Avis Budget Group, Inc.
Q4 2006 Earnings Call Transcript

Published: 21 Feb 2007

[Operator:]

Good morning and welcome to the Avis Budget group conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. David Crowther, Vice President of Investor Relations. Please go ahead, sir.

[David Crowther:]

Thank you, Jackie. Good morning, everyone, and thank you all for joining. On the call with me today are our Chairman and Chief Executive Officer, Ron Nelson; our President and Chief Operating Officer, Bob Salerno; and our Executive Vice President and Chief Financial Officer, David Wyshner. If you did not receive a copy of our press release, it is available on our website at www.avisbudgetgroup.com or on the First Call system. Before we discuss the results for the quarter, I would like to remind everyone that the company will be making statements about its future results, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and are inherently subject to significant economic, competitive, and other uncertainties and contingencies which are beyond the control of management. The company cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are specified in our earnings release issued last night. Before I turn the call over to our CEO, let me briefly review the headlines of yesterday’s press release. Our revenue from vehicle rental operations increased to a record $5.6 billion for the year. Our vehicle rental operations earned full year pro forma EBITDA of $405 million and pro forma pretax income of $172 million, in line with our previous projections. Fourth quarter pro forma EBITDA from our vehicle rental operations was $88 million, also in line with our previous projections. Now I would like to turn the call over to Avis Budget Group’s Chairman and CEO, Ron Nelson.

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[Ronald L. Nelson:]

Thanks, Dave, and good morning to everyone. 2006 was certainly an historic year for both Avis Budget Group and the car rental industry as ownership structures changed and the industry faced the twin challenges of significant fleet cost increases and weak domestic enplanements. Given this backdrop to the year, we are pleased that our fourth quarter results were in line with expectations and more importantly, the pro forma EBITDA from our vehicle rental operations increased year over year compared to declines in the previous two quarters. In addition, we maintained our position as the leading car rental company at U.S. airports and we expanded our off-airport business significantly -- all signifying positive momentum. Looking forward into 2007, I would like to spend my time this morning reviewing our strategic plan and how our accomplishments in 2006 set the stage for long-term growth. At its core, our strategic plan to create sustainable improvements in margins and earnings has three basic tenets

[F. Robert Salerno:]

Thanks, Ron. Over the past couple of months, there have been many headlines from Detroit and other statements made about production cuts, reduced sales from OEMs to the car rental industry, and finally the availability of cars. First, the production cuts

[David B. Wyshner:]

