz has the best global position to capitalize on this opportunity.

In the equipment rental business we are expecting 10% volume growth, with potential upside from pricing improvements. We hope to secure a year-over-year pricing increase in the first half of 2011, as utilization of industrial equipment increases. As I mentioned, this is an industry driven recovery. In addition to the five acquisitions we made last year, we have a robust pipeline of opportunities to further expand our penetration in this segment. In the near term, however, with roughly 28% of our equipment revenue coming from industrial accounts, we will probably see a little bit slower pace of revenue improvement compared with our peers, whose industrial exposure is as high as 60% of total revenues. We expect any gaps to close as non-res construction comes back.

For Hertz, the biggest contributor to our revenue has always been the non-res construction market, especially earth-moving equipment which is typically rented in the first stage of construction projects. The good news is, investment in new commercial construction is showing some encouraging signs of bottoming out. Spending for the private non-res structures has risen slightly over the last several months, and the American Institute of Architects Billing Index, a leading indicator for future spending, has moved into positive territory for the first time in over two years. We expect business investment in commercial construction will add to our growth in the second half of the year.

That's about the same time that our fleet will be refreshed, which should drive maintenance costs back in line with historical averages. Our plan is to rotate out the oldest equipment, bringing the overall age down by two to three months by year end. Incremental new equipment will only be added as necessary based on confirmed order flow. These actions will support higher incremental revenue flow through starting in the third quarter.

Moving on to our adjusted pre tax income expectation of $525 million to $565 million, on slide 48. Higher revenue and better cost management should spur the 62% improvement over 2010. In terms of cost management, global advertising expenses are expected to be up about 22% this year, which as a percent of revenue is roughly 2.1% compared with 2010 levels of 1.8% and 2009 of 1.6%. With the economy improving and as we continue to grow our brands and product portfolio, marketing will be critical to our success.

Another item to be offset is the $25 million to $35 million of higher incremental interest expense that Elyse walked you through. On the upside, we expect 2011 US monthly net depreciation per unit to be 2% to 3% lower than in 2010 as a result of better purchasing of both new and like-new vehicles, a targeted mix of 80% risk vehicles, and a larger percentage of car sales through higher return, consumer and direct-to-dealer channels.

This year we have identified an incremental $300 million of cost saving projects which should help offset the investments we're making now to strengthen our market position over the next three years. In 2011, we expect to generate 15% to 18% higher corporate EBITDA in the range of $1.265 billion to $1.305 billion for equipment rentals specifically double digit revenue growth, and the scheduled return to normalized maintenance costs is expected to drive a 42% corporate EBITDA margin for the full year, weighted more favorably in the back half.

Consolidated adjusted pre tax profitability continues to the bottom line, where we project adjusted net income of between $330 million and $355 million for 2011. On slide 51, you can see that adjusted EPS is harder to estimate, due to the anticipated variability in the quarterly share count. However, we gave you an idea of where we expect it to be in the press release. The quarterly volatility results from an accounting rule that states that in periods where we report GAAP net income the stock equivalent options and the convertible debt will be included in the diluted share count. When we have a GAAP net loss, this rule doesn't apply. We expect to be profitable on a GAAP basis in each of the last three quarters of the year.

Now, quickly let me tell you what we're seeing in the first quarter, as outlined on slide 54. In US rental car, the industry came out of 2010 with higher fleet capacity from addressing the peak demand that typically occurs during the week between Christmas and New Years. This is always a timing issue. January and February were also impacted by winter storms across the US that resulted in reservation cancellations and pricing pressure.

The good news is that we're now seeing demand bounce back as customers re-book travel. Right now our fleet is tight, utilization is up is year-over-year, and labor cost per transactions are down. We expect that the final month of the quarter will be a continuation of recent trends. In Europe rental car, we're seeing strong single digit revenue growth so far in the first quarter driven by higher transaction days. And our European fleet is in line with demand. Finally, in equipment rental, we expect double digit revenue growth in the first quarter compared with a year ago, and a mid-30% corporate EBITDA margin as we continue to invest in fleet maintenance. For the full year, however, our forecast is for a corporate EBITDA margin of 42%.With that, operator, let's open up the call.

