Avis Budget Group, Inc.
Q1 2013 Earnings Call Transcript

Published: 2 May 2013

[Operator:]

Good morning, and welcome to the Avis Budget Group First Quarter Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the meeting over to Mr. Neal Goldner, Vice President of Investor Relations. Please go ahead, sir.

[Neal Goldner:]

Thank you, Tanya. Good morning, everyone, and thank for joining us. On the call with me are

[Ronald L. Nelson:]

Thank you, Neal, and good morning. Well, we had a busy but successful quarter. Results came in a little better than expected, highlighted by positive demand in most markets, challenging economic conditions in Europe, and year-over-year pricing gains in North America that helped to offset increased fleet costs. We also repurchased an additional $50 million of our outstanding convertible debt, reducing our diluted share count by more than 3 million shares. To date, we've reduced our diluted share count by over 16 million shares or 13%, through our convertible debt repurchases. And we announced and completed the acquisition of Zipcar, which makes us the leading provider of car sharing services. But more about Zip in a moment. It should go without saying that the one highlight that was particularly encouraging was the positive pricing trends we discussed in our last earnings call. The trends we talked about in February continued throughout the balance of the quarter. To put a finer point on it, North America pricing increased 4% year-over-year, and we got there with Leisure pricing up 8% and Commercial pricing, flat. So it's even more impressive when you consider the roughly 60% of our Commercial volume that is contracted business, had pricing that was down 1% year-over-year. I think the price increases we experienced in the quarter reflect several factors

[David B. Wyshner:]