Thanks, Bob. This morning, I would like to discuss our recent results and our outlook, focusing on the results of our vehicle rental business and its three operating segments. In 2006, we grew Avis Budget car rental revenue by 6% to a record $5.6 billion, generated pro forma EBITDA of $405 million, and generated pro forma pretax income of $172 million -- all in line with our July and November projections. In the fourth quarter, our revenue was $1.3 billion, as it was in 2005. More significantly, Avis Budget car rental’s pro forma EBITDA increased compared to last year. For the quarter, on a pro forma basis, ABCR generated EBITDA of $88 million and pretax income of $33 million. Our revenue growth was driven by a 6% increase in car time and mileage revenue per day and a 4% decline in car rental days versus the prior year. We have said that we are serious about taking price increases where possible and our fourth quarter results reflect that commitment and its favorable impact on margins. I should point out though that while our fourth quarter rental days declined 4% year over year, they have increased 12% versus 2004 levels. Clearly, we were facing a very difficult rental day comparison in the fourth quarter. Turning to our domestic car rental operations, revenue increased 2%, reflecting a 7% increase in time and mileage revenue per day, offset by a 5% decline in rental days. As Bob mentioned, we made the decision in the face of significant fleet cost increases to forego some marginal rentals, reduce fleet size, and strengthen our pricing. As a result of this dynamic and lower operating costs, domestic EBITDA increased significantly in the quarter to $52 million. Our average fleet size decreased 5% in line with our volume decline, and our fleet costs were flat year over year, as the decline in average fleet was offset by per unit cost increases. There were two things that favorably impacted fleet costs comparisons in the fourth quarter. First, we had higher-than-usual excess mileage charges in the fourth quarter of 2005 due to holding cars for hurricane-related rentals. Second is a timing issue related to manufacturer incentive credits, which we earned more of in the fourth quarter and less of in the third quarter this year than in 2005. These timing issues are not unusual in our business and therefore I would caution against extrapolating our fourth quarter per unit fleet costs. For the full year, our fleet costs increased 12% due to higher per unit costs and a 1% increase in our average fleet. Our operating expenses excluding fleet-related costs declined slightly versus last year as a percentage of revenue. Our cost-saving initiatives and favorable experience in our health insurance costs, led us to more than offset increased maintenance and damage costs. On the health insurance front, we have been seeing favorable claims experience over the last 18 months, including settling two of our largest outstanding claims. This experience provided savings in the fourth quarter and, as importantly, has reduced our projected accrual rates for 2007. We benefit from favorable trends in this area on a somewhat delayed basis, as our experience feeds into time-based actuarial models used to determine our accrual rates and reserve balances. Moving to international car operations, revenue increased 9%, driven by a 5% increase in rental days and a 2% increase in rate. The increase in rental days was virtually all organic as we anniversaried the Budget Toronto acquisition in October. Reported EBITDA increased in line with revenue. Finally, turning to truck rental, revenue declined due to a 21% decrease in rental days and 2% decline in time and mileage revenue per day. The rental day decline was driven by a 7% reduction in fleet and declines in demand across all rental segments. The decline in T&M per day reflected a decrease in one-way rental rates, which we believe is consistent with market trends. We believe the volume decline reflects softness in the local consumer market in line with the decline in housing sales. Commercial volume was principally impacted by some Fortune 100 accounts that reduced their rentals for a variety of reasons, including increasing their own fleet size. The reported $29 million decline in truck rental EBITDA has three principal components. First, we recorded an $8 million restructuring charge in 2006, reflecting the actions we have taken to streamline management and integrate most truck-related administrative functions into our existing car rental infrastructure. Second were one-time benefits. In 2005, results included a one-time, $13 million benefit relating to a refinement in how we estimate repair and refurbishment costs. Third were actual operating results. This remaining $8 million decrease is split almost evenly between fleet cost increases, which were anticipated, and the revenue decline. So while we are certainly not pleased with the results of this business, the decline in core operating results is not as dramatic as the reported EBITDA might suggest. While truck represents only about 10% of our revenue in EBITDA, our new management team for this business is intensely focused on repositioning it for future growth. The closing of the Denver truck headquarters and the merging of truck administrative operations into the existing back office of our car rental operations is now well underway and on plan. This will result in a net reduction of approximately 50 positions, close to about 20% of the staffing levels in Denver. We are also adjusting our fleet mix and targeting our sales initiatives to capture more mid-week commercial business. Build-out of a new sales force, focused exclusively on the commercial truck, insurance replacement and local market segment opportunities is well underway. Lastly, we are moving to increase the number of corporate-owned stores we operate to augment our network. While some of the restructuring actions can be completed quickly, others will take time to implement, especially the development of corporate-owned stores and the expected strategic refocusing of this business. The benefit from these actions is anticipated in 2008. So, looking at our Avis Budget car rental subsidiary in 2006 on a pro forma basis, EBITDA of $405 million, depreciation and amortization of $96 million, net corporate interest expense of $137 million, and pretax income of $172 million -- all in line with our projections. On the tax line, there were a number of one-time separation related charges which inflated our full-year GAAP tax rate to about 55%. On an ongoing basis, we expect our GAAP tax rate should be in the 39% to 41% range, and our cash tax rate will be substantially lower, as we are not a meaningful federal cash taxpayer but do pay some state and international cash taxes. At year-end, our diluted share count was approximately 102 million. We continue to invest in our brands and our infrastructure. Avis Budget car rental capital spending totaled $32 million in the fourth quarter, primarily for rental site renovations and information technology assets, bringing our full-year CapEx to $83 million. Turning to our outlook, we have completed our model year 2007 fleet negotiations and our annual budgeting process. Our 2007 business plan assumes modest economic growth with no major travel interruptions and domestic enplanement growth of 2% to 3%. We expect our on-airport rental day growth will approximate enplanement growth. We expect off-airport volumes to continue to grow rapidly, bringing our overall increase in domestic car rental days to 6% to 8% year over year. Comparing domestic enplanements with last year, the second and third quarters should be more favorable while the first and fourth quarters will be tougher comps. Turning to pricing, our domestic price assumptions call for an increase of 3% to 5% in daily time and mileage rates. Our growth off-airport, where length of rental is longer but daily rate is typically lower, will drag the average down. We expect our fleet costs will increase about 10% on a per unit basis versus 2006. Truck rental, we expect revenue to be down in the first quarter but comparisons should improve over the course of the year. We will be facing some earnings headwind as we cycle through the final portion of our fleet modernization program. We expect an increase of about 15% in our per unit truck fleet costs, and therefore expect that truck rental EBITDA will bottom out in 2007, lower than 2006 results excluding restructuring costs. For the first time in 2007, we have entered into a fuel hedging program. We have hedged approximately 50% of our annual fuel purchases in order to try to reduce our exposure to rising fuel prices, which negatively impacted our 2006 results. This hedge must be mark-to-market for quarterly reporting purposes. We will quantify the effects each quarter when we report our earnings but wanted to highlight the potential for timing differences as a result of the mark-to-market requirement. Based on the above, we expect to grow our revenues, EBITDA and pretax income in 2007 compared to our 2006 pro forma results. As we have discussed, the extent of our growth is highly dependent on price increases. We believe price increases, excluding any mix impacts, in the 4% range are necessary to overcome the impact of higher fleet costs as well as inflation in our normal operating expenses. This is comprised of about 2.5 points to address fleet cost increases and close to 2 points to offset other cost increases. As we look at these dynamics and our 2006 results on a quarterly basis, we expect first-half comparisons to be tougher than back-half comparisons. On a pro forma basis, we expect first quarter margins to be somewhat depressed as our fleet makes shifts to more model year 2007 cars and commercial contracts signed in early 2006 with relatively low rate increases have yet to come up for renewal. By the third quarter, we expect to see significant margin improvement. In summary, our margins and our return on capital are not where they have been or where we would like them to be in either 2006 or 2007. Finding equilibrium between pricing and fleet costs has taken longer than we expected. We continue to be excited about our prospects for the back-half of 2007 and into 2008 for two important reasons. First is simply history. History suggests that we should find a balance with price and fleet that is north of our current margins and returns, and second, there is a more tangible reason for our optimism. The structural changes at the auto manufacturers have for the first time in 20 years put the rental car companies back in control of their fleet. In this business, having control over your fleet begets greater control over pricing, which begets margin improvement. With that, Ron, Bob and I would be pleased to take your questions.