Certainly. (Operator Instructions) First we'll go to the line of Chris Agnew with MKM Partners. Please go ahead.

Thank you. Good morning. First question, I just wanted to ask if there was anything specifically that changed in the last several weeks that caused you to raise the full year revenue outlook?

It's really just, Chris, based on the fact that we improved the GDP forecast from 1.7% to 2%, and then -- that was a big driver, but a bigger driver was the Euro has been stronger to date than the $1.25 rate we assumed in the business plan. So, closer to $1.30 now is what we're estimating it. So, those are the two biggest drivers, is the $1.25 to $1.30 and the 1.7% to 2%, that kind of foots to the new revenue forecast that we gave you.

Okay. That makes sense. And then, your approximate pricing guidance assumptions. How much of that is mix impact, from the faster growing businesses like off-airport and Advantage? And, with respect to the underlying or same store pricing, is there any change in the competitive landscape or positioning by competitors? I think you mentioned briefly that corporate pricing was competitive. Just trying to get a sense of has something changed? Or is your outlook just reflecting how early we are in the year?

Well, I guess in terms of looking at overall pricing, in the commercial sector we continue to have pressure, probably 1% to 2% is what we are estimating for the year in the commercial sector. And again, this is like trying to predict the future, which is impossible, right? So, I don't have a crystal ball, but based on what we see today, we're saying 1% to 2% maybe pressure on pricing at the corporate level.

When you look at leisure pricing, again, that's kind of a -- it's a difficult thing to predict. You know, in the first two months of the year, as I mentioned in my remarks, because people had lots of cancellations due to weather. We had a lot of loose fleets in the industry, which didn't help pricing, but we're seeing pricing improve through March. So, the good news is pricing is improving. Bad news is first couple of months, I think, people were caught with a lot of fleet due to the weather cancellations. Having said all that, that's how it meters out to us when we say pricing, approximate guidance assumptions is minus 1% to 0%. It is just based on what we're seeing.

Europe is probably a little bit better than the US from what I can see on overall pricing. But again, going into the third quarter, that's your biggest season, and that's really when you can kind of get a really good peg on where pricing is going to develop for the year. Because that drives a lot of the buying, transaction days, and also the RPD growth if you're going to get it in the third quarter, it drives an overall mix of pricing for the year that's much stronger. So, again, we'll know a lot more as we head into the third quarter. At this stage, it's kind of premature to really put in any assumptions, but we just put that on slide 49 for you. So, you could see what we're building into our assumptions right now.

Okay. Got it. Thanks. And then if I could just ask one quick clarification on equipment rental?I think you mentioned that you were hoping to put into effect some pricing in the first quarter ---- or, sorry, first half. Can I just confirm, was that with respect to industrial, and when exactly does that go into effect? Thanks.

No, I mean we have -- we're trying to get an increased price every day on any equipment we can, aerial especially. But in general, I think what we said was we would get positive pricing year-over-year in the first half of the year, that we would expect that to happen in the first half. We didn't make it a forecast in the first quarter, and we're hopeful and we have told investors before that one of the months of the first quarter should turn positive. So, we're hopeful that happens. And, but in terms of the first half, we feel pretty good that by the second quarter we'll be up year-over-year in pricing.

Okay. Great. Thank you.

Next we'll go to the line of Emily Shanks with Barclays Capital.

Good morning. Thank you for all the details. I had a couple of follow-up questions specific to the HERC business. The first is, what's the average fleet age, did I miss that?

49 months.

Okay. And then, in terms of the guidance that you provided for, basically, your '11CapEx, $300 million $350 million, that's net, correct?

Correct.

