Hertz Global Holdings, Inc.
Q4 2017 Earnings Call Transcript

Published: 28 Feb 2018

[Operator:]

Ladies and gentlemen, welcome to the Hertz Global Holdings Year-End 2017 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would like to remind you, today's call is being recorded by the company. And I would now like to turn the call over to our host, Leslie Hunziker. Please go ahead.

[Leslie M. Hunziker:]

Good morning, everyone. By now you should all have our press release and associated financial information. We've also provided slides to accompany our conference call that can be accessed on our website. I want to remind you that certain statements made on this call contain forward-looking information within 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 replayed 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 our earnings press release and in the risk factors and forward-looking statement section of our 2017 Form 10-K. Copies of these filings are available from the SEC and on the Hertz website. Today, we'll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and related Form 8-K, 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, Inc., the publicly traded company. Results for The Hertz Corporation are materially the same as Hertz Global Holdings. On the call this morning, we have Kathy Marinello, Hertz's CEO, and Tom Kennedy, our Chief Financial Officer. Now I'll turn the call over to Kathy.

[Kathryn V. Marinello:]

Thank you, Leslie, and good morning, everyone. Our top priority in 2017 was seeding an operational turnaround that would drive sustainable, profitable revenue growth. Last year, we made great strides towards our goal of capturing more profitable demands and satisfying customer fleet preference, enhancing service quality, developing brand strategies to secure new and more frequent renters with differentiated value propositions, and ensuring a significant competitive advantage through systems innovation, speed and data flexibility. Our progress was evident beginning in the second half of 2017 with higher year-over-year U.S. rental pricing, utilization rates, revenue per unit and customer service scores, as well as lower monthly depreciation per unit. Our momentum is broad-based across the Hertz organization starting with our fleet. Procurement has created a favorable mix of SUVs and premium vehicles that reflect customer demand and entice upsell. They successfully met their negotiating objectives on model-year 2018 cars to offset industry residual value declines and they've seamlessly managed a growing fleet of second-life vehicles to support the rapid expansion of a new customer opportunity to transportation network companies and their ride-hailing drivers. Fleet operations is using new analytic tools to better forecast demand and coordinate fleet by location to improve utilization. These new tools and enhanced data will also help us with more precise capacity correcting (03

[Thomas C. Kennedy:]

Thank you, Kathy, and good morning, everyone. Our financial performance in the second half of 2017 improved significantly from what we reported in the first half of the year. The favorable growth trends in the U.S. RAC total revenues, unit revenues, time and mileage pricing, vehicle utilization, and vehicle depreciation provide us with the positive momentum heading into 2018. Some of the factors that contributed to this intra-year improvement are as follows. The first half reflected the inefficiencies associated with reducing the U.S. fleet capacity resulting in lower pricing utilization. The substantial number of vehicles we sold in the first half of 2017's residual value weakness along with investments to upgrade car-class mix also contributed to the significantly higher fleet cost in the first half of 2017 relative to second half of the year. However, in the second half of the year, with a tighter fleet, improved vehicle selection, more locations offering our Ultimate Choice service offerings, we began executing our strategy to align our fleet capacity to the most profitable segmental demand. These improvements were supported by more intuitive price and demand forecasting tools, all of which drove revenue higher and fleet costs lower. From a financial perspective, a few key metrics really illustrate the relative difference in the first and second six months of 2017. We've included a slide in our posted materials comparing the significant improvement in operating performance in the second half of the year as compared to the first half. But to summarize, we produced consolidated unit revenue growth, higher U.S. RAC vehicle utilization, lower U.S. RAC vehicle depreciation costs relative to the first half of 2017. Significantly improved U.S. RAC core (13

[Operator:]

And our first question today comes from the line of Chris Woronka with Deutsche Bank. Please go ahead.

[Chris J. Woronka:]

Hey. Good morning, everyone. I wanted to ask on the fleet that's dedicated to ride-hailing, two things on that. One is, do you expect a lot more growth there in 2018? And also, are you buying used cars for that? Or is that just kind of trickling down from the cars that otherwise would have been sold from your core fleet?

[Kathryn V. Marinello:]

A great question. Two great questions in that, I guess. We do anticipate further growth in that space. We spent 2017 understanding how to approach this business profitably, which we have a process behind that that deals with basically how do we maximize the value of the assets, meaning pull out cars that are in pretty decent shape with 40,000 miles or more, put them into this fleet, run them to about 70,000, maximize the value you get out of that asset at a point where depreciation curve is going to be much more attractive on the return to that asset. And then when we sell that asset, we're getting premium dollar dealers love and our retail sales guys love 70,000 mile cars. It's a sweet spot in used-car sales. So, we achieve a win on extending the value of that asset that we bought from a depreciation expense perspective. We're somewhat backfilling some relative loss over the years to ride-hailing with this revenue that we're getting from these renters. We're doing it profitably and it's a growing segment. So, we really like the segment overall.