[Operator:]

(Operator Instructions) Our first question comes from Jeff Kessler with Lehman Brothers. You may begin.

[Jeff Kessler:]

Thank you. I actually have about 40 questions but I will, instead of boring everybody, I will just ask a couple. First question is 10% fleet cost estimate for 2007. This is kind of in line. It is actually slightly lower than what you were alluding to a few months ago. Is this because you were looking at initial discussions with the auto manufacturers, or are you assuming that with such things as higher percentages of international cars coming into the mix, the OEMs are getting it that they can only raise pricing so much and maybe they have already gotten enough of what they wanted out of the program/non-program mix?

[Ronald L. Nelson:]

Let me answer your first one. I am not sure at what point in time we are trying to draw the distinction, Jeff, but early or at least in the middle of the summer, we were talking about 20% fleet cost increases, and those all related to cost of program cars. Over the course of the third and fourth quarter, by buying risk cars, by extending our fleet, changing the mix on our fleet, we have reduced the per unit cost down to 10%, which we feel pretty comfortable we are going to be able to sustain throughout the whole year. Program cars still went up 20%. There is no mistake about it but when you average them in with all the other actions we have taken with --

[Jeff Kessler:]

The point I am getting to is if you change slightly, given that the mix, you have gotten your non-program car mix up a little bit and maybe there we are seeing some more rational discussions with the OEMs on the program cars. Do you think this augers better for 2008? I know that Bob prefaced his whole thing by saying that we still have a ways to go before the discussion starts, but obviously a lot of investors are interested in what your take on 2008 fleet costs are going to be on a blended basis.

[Ronald L. Nelson:]

Let me say the following

[Jeff Kessler:]

Second question, you mentioned $750 million of off-airport. That was a significant increase against two years ago. It seems like it is a much smaller annualized increase, or maybe virtually no increase against 2005. Am I wrong? What type of growth are you seeing in the two? I know you mentioned 37% over two years. What are you really seeing at this point on an annualized basis in the off-airport business?

[Ronald L. Nelson:]

We were not trying to hide the tee. 2006 was up 18%, so they were both up about the same. The only thing I will say is when you look at where our increases are, the large majority of them are still in the local market general use. We have big percentage increases in insurance replacement but it is still a small component of our overall mix in the off-airport. I just want to add one point to your fleet thing, because I think it is important. In terms of considering what our composite fleet costs might be in ’08, don’t forget the fact that we still have the risk lever to pull. Our risk percentage is still relatively low compared to the rest of the industry. We have been very cautious wanting to understand how the redistribution of risk cars from car rental companies to dealer networks affected pricing. We still have the ability to substantially increase our risk component next year, which gives us, at least our P&L an advantage of being able to lower fleet costs in a manner we did this year.