And how should we think about fleet sale proceeds for HERC this year?Up, down, or are you willing to give a number?

The proceeds from equipment sales?

Yes.

It will be up slightly year-over-year.

Okay. And is there any update on the HERC head replacement?

Head replacement.

No. No, there's no update. I mean, obviously when we are ready to announce that, we'll let you guys know. So, we've got strong internal candidates, and we have looked outside as well, and when a replacement is ready to be named, I'll certainly let you guys know. In the meantime, I'm the interim manager so -- of the HERC business. And like I said, the team is extremely strong, energized, lots of capability. So, feel pretty good about how we're doing right now. And hopefully we'll be able to report even better results as we move forward in the year.

Great. Thank you. And then just my very last question is, some of your competitors on the car rental side have been highlighting the fact that their concept of rolling out prepaid reservations has been an important step in the industry. I was just curious, Mark, what your thoughts are on that, and if you think it moves the needle in any direction?

Yes, we've been doing it for about a year and a half. We rolled out a prepaid product, and I think you probably know this Emily, we actually rolled it out about a year and a half ago, and got instant traction on it. And it's one of the important elements of our growth strategy. Prepaid rentals today I think grew -- for the year they were up at least 20% or 30%. Mike Senackerib is in the room. What was the -- what's the represent (inaudible - background noise)?

About $100 million of revenue for us.

About $100 million of revenues right now. And in Europe, it is a -- in terms of prepaid, again, longer in Europe, and it's something that we've had for a long time there. It represents a pretty high mix of our overall business. Michel, do you -- you're on the line, I know. Can you give a -- roughly what prepaid represents in Europe as a percent of our overall revenue?

Yes, it's more than 60% of what we call our discretionary revenue. So, people book prepaid. And also, the online travel agents and the brokers have prepaid as the basis for their business model. And finally, I would add, that we're going to roll the prepaid out as well in about 20 new countries, including Middle East, Russia, and countries which are significant sources of business for us worldwide. And that's coming in this quarter, in fact.

Yes. So, it continues to grow in the US, it's already, obviously, been part of the business model in Europe, and we expect it to grow at a double digit rate this year. Again, we're enhancing it. And as you know, the way it works is we give a discount, if you prepay, and it certainly helps cash flow. So, it's something we would like to continue to foster in the industry.

Great. Thank you.

Next we'll go to the line of John Healy with Northcoast Research. Please go ahead.

Hello. Thank you. Mark, I was hoping you could give us some color on where your outlook for 2011 stands today. Maybe compare it to where your initial outlook or thoughts regarding 2011, back in the summer when you had some of the S-4 filings out there?I was hoping to get your thoughts on where each of the business units stand and how you think about them for 2011? And maybe, how different your expectations for each of those businesses might compare to say six or seven months ago?

Well, in general, if we take the HERC business. We've seen the business perform exactly the way we thought it would in terms of revenues and demand. The only good news is that it happened, we were hoping it would happen, it did happen. And maybe if anything from where I was back in the summer, I'm a little more bullish about that business and in terms of its traction, revenue growth of the recovery in the second half of the year.

So, again, we're starting, as I mentioned in my script, we're starting to see some non-res construction activity moving positive. So, that's to a very good sign for us, as that's our key strength, as you know, from an equipment standpoint -- or [construction] standpoint, we're very strong in non-res versus our competitors. So as that returns, you'll see nice growth there for us, nice profitability, as well.

In terms of US rent a car, pretty much, again, right on the money. I guess, we're seeing really good growth out of Advantage and really good growth out of off-airport. Maybe a little stronger in off-airport than we would have anticipated. I think that as we look forward into the year, we think off-airport will continue to surprise to the upside. And, so the good news is, I think you'll see that growth rate start to accelerate actually. We have signed up some good businesses, and we get a lot of our network as it expands and matures, we're just getting a big ground swell of support at the local level, as well. So, that's a -- that will be positive, more positive than what we saw back in the summer of last year.