[Chris J. Woronka:]

Okay, great. Just a follow-up on that. On some of the incremental investments you're making, I appreciate the quantification of it. And the question is kind of, as we look out to 2019, I won't ask for a number, but directionally it sounds as if the incremental spending will drift off and is that – can we add up the incremental spending of 2017 and 2018 and assume that 2019 is directionally that much lower? Or is there something else to think about?

[Kathryn V. Marinello:]

In 2019, we have a couple of last legs of the technology conversions. The bulk of the heavy lifting is in 2018 and as a result of that, we do have increased investment spending associated with it. But I would say two things that we think about for 2019, from a marketing perspective and from a service perspective, being betwixt and between an old system and a new system really does hamstring us on many fronts on servicing our customers, on our marketing efforts, et cetera. So, there is somewhat of a double whammy in 2018 on our ability to grow the top line as well as even moving around cars to some extent. So, as we have three of our major systems converted over and our mobile apps converted over in 2018, in 2019, I would think from and we're planning on getting productivity phase (29

[Thomas C. Kennedy:]

Yeah. And just to add to Kathy's point, financially, obviously, the investments always precede the benefit, so obviously we're in the period of time, at least we were in 2017 where we were largely investing and not a lot of benefit seeing. As we've got to the second half of the year, you (31

[Kathryn V. Marinello:]

Yeah, and what I would add is, look, you have to deal with what you're handed, and what I love about the team and the people here is when we realize there's a lot of systems things, we're not going to have to make our jobs easier, people focused on, well, what are all the things we can improve and drive more productivity on the use of our fleet, drive more pricing, drive better service. What are the things that we control that we can work on now, get ahead of the game so that when these tools come into place, we have a much more accelerated advancement of the abilities now that we're creating going forward. And so everybody, I think, is in the right place where this is hard work we're doing. We're going to get it done. We're going to get it done right. But in the meantime, we're not standing still.

[Operator:]

And we do have a question from the line of Hamzah Mazari with Macquarie. Please go ahead. Mario Cortellacci - Macquarie Capital (USA), Inc. Hi. This is actually Mario Cortellacci filling in for Hamzah. Maybe you guys could dig a little into the ancillary pricing, I know pricing was down 1%, but actually ancillary and ride-sharing units were (32

[Thomas C. Kennedy:]

Yeah. So, generally, as you saw, our total RPD was more of a (32

[Thomas C. Kennedy:]

Yeah. So, from a corporate standpoint, as I think Kathy has mentioned and we said, we've seen growth in our corporate business in the fourth quarter. I think the investments we're making on the fleet, the Ultimate Choice product, and the service in the field is starting to win back some of the share of wallet of some of the shared accounts we have had. The corporate feedback has been very positive, the three upgrades were competitive now with the other two major corporate offerings in the marketplace. We still have a lot of work to do there, but we view that we're on the right trajectory on corporate. As it relates to the tax reform and its impact, I think our view is generally how does that affect the economy and the economy affects employments and employments affects business and leisure travel. So, we believe that, obviously, that's been generally well received by corporations. It's obviously going to be, we think, a tailwind for corporate performance and, as a result, will likely lead to greater corporate travel and, therefore, greater corporate rental opportunities for the industry.

[Operator:]

And we do have a question from the line of Michael Millman with Millman Research. Please go ahead.

[Michael Millman:]

Thank you. Regarding your technology spending, is the $300 million you're talking about for this year all incremental? And so maybe you could talk about what your ongoing technology spending is likely to be. Secondly, can you talk about or give us some estimate of where you think your fleet comparison year-over-year will be by midyear? And can you talk about what you're seeing in pricing currently and going forward this year? Thank you.

[Thomas C. Kennedy:]

So, Michael, as it relates to technology and the overall brand, and let me just reiterate and maybe Leslie and I will post a slide in addition to what we already posted to give the perfect clarity. We expect to spend $300 million in EBITDA impacting OpEx and SG&A investments, that's a $40 million increase. So, the increase year-over-year is $40 million. Technology itself is around $60 million increase year-over-year of that. So, there's some things that tail off, but net-net overall, the company will be up around $40 million in investment spending in technology, as Kathy indicated this is a big year for technology. So, it is up on an absolute basis year-over-year as an increase. Our overall technology spending in OpEx and SG&A from a GAAP perspective is around $400 million and that has been pretty consistent since I've been here since 2013. We do expect that to come down from an OpEx standpoint fairly materially when you get to beyond 2019 from a run rate standpoint, from an operating standpoint, but we do have an elevated level of investment right now that is actually keeping it up. So, we've actually – actually because of some of the actions we took to outsource our legacy systems such as through IBM, we actually have run rate savings of around $70 million, $80 million on a base (36

[Kathryn V. Marinello:]

And then I would add that part of this is dependent on the OEMs continuing to have discipline and how much production they create and how much excess production if they run into that, it gets dumped into the rental fleet. And we've seen continued discipline by the OEMs on how much they'll sell into the rental fleets and I think that will continue to keep fleets tighter than they were in 2017.

[Michael Millman:]

Just go back to technology – I thank you for all that. The numbers suggest that beyond 2019, technology spending will be $100 million. Or have I gotten that incorrect?