[Jeff Kessler:]

Your collateral requirements that you are seeing on the part of the rating agencies, are those continuing to rise with respect to the two major players? Have they risen to a point at which there is almost no difference between a program car and a non-program car, at least in the eyes of the rating agencies versus the two U.S. OEMs?

[David B. Wyshner:]

That’s correct, Jeff. The way the agencies are looking at enhancement levels for our structures, they view Ford and GM cars as essentially equivalent to risk vehicles in terms of the enhancement that is required.

[Jeff Kessler:]

Okay, so is it fair to say that given the level that you are at, that we have already gotten to a point, unless the credit ratings for these companies completely explode downward, are we going to be seeing a little bit less of the second derivative, a little bit less of an acceleration in the amount of collateral that has been had to been put up versus what we have been seeing in the last couple of years at that collateral has risen? Is that rate of rising going to be slowing?

[David B. Wyshner:]

That rate is going to be slowing. The one issue we are still, that we have been expecting all along is that as our historical term ADS deals mature, we are going to be replacing them with new deals that have credit enhancement levels that are tied to the current way of looking at things, so that will cause the enhancement requirement in aggregate to continue to rise over the next few years. That is something we have been planning for for the last 12 or 15 months. But because those existing ADS deals roll off over a period of time, the rate at which we are going to see any increases is going to slow down.

[Jeff Kessler:]

One final question and I will leave for others; on pricing, can you sustain -- obviously you have been dependent on leisure pricing doing really well, and if a marketplace within the auto rental industry determines a lot how much you can get there, how long can you sustain high-single digit type of leisure pricing in your view without running into undercutting? On the commercial side, do you think that the combination of Dollar Thrifty with the server, with Vanguard, will provide more discipline on the commercial side?

[F. Robert Salerno:]

On the first part, as long as the market continues to move along on the leisure price side, which it has been doing all throughout ’06 fairly well in sync, at least as well as I have ever seen it move, and it appears that this is continuing on at least early on in ’07, as long as that goes on, I think there is pricing ability here. Clearly there is pricing elasticity for the consumer in this area. There is a lot of room yet to continue to move car rental pricing that we have not tapped at all. I guess that is a long way around it, so as long as the industry allows it, I think leisure pricing will continue. On the commercial side, relative to Dollar Thrifty and Vanguard, I have no idea, Jeff. I don’t know what will go on over there with combinations or what that all means for commercial pricing. We have been attaining commercial pricing increases, just not at the rate that we want nor is it at a rate that I think the market would accept if we were allowed.

[Jeff Kessler:]

You know why I am asking that question. You have a competitor over there who has been let’s call it the force that has perhaps kept some of these pricing increases down below what you would have liked. Hopefully that is easing if these companies combine into a public entity.

[Ronald L. Nelson:]

I’m not sure, Jeff, that the competitive balance merging Dollar and National affects commercial pricing at all. Dollar Thrifty is by and large a leisure rental company. Frankly, when you look at the results of our acquiring Budget, the primary benefit you get is cost takeout. So if something happens between Dollar Thrifty and National, I assume there is going to be some cost takeout and they will be more profitable on a combined basis. I do not know the structure of the transaction so I do not know whether they will be all private or all public, but presuming that they will be all public, I think that adds an additional level of discipline on both fronts. Having a more profitable player in the business I think makes for a more profitable industry and that is good for everybody.

[Jeff Kessler:]

Thanks a lot, guys, and it was a surprising quarter. Thank you.

[Operator:]

Thank you. Our next question is from Zafar Nazim with J.P. Morgan.

[Zafar Nazim:]

Good morning. Thank you for taking my question. On your financing, I was wondering, David, if you could tell us what amount of your [inaudible] financing will come up for review in ’07 and what does that do to your fleet [debt]?

[David B. Wyshner:]

About $700 million of our fleet debt rolls off this year and in the impact of that rolling off and in being replaced is not going to be material on our rate. It may work out to about a quarter of a point, depending on where rates are over the course of the year, but that run-off really does not have much of an impact on our bottom line.

[Zafar Nazim:]

You mentioned that maintenance and damage expenses are up in ’06. I was wondering if you could tell us what the total amount was and what the increase was and what your expectations are for this line in ’07?