In Europe, I've got to believe that the revenue growth is surprisingly stronger than what we thought -- than I thought, let's say, back in August. We had this meltdown, as you know, going on in Europe last summer. And while we still have this economic volatility, we're seeing pretty good growth, high single digits, pretty good growth, given what is going on in Europe. And so I'm probably a little -- just a little bit more bullish, certainly, than I was last summer. That doesn't mean to say there are any surprises to earnings based on how we forecast them to be here. But, in terms of where we saw things last summer, I certainly feel a little bit better about Europe's volume and the stability of it, than I would have six months ago.

And Mark, this is Michel, if I can add, we see our reservations build-up growing. We're double-digit growth right now, and I think an important factor for Europe is that pricing is positive, in particular in the commercial segment. And except Spain, which is very depressed, every other country is really quite positive right now. And the last thing is that our used car market is also improving. So, we're cautious because of the economic environment, but things are really improving now on all fronts.

Got it. Thanks for the color.And Mark, I wanted to get your thoughts on the opportunity in HERC in terms of pricing. I think pricing since '07 is down, I want to say, 13%, 14% for you guys. It seems like a huge opportunity to recover pricing in the industry. And I wanted to get your thoughts regarding, how long and maybe what sort of demand trends you think you need to see to get a bulk of that back? And your level of confidence over the next few years, if you can get pricing in the industry back to maybe where it was in 2007?

Yes. I don't think we'll get back to '07 levels until probably '13. It could happen sooner than that, but that's my forecast. We think that, certainly, we're positive this year, we get a lot of progress in 2012, in terms of recovery of pricing. But if you look at that 13 points, if we can get, let's say, next year by the end of the year we get about 8 to 10 points of that, that would be great. I don't think you get full recovery until everything, all markets, all SIC codes are performing up year-over-year, and you have got all competitors starting to grow at a rate of 20% or more. And I think that should, certainly should occur by 2013.

Okay. And just, final question. Just looking out to this summer, I wanted to get your thoughts, Mark, on the impact of what gas prices could do to the business? I know back in late '07 and '08 it caused renters to maybe change their behavior. And it caused some -- a little bit of hiccup in terms of how some cars fared at auction. And I wanted to get your thoughts on how you think that could play out for this year?

Yes, in general, people don't cancel their vacations because the price of gas goes up $1 a gallon, and that's just been our history. That's been our experience, that it only represents, for a rental car, anyways, 10% to 15% of a total vacation budget. And so, because it's such a low percent, they're not going to say, oh dear, I've got to cancel my vacation because I'm going to rent a car and it's going to cost me an extra $50 a tank. So, it just doesn't happen. I'm not saying it's positive, but it isn't a negative to the extent that people may think it is. And we see very small numbers impact usually, when there are gas issues.

So, we don't expect -- we think that right now the market is -- the press is overtrumping and overplaying this entire thing. I don't think that there's really a worldwide shortage of oil right now. And just because there's one country -- doesn't mean you can't get the oil out of the country, and it's 17th out of the top 20 countries. So again, I think there's a little bit of an alarmist tendency going on right now in the market, and we feel pretty good about being able to weather the storm, so far.

Thank you.

Next we'll go to the line of Rich Kwas with Wells Fargo Securities.

Hello. Good morning. Can you hear me?

Yes.

Hello. This is David Lim in place of Rich. Just quickly on -- maintenance costs, how much did higher maintenance costs affect Q4 HERC corporate EBITDA margins?

About $2.6 million.

$2.6 million. And then, can we get an idea on how much you'll be spending for 2011 on maintenance costs?

No, we've not calculated that. So, I mean, no, I don't have it. So, I mean so much of maintenance cost is based on what you're bringing up from your dead-line to your ready-line. So, you don't even know what the cost is going to be oftentimes until you take apart the machine and replace the parts. So, in general, we've told investors that by July time period, we feel like most of our dead-line to ready-line kind of equipment will be brought back. And we think the impact of increased maintenance costs begins to dwindle then.