Thanks, Ron, and good morning, everyone. Today I'd like to discuss our first quarter results, fleet costs, our performance excellence process improvement initiative, our balance sheet and our outlook. My comments will focus on our results, excluding certain items. As Neal mentioned, these results are reconciled through our GAAP numbers in our press release and in the earnings call presentation on our website. The first quarter marked our 11th consecutive quarter of year-over-year revenue growth, with our top line increasing 4% to $1.7 billion, principally as a result of higher volume and improved year-over-year pricing in North America. Adjusted EBITDA declined to $93 million, primarily due to the difficult operating environment in Europe, and our ongoing efforts to reposition our Truck Rental business. Trailing 12 months adjusted EBITDA now stands at $814 million. For those analysts who calculate EBITDA before deferred financing fees and stock-based compensation, our trailing 12-month adjusted EBITDA would be $39 million higher, or more than $850 million. In the quarter, revenue in our North America segment increased 6%, driven by 4% growth in pricing and 1% growth in volume. I should also note that the first quarter had 1 less day compared to the prior year, due to 2012 being a leap year, and this had a negative impact on volume comparisons of just over 1 point. The current contributed $14 million to revenue and $1 million to adjusted EBITDA in the first quarter. Excluding Zipcar, Leisure pricing increased 8% in the quarter, the strongest year-over-year improvement since the recession, while Leisure rental days were unchanged. As a reminder, Leisure rental volume increased 13% in first quarter 2012, so this year's volume comparison was very difficult. We also saw good growth in our Commercial business in the quarter, with volume up 3% and pricing unchanged. Growth in small-business rentals helped to offset declines in contracted commercial pricing as we continued to focus our efforts on growing in the most profitable segments. North America adjusted EBITDA of $93 million was unchanged from the prior year, despite a 28% increase in per-unit fleet costs that was consistent with our expectations. Adjusted EBITDA benefited from positive pricing in volume growth, higher ancillary revenues, a more than 200 basis point decline in direct operating and SG&A expenses as a percentage of revenue, and significantly lower vehicle interest costs. In our International segment, revenue increased 1% in the first quarter, driven by an 11% increase in ancillary revenues. Ron already covered our International volume and pricing trends by region. International adjusted EBITDA declined $12 million in the first quarter. Apex contributed $5 million to adjusted EBITDA in its seasonally strong first quarter. And synergies in our European operations also made a significant contribution year-over-year. But these positives were not enough to offset the effects of lower pricing and temporary duplicative staffing related to integration activities and bad debt expense resulting from a significant travel agency bankruptcy in Spain. As we discussed on our last call, the economic backdrop in Europe remains inordinately weak, which is impacting rental volumes, price and vehicle residual values. We have been moving aggressively to try to mitigate the effects of these challenges, and amid all of this, the integration of Avis Europe continues to proceed well. It's just that much of the substantial progress we are making with our European business continues to be overshadowed by the macroeconomic climate. We firmly believe that the work we are doing to reduce Avis Budget EMEA's fixed cost base and to streamline operations will put us in position to drive substantially higher profits from our European operations when the economy there ultimately does recover. Revenue in our Truck Rental segment was up 1%, as a 4% increase in pricing and higher ancillary revenues more than offset a 3% decline in volume. Adjusted EBITDA declined $6 million, primarily due to higher maintenance, insurance and fleet costs. As we previously discussed, the results in our Truck Rental segment reflect costs we are incurring to reposition this business, which over time will include a reduction in our fleet size. This strategic repositioning will impact reported results for this segment for much of 2013 as well. I should also note that cost reported in Corporate and Other increased this quarter. This increase primarily represents a better segmenting of our corporate level costs that benefit multiple regions and segments, not new costs. We expect to see $4 million to $6 million in year-over-year increases in Corporate and Other expense in each of the quarters of 2013. Moving now to Zipcar. As Ron discussed, we acquired Zipcar, the world's leading car sharing network on March 14. On a pro forma basis, Zipcar generated revenue of $65 million, an increase of 10% compared to the prior year. Zipcar had 792,000 members at quarter end, a 12% increase versus the prior year. In the 10 weeks between announcement and closing of the acquisition, we focused on integration planning, and on March 14, we hit the ground running. For example, we've already integrated Zipcar's fleet acquisition and disposal activities with Avis Budget, which is providing immediate benefits. We began in-sourcing a portion of Zipcar's maintenance and damage functions, where our scale enables us to handle these activities at a substantially lower cost. We've also moved to eliminate Zipcar's public company costs and to allow Zipcar to take advantage of Avis Budget's procurement scale, for everything from office supplies to tires. Zipcar's customer-facing marketing and technology activities, on the other hand, continue to remain separate and independent. As Ron touched on, we remain confident in our ability to achieve $50 million to $70 million of synergies within 2 years, including achieving an annual run rate of $40 million of synergies within 1 year. We put together Slide 18 to help you better understand the arithmetic of how we expect the synergies to be realized. As you can see, we expect to record approximately $11 million of benefits in calendar year 2013, roughly $45 million in 2014, as we move to an annual run rate of $60 million or more by the first quarter of 2015. And to be clear, these synergies are above and beyond the growth we believe Zipcar would've achieved on a stand-alone basis. Performance excellence, our process improvement and productivity enhancements initiative continues to deliver solid results, and we expect PEx to generate $50 million in incremental benefits in 2013 compared to 2012, including $10 million in our European operations. In the first quarter, we developed a process to prioritize preventive maintenance to get the number and type of vehicles our customers need back into our rental fleet sooner. We implemented a new procedure to automate and review gas charges in our local market operations to increase gasoline revenues. We are implementing a new process to more effectively manage our eToll transponder inventory, to both increase revenue and reduce our cost, particularly when units are driven out of the regions where they can be used. And in Europe, we are standardizing and strengthening our processes for the collection of traffic fines. Importantly, our PEx pipeline remains full, so we expect process improvement