[David B. Wyshner:]

I really can’t. It is a line that has increased along with the growth in leisure rentals. We have also had some changes in our terms and conditions that creates some line item geography within our detailed P&L, so it is a rather complicated answer. But we do feel that there is opportunity for us in terms of how we operate and manage the business to work on maintenance and damage costs and our recoveries of them, even while we continue to expand the leisure business that just by its nature has higher M&D rates associated with it. It really boils down to an area where we have seen some increases and we feel that there are operational and day-to-day actions we can take to help the bottom line there.

[Zafar Nazim:]

In the off-airport side, can you give us a dollar amount for the insurance business you have, [a percent of the total revenue]?

[David B. Wyshner:]

As I think we said, we estimate that we have about a 1% market share of about a $7 billion market.

[Zafar Nazim:]

In terms of your forward-looking guidance, you mentioned that the first half of ’07, margins are likely to be depressed. Any quantification of this? Is it 50 basis points you are talking about, 25, 75?

[David B. Wyshner:]

We have decided not to try to quantify any quarterly numbers. That said, that is going to be our approach as we go forward.

[Zafar Nazim:]

Lastly, some questions around free cash flow. Cash taxes in ’06, what were these?

[David B. Wyshner:]

I’m sorry, I missed your question.

[Zafar Nazim:]

Cash taxes in 2006, what were these?

[David B. Wyshner:]

The cash taxes really pertain to the international operations and some state taxes. We are still finalizing the exact number but it was relatively small in the $20 million range.

[Zafar Nazim:]

And your CapEx budget for ’07?

[David B. Wyshner:]

It is in line with our 2006 spending, probably in the $75 million to $85 million range.

[Zafar Nazim:]

Thank you very much.

[Operator:]

Thank you, sir. Our next question is from Chris Agnew with Goldman Sachs.

[Chris Agnew:]

Thank you. First question, a little bit of detail; did you provide the forecast for the average fleet increase in 2007?

[David B. Wyshner:]

Our estimate was an average per unit increase of about 10% in 2007, and then we have not talked about the aggregate cost increase, but as we grow volumes in the 6% to 8% range and then ideally have maybe some modest impact in utilization over the course of 2007, the per unit cost and the growth in volume in fleet end up being essentially multiplicative in terms of our growth, so it probably ends up being in the 15% to 17% range when you combine those two assumptions.

[Chris Agnew:]

Okay, so you would be assuming an average fleet increase of about 5% to 7%?

[David B. Wyshner:]

We need to support the additional volume that we would expect to have in the 6% to 8% range.

[Chris Agnew:]

What I was trying to do was back out what the implied utilization increase was.

[David B. Wyshner:]

And that, we are not talking specifically about a planned utilization increase. We are not issuing a specific forecast there but we are very focused on opportunities in the business to try to squeeze basis points and tens of basis points out of utilization where we can.

[Chris Agnew:]

Would I be right in thinking that if your -- because you are talking about enplanement growth being moderate, and I am assuming that it sort of 2%, 2.5%, and therefore a lot of the rental day increase, we are talking 6% to 8%. You must have very high increase in rental days in your local segment business, and therefore because they are longer rental periods, you should be seeing a jump in your utilization. Am I thinking along the right lines there?

[David B. Wyshner:]

Yes. All those things are correct.

[Chris Agnew:]

Okay, so would it be fair to think that -- maybe I will ask in another way. Given that the utilization is driven by this off-airport mix, and as you have shown in charts in your presentation before that for every 1% increase in utilization, you get around I think it is $19 million, $20 million of incremental EBITDA. Does that still hold true, given that it is being driven by off-airport?

[David B. Wyshner:]

No, I don’t think that is the case. I think in order to apply that sensitivity, I think you really have to look at on-airport and off-airport separately, so that if we improve on-airport utilization by a point and we improved off-airport utilization by a point, we would get that $20 million pick up. But we do not necessarily get that benefit from a mix shift because you need higher utilization, to your earlier point, you need higher utilization in the off-airport market to operate at the same margin levels.

[Chris Agnew:]

Okay, so have you actually quantified? Do you think you can get your local rental business to achieve the same level of profitability as you are targeting for your overall business? Do you have a timeframe for that?