At that time, it will start dwindling. Okay. Got it. I was wondering if you could also give us some idea on your assumptions for corporate volume for RAC in 2011? And then to follow up, how are advanced reservations looking?

Well, advanced reservations looked actually very good in March, in both Europe as well as in the US. You heard Michel talk about the advance reservations in Europe picking up significantly, and that's true in commercial as well as leisure. I guess in -- just to go to Europe for a minute, big countries like Germany, we're seeing double digit improvement in growth and good pricing. If we look at US commercial, again, expect high single digit increases. And on leisure, Scott, you want to talk about leisure in the US?

I think leisure on airport would be about 3% growth, maybe a little bit higher over the summer period. And probably about 6% or 7% growth off-airport in leisure, if not higher, for the rest of the year.

And what are you think in off-airport we're planning this year on a growth rate?

We're going to have, overall, off-airport is going to be strong double-digit growth year-over-year, I'm confident of that.

Okay.

Great. And then, is there any way that we could get an idea on what is your forecast for depreciation per unit, per month in general, what you guys are expecting? I think you guys gave a percentage decline. But, I mean, is that going to be -- obviously that's not straight lined from quarter to quarter, but --

On slide 49 we talk about worldwide RAC been down minus 3% to minus 4%, on net depreciation per unit.

Got you And finally, my last question is, what kind of impact do you think weather may have had in Q1?

Well, again, weather is an interesting phenomena because the airlines, as you know, because of the high penalties leveed by the FAA are driving cancellation of flights earlier and booking later. So, probably for us at least 2 points of growth were impacted. The good news is that consumers now are re-booking flights and trips that they canceled in January and February into March. So, we saw a very significant pop in reservations in March, compared to what our activity was in January and February. And we think some of that incremental, let's say boost, was driven by re-booking the flights, or the vacations, or the business trips in March. And so the -- we are getting some of it back, but we did lose probably up to 2 points of revenue in January and February due to these flight cancellations, especially those emanating from the East Coast.

But most of that you'll probably get back in March, or throughout the -- sorry, the months in Q2, I presume?

We're hopeful, yes.

Okay. Great. That's all I have. Thank you very much.

Thanks.

And next we'll go to the line of Neil Portus with Goldman Sachs. Please go ahead.

Thanks, good morning. For the first quarter, I think you said that HERC margins were expected to be in the mid-30s, which I think are fairly -- would be fairly flat year-over-year, yet you're expecting double digit revenue growth? Just wanted to make sure that is correct. And if so, better understand why would margins would not be up more year-over-year? Is that solely due to fleet maintenance?

Yes, the margins themselves should be up about 2.5 points year-over-year. And, yes, the issue is maintenance, and yes, double digit volume growth. So, you're right about that. So, it's really just the maintenance cost associated with getting the equipment up, and that's what drives -- plus we don't have volume levels in the first quarter, especially, that you -- that help drive that incremental margin, right? So, first quarter is a very low volume quarter, which puts a lot of pressure on the EBITDA margin in general. Second quarter becomes a little stronger, but we get fully -- towards the end of the second quarter is when we start driving a lot of incremental margin, and then back in the back half of the year. So, we feel very comfortable with our 42% EBITDA margin, but the quarterly splits are fairly typical, and we are going to see improvement in the first quarter. Pricing is soft early in the Q1, too. And that's the other issue that you have to deal with is pricing, right? So, if we're not up year-over-year right now, that's obviously putting pressure on our margins, right? If we were flat to up, that would be -- you could expand that by a couple of points. So, does that give you some color?

Yes, that's good. And just to clarify, the revenue guidance for HERC this year, is it still 10% to 12%; or per slide 47 is it just 10% revenue growth for this year?