savings will continue to help us offset inflationary pressures in our operating cost for many years to come. Our rental fleet represents our single largest expense. We continue to expect per unit fleet costs in North America to increase approximately 15% to 20% this year to $275 to $290 per unit per month, consistent with our prior guidance. As we've discussed previously, roughly 13 points of the expected increase is related to fleet cost gains and depreciation timing adjustments we recorded last year. Absent these gains, we would be projecting an increase of 2% to 7%, which reflects normal inflation on new cars, our initiative to increase our mix of specialty and premium vehicles, and a used car market, which, while remaining healthy by historical standards, is unlikely to return to last spring's peak. New car incentives remain in check and credit for used cars is readily available, factors we believe will continue to support strong demand for late-model used cars. In addition, our own efforts to increase the diversification of our fleet sales into online, direct-to-dealer and direct-to-consumer channels should also give us options for maximizing residual values. We expect the risk component of our fleet to remain around 65%, which is a few points higher than last year, but still allows us to retain our ability to de-fleet quickly following the summer peak. While the full year of 2013 increase in per unit fleet cost is expected to be 15% to 20%, this increase will be significantly concentrated in the first half of 2013. Our per unit fleet costs were only $188 per month in second quarter 2012, but were $280 per month in first quarter 2013. As a result, you should not be surprised to see an increase in the range of 50%, 5-0, in per unit fleet costs in the second quarter, with more modest increases expected in the second half of the year. In Europe, we've been able to negotiate better terms for our 2013 fleet purchases, and we expect our per unit fleet cost there to decline modestly in 2013 compared to 2012. We expect program cars to continue to represent more than 70% of our European fleet this year, which should help us mitigate a large part of the softness in the used car market there. Turning to the balance sheet, our liquidity position remains strong, with $4 billion of available liquidity worldwide. We ended the quarter with $569 million of cash, no borrowings under our $1.5 billion corporate revolver, and roughly $750 million of availability under that facility. We had unused capacity under various vehicle-backed funding programs of $2.7 billion. Our ratio of net corporate debt to LTM adjusted EBITDA at the end of the quarter was 3.4x. This figure includes the debt incurred to acquire Zipcar, with virtually no contribution to our LTM adjusted EBITDA from Zipcar since it was just acquired. So far this year, we've taken advantage of the strength in the credit markets globally to better our debt profile. We completed approximately $525 million in debt financing at an average rate of 5.1% to fund the acquisition of Zipcar. We reduced the interest rate on $700 million of existing term loan borrowings by 50 basis points, which will generate $3.5 million of annual savings. We completed a 5-year, $750 million asset-backed financing in United States at a weighted-average interest rate of 2%. We finalized a 3-year EUR 500 million European securitization, which replaced our EUR 350 million interim fleet facility, and increased our borrowing capacity in Germany, Italy and Spain at better terms. We issued $500 million of 10-year corporate debt at a rate of 5.5%, and used 80% of the proceeds to repurchase corporate debt, with an average rate of 9.6%. In the first quarter, we bought back $50 million of our outstanding convertible debt. Combined with our repurchases in 2012, we've retired $268 million of our convertible notes, which is equivalent to us having repurchased 16 million shares of our common stock over the last 14 months. As a result of these actions, we've lowered both our vehicle and corporate borrowing rates, while positioning our balance sheet to have no significant corporate debt maturities over the next 5 years. Over the last few weeks, we've received a few questions from investors about our tax position. We elected to take bonus depreciation, with respect to our 2011 tax year, and we expect to elect to take it with respect to 2012 as well. As a result, we have more than $3 billion in federal net operating loss carryforwards, as well as a significant, related deferred tax liability tied to our fleet. We would expect that most of these NOLs will reverse over the next decade, as our taxable income will likely exceed our GAAP pretax income in future years. The net result is that we believe our NOL balance has a significant cash flow benefit to us. Our future cash taxes are difficult to estimate, as they depend not only on how much income we earn, but also on where we generate that income. We previously estimated our 2013 cash taxes to be around $75 million globally. And at this point, that's as good an estimate as any of our cash taxes in each of 2014 and 2015. Even after 2015, we would not expect to be a full federal cash taxpayer due to our NOLs. So when you put this in the context of out intermediate term adjusted EBITDA goal of more than $1 billion, not only should you expect us to be generating substantially higher earnings in 2015, but substantially higher free cash flow as well. Now lastly, I'd like to spend a few minutes on our 2013 outlook. The changes to our projections from February reflect the inclusion of Zipcar and the financing activities I've discussed. There are no significant changes to our underlying numbers. As we announced last night, we expect our 2013 revenues to be approximately $7.8 billion to $8 billion, a 6% to 9% increase compared to 2012. We expect adjusted EBITDA, excluding items, to be approximately $750 million to $855 million. We estimate that our full year corporate interest expense will be approximately $240 million, a decline of $28 million compared to 2012. Non-vehicle depreciation and amortization expense should be $130 million to $135 million, excluding purchase accounting effects. And as a result, we expect that our 2013 pretax income will be $375 million to $485 million. We expect our effective tax rate in 2013 will be 37% to 38%, and our diluted share count will be approximately 118 million. Based on these expectations, we estimate that our 2013 diluted earnings per share, excluding certain items, will be approximately $2.00 to $2.60. We expect our capital expenditures to be around $160 million this year. And finally, we expect our free cash flow to be in the $300 million range, absent any significant timing differences. To wrap up, we had a solid first quarter, and we remain enthusiastic about all of the positive developments we see across our businesses around the world, even with a difficult operating environment in Europe. From a funding perspective, we seized the opportunity to lock in attractive term financing and to position our European operations to fund their fleet more efficiently. We've had Zipcar under our belt for a little more than a month now, I'm even more optimistic about this business than I was back in February, as we look to unleash Zipcar's global growth potential and to leverage our respective strengths. With that, Ron and I would be happy to take your questions.