[Ronald L. Nelson:]

In terms of that question, our off-airport business is already profitable. We think that it is in the same margin range as the on-airport business. I would say, just to elaborate a little bit on the utilization question you were asking David, we have programmed about a half a point of utilization increase into our forecast for next year, and that is a composite across both the airport and off-airport. Since we only have one fleet and the hub of the fleet is really at the airport and effectively we move cars in and out of the off-airport market, it is hard to measure utilization in the on-airport and off-airport. Intuitively though, you are right, that off-airport utilization is probably going to be modestly lower than on-airport. But what you have going for you in the on-airport business is you have longer length of rentals, which tend to balance it and give you better utilization. The other thing that I just want to point out is that in terms of profitability, we have relatively low fixed costs at our off-airport business compared to our on-airport business, so the cost structure sort of offsets the impact of the lower rate, which is why when you look at it across the board, they both end up being about the same level of margin and profitability.

[Chris Agnew:]

Thank you, and then one final question; reading in your outlook guidance and then comments on the call, I just want to clarify -- when you are talking about the seasonality, I know you are not going to give specific numbers, but are you talking about seasonality in the first-half of the year being lower than below normalized margins that you are thinking of achieving, or actually being below what they were year over year?

[David B. Wyshner:]

With respect to the seasonality, if you will, or the build out is tied to the progression we expect to have and in the first quarter, we are expecting a difficult or negative comparison, as I mentioned, improving to better comparisons in the back-half of the year.

[Chris Agnew:]

And that is on a year-over-year basis, the comparison?

[David B. Wyshner:]

Year over year pro forma, so that we are comparing apples to apples.

[Chris Agnew:]

Excellent. Thanks very much.

[Operator:]

Thank you. We do have time for one last question from Christina Wu with Morgan Stanley.

[Christina Wu:]

I was hoping you could speak to the fleet holding period. You have mentioned that as a means of cost savings, you are holding your fleet for longer periods of time. What is the average mileage on the fleet in the past versus what your aim is?

[F. Robert Salerno:]

The hold is going up approximately almost a full month. You could think about that as about 2,000 miles.

[Christina Wu:]

2,000, did you say?

[F. Robert Salerno:]

Yes. When we did this, we paid a lot of attention to how this would be received by customers. In our opinion, it will almost be transparent.

[Christina Wu:]

And what percent of your fleet is up to date with its preventive maintenance?

[F. Robert Salerno:]

We have been running preventive maintenance for the last 20 years. All our fleet is up to date on preventive maintenance and recalls and everything else.

[Christina Wu:]

Okay, so extending it by one month, you are not expecting a significant increase in the preventive maintenance costs?

[F. Robert Salerno:]

No, we will be well below the threshold that that would occur. Preventive maintenance, tire rotation, oil change -- it is really nothing more than that. Until you really get a lot more miles than we put on the cars, you get into more significant cost increases.

[Christina Wu:]

Okay, and then you mentioned I think in response to Chris’ comments that you have the strategy of moving some cars in and out of the off-airport market, swapping them. As you look at expanding the off-airport business, particularly with the insurance replacement business, are you anticipating keeping a fleet of cars more readily available in the off-airport market?

[F. Robert Salerno:]

We do not separate the fleet out. We think that is inefficient. However, having said that, we do keep a specific number of cars in the off-airport market that we think is necessary to service and grow the business, because the business there runs very differently from an advanced reservation standpoint than the airport market. We also spend a lot of time thinking about what cars go out there, the types, the size of car, the type of car, so that will continue on. We think it is also efficient to supplement the off-airport market in particular periods, slower periods on the airport market with cars and vice versa, so we do that. You could think about it as it is kind of a big fleet out there and then there is a little bit of fleet on the top that moves back and forth.

[Christina Wu:]

Are you anticipating any change year over year in the fleet strategy for off-airport to make sure that the off-airport operators have enough vehicles for the insurance replacements, for the growth? Or is it more that you are increasing your overall fleet?

[F. Robert Salerno:]

Yes, only to the point the change is really a continuation of the strategy that we believe to grow this business, we would have to be out there and we have been a little more forgiving on the fleet being out in the off-airport locations than we are at the airport locations.

[Christina Wu:]

Okay. Great. Thank you.

[Operator:]

Thank you. I would like to turn the conference back for any closing remarks.

[Ronald L. Nelson:]

I would just like to say thank you all for listening in today and asking what I think are some really good questions. We look forward to talking to you at the end of the first quarter. Goodbye.

[Operator:]

Thank you for participating in today’s teleconference call. You may now disconnect. What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price? This is exactly what Seeking Alpha is offering with transcript sponsorships. Six types of companies are sponsoring earnings transcripts on Seeking Alpha