I think it's fair to say I don't know for sure, but 10% to 12% is reasonable to assume. And there could be some upside depending upon, again, pricing and the demand that we're seeing right now going into March looks very strong right now. So, I'm hopeful -- I feel better today than I did a month ago, right? In terms of the volume. So, we're hopeful that there could be some upside, but I don't want to -- until we get into the season, you don't want to predict it yet.

Okay. Great. Thank you.

Thank you.

Next we will go to the line of Fred Lowrance with Avondale Partners. Please go ahead.

Thank you. Good morning. Mark, just a brief question for you on maybe how you would characterize your relationships with online travel agencies and GDS's?I'm not entirely sure what the -- how much of your bookings come through those channels, but it seems like maybe you guys have less leverage with those OTAs than, say, airlines or hotels would have? So, aside from trying to drive more bookings through your own corporate booking channels online, et cetera, is there really much you can do to reduce your distribution costs as it relates to these OTAs? And do you have any contracts that are coming up anytime soon where you would be renegotiating with them?

Okay. So, in general, we have got really good relationships with all OTAs. And we have great relationship with the airline partners that we have as well, where we book revenues through them, as well. And we have been using technology with them, for example, to try to get right into their reservation system. So, you book immediately. JetBlue is a great example of that. And I think we're working on that also with Delta, as well. We're always looking, obviously, to book more revenues through hertz.com, and we've been successful in doing that, right? So, we had a nice increase last year, year-over-year, we'll continue to get an increase this year, but that's just to -- by making our website more functional and making it easier to use. And we work really hard on that, and continue to work on it. So, we'll -- by doing that and making sure that we're adding a lot of value to the website that helps us offset some of that, but you asked me if there was anything I can do. I mean, as long as we perceive getting the value that we pay, we continue to use those intermediaries to get reservations. So we, obviously, are always working with them in an intimate way on our relationship, and feel good about all of them right now. So --

All right. Very good. Thanks.

Next we'll go to the line of Jordan Hymowitz with Philadelphia Financial.

Hello, guys. Thanks for taking my question. Two quick things. One, the depreciation per vehicle, is that 3% to 4% over the average for the year, so it would be about $294 for next year?

That's correct.

Okay. Second is, when you -- most of the revenue guidance from when the Dollar Thrifty proposal was announced, pretty much in line or better, but the EPS was worse. Is that just because there's more shares outstanding this time?

Yes.

Okay.

For the most part, yes.

Were there any negative trends? Because everything you mentioned was positive.

You know, I mean, negative from what?

Not the -- let me put it this way, on the revenue side, first, the original guidance, you mentioned both US, RAC, European and HERC was all slightly in line-to-better. So, on the revenue side was anything less optimistic now than it was a year ago?

No, not really, no.

Okay. That's what I figured. And final question is, with the pricing guidance of negative 1% to 0%, can you break that down into leisure and corporate?

No, I -- already did a little bit. What I told you was that we would think the commercial, which is corporate, would be down 1% to 2% this year. And so, you look at that, and we look at leisure in the US -- I don't know, Scott, do you have a range that you think leisure in the US could be this year?

I think leisure in the US would probably are about flat for the year.

All right. So, flat -- flattish for the full year, and Michel who is in Europe, pricing there on leisure versus commercial, Michel?

Commercial is a bit stronger here. I would say pricing is about flat, too. Slightly positive right now --

Flat to positive right now.

About 1% right now.Flat to positive, I hope it continues.

Perfect. Thanks again and thanks for all the disclosure, continues to improve every quarter.

Next we'll go to the line of Yilma Abebe with JPMorgan. Please go ahead.

Thank you, good morning. You said your [stated] goal is to achieve investment grade ratings. Can you talk about why an investment grade capital structure is optimal for the Company, as it relates to both your car rental and your equipment rental business? Thanks.