[Operator:]

[Operator Instructions] Our first question comes from John Healy with Northcoast Research.

[John M. Healy:]

I wanted to ask a little bit about the International business. It sounded like in the quarter, there was probably some duplicative cost associated with getting the company with where you want it to be longer term, and I was wondering if you could give us maybe some thoughts in terms of what the headwind was there, as well as how that might kind of fallout of the P&L, as we move throughout the year and into next year?

[Ronald L. Nelson:]

It's Ron. The real headwind, as you know, is it's not quite as easy to take people out in Europe as it is here. You have to file social plans with the worker's councils and they have to be voted on, approved, and so those take a little more time than you would otherwise expect. In the meantime, we felt it necessary to staff up the functions and move them to the shared service center. And so what you have is, sort of an element of caution, in the sense that we actually do want some of these people around to make sure that the transition to Budapest goes well, and an element of just the sociopolitical issues that are in Europe that we don't have here. And so that causes the results and the ability to take people out quite as quickly as you would like to not be there.

[John M. Healy:]

Great. And then, kind of a -- when I heard you made some comments about the U.S. business and talked about the International business, I couldn't help but think about what you've done with the business domestically over the last few years, in terms of walking away from low margin or unprofitable business. When you think about the European business, do you see the opportunities there? I know you mentioned the insurance replacement business you walked away from, but is there that same type of philosophy that once you get things kind of situated over there, you might look to purge some of the business you're doing there, and that would be overall accretive to the margins of the business?

[Ronald L. Nelson:]

Yes, there's no question that, that's on the list of things to do, and first up was the insurance replacement business, predominantly in the U.K. And frankly, I think as we said in the script, that was part of the volume flatness in Q1. I think as we get better at integrating sort of our by channel, by market profitability tool, and understanding exactly how profitable certain channels are and certain customers are in that marketplace, we'll do exactly the same thing there that we did here. It's a little more challenging, just because the volume there is very peaky. And you can't always time your fleet to correspond exactly to the peakiness. So in the shoulder seasons, where you probably do have fleet, you'll take some business that may not be as profitable as you like, but actually contributes to the carry cost of the fleet. So the short answer is, yes, it's a little more complicated, but we've already started and as I said in the script, you see it in our flat volume for the quarter.

[Operator:]

Our next question, Chris Agnew with MKM Partners.

[Christopher Agnew:]

First question, how important is June relative to April and May in terms of volume for the second quarter? And is the second quarter more of a Commercial or a Leisure quarter, in terms of demand?

[Ronald L. Nelson:]

Well, it's really a tale of 2 time periods. The last 2 to 3 weeks of June are important. That's when you get both Commercial and you start to see the ramp up in Leisure volume. So as we start to book June reservations, we'll start to see where pricing's going to be come in. We'll have a good sense of where pricing's going to come in for the summer by what gets booked in the last 2 or 3 weeks of June. For the most part, April and May are pure Commercial quarters. Obviously, there's leisure volume, but the skew is more heavily towards Commercial than it is Leisure.

[Christopher Agnew:]

Great. And a follow up --

[David B. Wyshner:]

Chris, it's David. June rental days end up being probably about 14% higher than what we see in April. So June is a bigger month, but not hugely so in the scheme of things.

[Christopher Agnew:]

Great. And then a follow-up question on free cash flow. First of all, presumably free cash flow's not going to run smoothly through the year. So is there, in terms of expectation, the flow, quarter by quarter? And I'm not looking for specific guidance, but do we expect cash flow -- the free cash flow to be more back-end loaded, and potentially negative in the second quarter as you're fleeting up? And then also, can you give us some indication, the size of tuck-ins? I mean is -- are these typically $5 million to $10 million transactions, and what's the sort of largest tuck-in that you would conceivably look at?

[Ronald L. Nelson:]

Sure, Chris. I do expect that our free cash flow this year will be back-end loaded. Over the course of the year, we would generally expect pretax income to be a proxy for free cash flow. But the timing of the cash flow may even trail 1 month or 2 behind the pretax income. So you know our split is a pretax income, and if you skew that backward even a couple months or so, it is probably a good way to estimate the timing of free cash flow. And clearly, that pushes a fair amount of it into the August to November, August to December period. And then for me, a tuck-in perspective, the acquisition of the Budget licensee in Belgium and Luxembourg was about a EUR 3 million transaction, excluding the fleet. The Apex transaction was close to the $30 million range, excluding fleet. And as a result, I certainly think tuck-in acquisitions could fall in the range from very small, up to the $30 million, $50 million range, perhaps a bit larger.