Yes, sure. I mean, and obviously, we would enjoy a lower cost of capital overall. We essentially finance our fleet purchases, and being able to finance those at lower prices, at lower interest expense makes a lot of sense. Plus, there are certain markets that are adjacent to the ones that we serve that we think would be more easily to get into. Right? So, you look at leasing for example, that's something, we do a monthly lease product, and -- we go up to a year leasing product. But in general, we don't participate in some leasing markets that we think we have a core competency in terms of being able to maintain the cars, service the cars, buy to the cars, sell the cars. Yet, we are not in some leasing markets. But, a stronger balance sheet would allow us to access those markets more easily, and more profitably. So, in general, it's just the fact that a better balance sheet gives us better cost of financing.

Thanks. That's all I had.

Next we'll go to the line of Himanshu Patel with JPMorgan. Please go ahead.

Hello, this is Alec Ono for Himanshu Patel.

Okay.

I had one question on your pre tax margin guidance that you put out for 2013. I guess you guided for an 2011 30% pre tax margin in 2013 which compares with 5% margin that you post in 2010. How does should I think about margin expansion going forward? Should I be looking for gradually recovery margins or some front end loaded recovery because hot business improves more in the first few years than in later years?

Yes, well, I mean in terms of how this goes, you're asking if it's ratable or if we are going to change it in the front end or not. I mean, pre tax, obviously the margin, you know what the improvement is going to be this year based on the revenue and profit guidance, and so, it will -- it will improve this year. And then I would just take the next two years and probably equal -- I mean, it's pretty equal. I would say it's pretty even in '12 and '13. So, just take this year as the first year of that, and then take the rest of the improvement that would be required, and I think you would have almost an even distribution each year. HERC is probably going to improve in volume, we think, in 2012, at around 20%, and probably even north of that in 2013, maybe 25%.

Yes.Okay. And then lastly, can you please update us on your plans to source vehicles from auction and used vehicle markets? Would you plan to do it to lower the cost of the fleet and risk vehicle in the portfolio?

So, what are our plans?

Yes, what are your plans.

Our sourcing plans, again, would be to buy this year -- there's like three or four things we're doing. Number one is we're going to buy a few more used cars this year. Instead of buying 2,000 a year like we normally do. We will probably buy 20,000, 25,000 vehicles this year that will be used. Those cars, then, would be going into our market channels, more like off-airport and especially in Advantage as it grows. That lowers our net depreciation per vehicle. Secondly, we are looking to shift, if you will, the number of risk cars that we buy up to 80% at least, and right -- last year we did about 65%. Every time we buy a risk car, it gives us an opportunity to sell a car. So, instead of selling the car at auction, we're looking to sell them dealer-direct. And we are looking to sell them, also, in direct-to-the-consumer through rent-to-buy. We're going to shift that from, let's say, I don't know, 50% -- go ahead, Scott.

Yes, I think the alternate channels will go from 2010, about 42% of our sales, to this year probably about 65% of our sales will be through alternate channels like rent-to-buy, and retail, and direct-to-dealerships.

Okay?

Okay. That's very helpful. Thank you.

Thank you.

And next we'll go to the line of Michael Millman with Millman Research Associates. Please go ahead.

Thank you. Regarding the -- I guess the pricing you gave for commer -- on rental, car rental, commercial and leisure, are those assuming the same mix?

Yes, I mean the same mix as 2010, in terms of like mix of business, commercial, and leisure?

And I meant within commercial and within leisure, as well.

Yes. Yes. Same mix.

Same mix.

Is that a reasonable expectation?

Yes, I -- yes, we feel comfortable that's reasonable.

Regarding the insurance business, is it a matter of grinding it out once you're approved, or is there some way to get, for want of a better term, super approval where you jump from $0 to $300 million?

I'm not sure what the question is. I mean, we are approved by almost every insurance company for direct bill, and we do business with almost every insurance company today, and it's probably over a third of our business off-airport today, the insurance replacement. So, it's quite large.