[Operator:]

Our next question, Afua Ahwoi with Goldman Sachs.

[Afua Ahwoi:]

I have 2 questions. First, I'm sorry if I missed this, but you're -- I think you mentioned that you expect the back half volume growth in North America to be similar to sort of the run rate we've seen historically, which would suggest an acceleration from the 1Q level. So maybe, you can talk a little bit about why the 1Q was a little below what you historically run that. And then separately, on Zipcar, I noticed that the membership growth of 13.5% I believe by the end of the quarter was a little -- was below the mid-teens range the company had been running at as a standalone. So maybe you can address some of the dynamics going on in that business?

[Ronald L. Nelson:]

Well, let me deal with the volume first. In the first quarter, we took about 500,000 fewer opaque rentals than we did last year, which amounted to about 3% of our total volume during the quarter. We were perfectly fine with that, because you make little, if any money on the opaque rentals. And as you've heard me say before, I don't think they're particularly good for our brands. So that was really the sum and substance of what could be softer volume growth than maybe the rest of the industry in the first quarter. I do think volume will increase as the year goes on. We pay careful attention to the airline capacity increases going forward. And in -- not in all areas of the country, but in most of the areas of the country, there are capacity increases in the 1% to 2% range, and we tend to get a multiple of that in terms of volume. So I think as we said, we think it's going to be -- growth is going to be consistent with last year, and some of the dynamic of who is going to be where pricing comes in. If we see an opportunity to trade price for volume, we're likely to take advantage of it. But I think it all depends on how things unfold and -- over the course of the summer.

[David B. Wyshner:]

Then on the Zipcar front, we did have 12% member growth from the end of first quarter 2012 to the end of the first quarter of 2013, which was generally consistent with our expectations for the business. With the transaction just having closed on March 14, none of the membership-related synergies that we expect to bring to the table had any effect on the first quarter numbers. So our ability to improve member satisfaction and reduce member churn by having more vehicles available on weekends is something that had no effect in the first quarter, and will ramp up over time. And we think actions we're taking along those lines will be helpful to membership retention, and therefore, to membership growth going forward. But I would look at the first quarter number of up 12% as being consistent with our expectations on a standalone basis for the business, but not yet being reflective of things we can do to help membership retention and growth.

[Operator:]

Our next question, Adam Jonas with Morgan Stanley.

[Adam Jonas:]

First, I was wondering if you could comment on, as you were raising your rental rates 6x during the past quarter, what was the reaction you were seeing from some of your competitors? Can you just give general comments there? And then also, could you comment on the tightness of the fleets from an industry perspective, where you kind of see that heading into Q2?

[Ronald L. Nelson:]

Well, I think that over the course of the first quarter, with all the price increases that we took, the more consistent best [ph] follower was the Enterprise complex. But Hertz was there on most of them. It was a little choppier. I think what we saw was that Hertz was very quick to follow on weekly rates and a little slower on daily and weekend. And Enterprise was much quicker across-the-board in all 3 segments, with all 3 brands. I think in the first quarter, fleet was fairly tight. It was in line with demand. I don't think anybody had any fleet imbalances. And I think, generally looking forward to the second quarter, the -- everybody is going to be slightly over-fleeted, because you start to ramp up your fleet in the middle of May with the deliveries to meet the summer peak, and that does create some imbalances that put some pressure on pricing. But what encourages me is the fact that, as we look towards May and June, our pricing that we're holding, the reservations we're holding is up in the upper end of the 1% to 2% range. So it -- you don't ever want to declare victory prematurely, but it does seem like there is more discipline, particularly in a quarter where there's a modest amount of over-fleeting. So we're -- we continue to be encouraged by that.

[Adam Jonas:]

And Ron, do you think that what's driving that is just a shared industry view that fleet costs, like -- it's not a matter of whether they go down, but -- sorry, whether they rise, but kind of how much they rise? And it's just a bit more of a collective kind of sense for that to offset the fleet cost headwinds?

[Ronald L. Nelson:]

Yes, I think there's no question that everybody, last year, had a view that fleet costs were going to regress to the mean, and that means that residual values are going to drop and fleet costs were going to go up. And nobody likes to give back the margin that they had, and so with increasing costs, I think everybody decided that it was time that this industry got some price. And I think that, that was what occasion did. I mean historically, the industry has always gotten price when costs have risen. And so this quarter hasn't been any exception. But it does feel like now we've had, call it 4 months or 5 months of consistent price increases, increasing price, and hopefully that's a harbinger of good things to come.

[Operator:]

Our next question, Michael Millman with Millman Research Associates.

[Michael Millman:]

Regarding the U.S. market, with leisure up 8%, what other things you can do to increase your Leisure volume? Are tuck-ins in the U.S. a possibility? And then, I think last call, you indicated that should you be optimistic on the pricing, there was an opportunity to raise your guidance, and just following on what you just said seems certainly to show some optimism, and so could you talk about raising your guidance, or why you didn't?

[David B. Wyshner:]

Sure. With respect to leisure volume and the growth there, I think we're in -- in achieving the growth that we did in the first quarter, we continue to optimize the channels that we're using to drive, not only volume but also profitable volume, whether it's through the marketing relationships and partnerships that we have, how we use various travel agencies, and then the intense focus on driving inbound leisure business and small business. They are all activities that I think we'll continue to pursue and can help us continue to drive volume and pricing on the leisure side. I think in addition, we've looked at opaque rentals carefully over time, and we continue to curtail our use of them. So our reported volume in the first quarter was certainly a few points weaker than it would have been, had we not stepped away to some extent from opaque rentals. We think it's a profit optimizing and profit maximizing decision to do that, and that's reflected in our numbers as well. I think the, we're -- we clearly are encouraged by the strength we're seeing on the pricing front for all the reasons Ron discussed. At this point in time, we felt it was most appropriate to keep our guidance range, which we know it's -- is relatively wide, intact rather than adjusting it in any way.

[Operator:]

Our final question comes from Brian Johnson with Barclays.

[Brian Arthur Johnson:]

Yes, a couple of questions, both on North America. First, the Manheim risk rental auction actually trended more positive in this quarter. Did you see that in any of your disposals, and did you just not, just depreciation schedules accordingly? And then my second question will be on corporate pricing.

[Ronald L. Nelson:]

I think, as you went through the quarter, our disposals actually did trend positive from January to February to March. And in April, they've actually tailed off a little bit. So -- but our experience, I think, was consistent with the direction of the Manheim Index. Mix plays an important part and -- in how accurately you track to that index and so we don't always sell the same mix of cars that Manheim measures, but I think generally, Brian, we did track the index directionally.

[Brian Arthur Johnson:]

Okay. And second, it's a very impressive corporate strategy you laid out. It seemed to address some of the weak points that led to, frankly, your computer-driven Leisure algorithms doing a far better job of pricing than the human being sitting down on a poker table with corporate procurement officers. When did those go to into effect? Have you been through a few renewal discussions with corporate clients? And what's your sense of how it's going? And similar to the question earlier, kind of, are your competitors paying attention to take -- being paid for the value you add to corporate accounts?

[Ronald L. Nelson:]

Yes, I think we're in early innings in this strategy. We've been talking about it now for a long time, and I think it's -- we started acting on it in the first quarter. I think as I said in the script, with 60 of the 100 renewals that we've had are at the same or better pricing in the month of March. Whether the competitors are going to follow us, I don't know. You'll have to ask them. We're going to do what we think is in the best interest of our business. And I think part of it does come down to where you have accounts that -- where you're the incumbent and you're doing a great job, service wise, because you're not making any money, you just have to go in and get some spine and ask for a rate increase that delivers a profitable account. And in those accounts where your competitor's doing a great job, and a procurement guy asks you to come in and make a bid, you don't really want to be a stocking horse because all it does is take pricing down across the entire industry. And so, I think that we're going to think pretty carefully about how we participate in RFPs, and in those accounts, where we're not making much money, how we go about improving our profitability. But we'll see over the course of this year, how well we execute on this strategy. But you can't be minus 2% compounded for 4 years, and look forward and think that's a great business strategy. And so we're going to do something about it.

[Operator:]

For closing remarks, the call is being turned back to Ronald Nelson. Please go ahead, sir.

[Ronald L. Nelson:]

Okay. Before we say goodbye, what I'd like to do is reiterate what I believe are the key points from today's call

[Operator:]

This concludes today's conference call. You may disconnect at this time.