I -- maybe restating that. It's lodged in total per insurance company to get that -- some of these insurance companies apparently do $0.5 billion -- $0.25 billion to a $0.5 billion. Do you get to that level by grinding it out, basically, over time, once you are approved?

I think that once you are approved and you earn their business and you show that you can -- service the customers adequately, we do see exponential growth.

Yes. So, let's say you're in with one of the big insurance companies, and you've proven them in several different regions of your network and have proven that you can service them well, productively, efficiently, with high customer satisfaction. The answer is yes. Sometimes there are opportunities then the following year, or the following two years, to expand that business by getting promotions and having them from a customer service standpoint recommend you more frequently. So, yes, it happens. Sometimes you can get a leapfrog, sometimes you just -- it morphs over time, over two to three years, but our growth -- our double-digit growth the last couple of years has been fighting down in the trenches, getting a little bigger piece of it. And growing faster than we think the off-airport industry is growing.

I guess more the grind it out?

Yes, grinding it out and expanding our network. And our network keeps getting bigger and bigger. So, as our network grows so does our off-airport business model.

Regarding the sensitivity to 1% improvement, what would that be for LOR, 1% improvement, the impact?

Length of rental? Is that what you mean?

Yes.

I don't know. Do you guys -- I have a couple of guys here? What --

It's the same as a volume increase length, probably about 30% retention on length. It's not as much as pricing, but it's a little bit better than rentals, so about 30%.

Okay. And finally, on HERC management, do you expect to see a change -- or where do you expect to see the change between past management and future management?

Well, it's the same management. I haven't -- I mean, Gerry Plescia stepped down. So, the management team is the same. We're not looking to change anything as a result of Gerry deciding to retire. So, I think more of the same. I mean, we're continuing with our strategies there, and continuing to use the management team to drive those. So, I don't think you're going to see a big switch in strategy from us or anything like that.

Okay. Thank you.

Yes.

And the last question will come from the line of Brian Johnson with Barclays Capital.

Good morning. This is Emmanuel Martinez in for Brian. My first question is regarding your guidance assumption regarding volume days in rental car, are you talking about up 6% to 7% in 2011? Would it be possible for you to break it out in terms of how much comes, in your mind, from the market growing and people traveling more? And how much actually comes from your growth initiatives and developing into other market?

I'm sorry, just repeat the first part of the question. I didn't hear it.

I guess in your assumption for rental that is growing 6% to 7% this year, how much is that your -- legacy markets growing, and people traveling more? And how much of it is due to you growing into the off-airport business and the Advantage brand?

Okay. So, I mean, I'll give a -- rough this out for you, but maybe 55% to 60% of it's driven just by base business, what I call just normal organic growth, and the rest would be driven by growth initiative.

Okay. That's helpful. And then one issue you guys mentioned at the Detroit Auto Show, and then I may have missed it, but I didn't hear it today, was the idea of you moving some of the business towards a franchising model? And I know at the Detroit Auto Show, you guys were talking about it impacting rental car revenue growth by maybe a couple of percent. Is that still the idea here?

Yes, I think that when we look at franchising, we certainly look at where we have low market share and low profitability as an intersection where we can franchise, and in other key markets where we just have low market share. So, we continue to look at that. The question is going to be how many of those revenues that we have today would be franchise revenues, and until we really get more intelligence around that and continue to experiment with that concept, it's hard to predict. But, it certainly has an impact to this year's revenues. I think we, what have told the analysts?

$100 million of revenue.

$100 million of revenue. So, $100 million of revenue this year would be impacted in the rental car space that we would re-program as franchise revenue. So, it means that we're actually depressing our own revenues by about $100 million.

And how should we think about that in terms of the bottom line impact? Is it sort of neutral over time?

It's definitely an increase over time, but this year we're telling people just to put it in neutral.

Okay. All right. Thank you.

Okay. Thank you.

And there are no more questions in queue. Please continue.

All right operator. If you can, wrap it up for us. Thank you.

And, ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.