[Thomas C. Kennedy:]

No, we haven't provided what the run rate of our technology spending has been. At some point in the future we will, but what I said is historically we've been running about $400 million. We actually have saved in our legacy systems around $80 million a year while our investments (40

[Operator:]

And we do have a question from the line of Justine Fisher with Goldman Sachs. Please go ahead.

[Justine Fisher:]

Good morning. Hello?

[Kathryn V. Marinello:]

Hello?

[Justine Fisher:]

Hi. Hello?

[Kathryn V. Marinello:]

Hi, Justine, can you hear us?

[Justine Fisher:]

Hi, I can. I can. Thanks. So, I wanted to drill into D&A because I think it's interesting that cars D&A guidance for 2018 was better than people have expected in years, was much better for the fourth quarter. And I'm wondering whether the alternative distribution channels and the better car buy can really help divorce your D&A performance from what people might expect for market residuals. And so given that you guys have a lot more control over some of the factors going into D&A, i.e. selling off the retail lots, et cetera, can you give us a little bit more color as to where D&A will trend? I mean, should we expect it to stay in the low-300 millions for U.S. Rental Car this year?

[Thomas C. Kennedy:]

Yeah. So, Justine, so we haven't given specific guidance, but I think to your point, as Kathy mentioned in her opening remarks, she did indicate that our negotiation of working with our partners has resulted in what we believe to be a pricing level that will offset the 2% decline in residuals we've assumed. Now the residual market is worse than that, we'd have some exposure and as we said previously, about every 1 point is about $60 million, but it's not usually material, but it's nonetheless back to sensitivity. But we believe that based on both our negotiated pricing on model 2018 and our alternative distribution channel, which is we're at 80 lots and we're going to continue to expand and grow in that area, including online on our retail. We believe between those two factors, we're able to offset the residual exposure the company has.

[Kathryn V. Marinello:]

We should be very and are very competitive in this area because of the depth and breadth of our retail car sales; I would also say because of our car buying capabilities as well. We use a lot of different channels to provide fleets. We look at, in some cases, very attractive, low mileage, relatively new cars. We have a fair amount of dealer relationships to leverage. We have very good relationships with the OEMs where we work with them on how we can help them with ups and downs in production and how they can help us. So, when it makes sense, we're trying to do – supplement particularly our peak seasons with some attractive program car deals, where when we get into the valleys of utilization, that's the time they were returning them. But they're at a smart time for the OEMs and the used-car sales markets as well. But we think given a lot of the analytic capabilities we've developed and continue to develop on matching our demand, forecasting with much more insightful placement of these cars and the ability to move them around and fleet up, that we should continue to manage at very competitive levels of depreciation cost. And our residual values now are something unfortunately we can somewhat project, but we don't totally control. But I would say to the positive what really impacts that area is the discipline that the OEMs have on what they're going to sell into the rental fleets and they have as much to gain by not selling so many cars at an appropriate times as we do. So, I think you have a much more rational OEM base and a much more rational fleeting by the rental car companies at this point, which should help to keep residual values higher as versus a lot of ups and downs. But, as we all know, the auto industry is pretty cyclical.

[Justine Fisher:]

Right. Okay, thanks. And my follow-up is on the 2020 bonds. I know it feels a little bit early to be asking about it, but I've actually gotten some questions from investors on this, about when you guys might think about refinancing those. And on the one hand, it would seem that if a lot of the business transition will be over by 2019, and Hertz can post better numbers, maybe you wait until then because you can refinance on the back of better numbers. But then investors are looking at where rates are supposed to go over the next couple of years, looking at how long this stronger economic cycle will last and saying maybe Hertz should address now. So, Tom, could you talk to us a little bit about how you're thinking about those bonds, please?

[Thomas C. Kennedy:]

Yeah. So, for everybody's sake, the 2020 bonds are due in October of 2020, it's a $700 million item. Right now, if you call premium about 101, it steps down to 100 (45

[Operator:]

And we do have a question from the line of Adam Jonas with Morgan Stanley. Please go ahead.

[Adam Michael Jonas:]

Hey, thanks everyone. Just a couple questions. First, on the ride-hailing fleet, the 22,000 vehicles, can you tell us what the RPD is on that?

[Thomas C. Kennedy:]

Yeah. I mean, I think we've disclosed what the weekly rate is. The weekly rate is somewhere in the 210,000 to 215,000 range.

[Adam Michael Jonas:]

Okay.

[Thomas C. Kennedy:]

So, the cars are 40,000 plus mileage vehicles, so the ownership cost is significantly less. So, it's a lower RPD number, but it's a long length of rent (45

[Adam Michael Jonas:]

Yeah, okay. I want to ask about that as well. 22,000 though, I mean that's a big number, that's 5% of your U.S. fleet. Is that something, without being too specific, could we see that up 50% this year? Can we see that 30%? Can we see it double? I'm just kind of – we know it's going to be up presumably, but just kind of can you give us a round number of what you're thinking about for 2018, that 22,000, where that could go.

[Thomas C. Kennedy:]

We haven't really – we have a plan expectation. We haven't talked about publicly obviously. We expect growth from that, but it's going to be a function of the growth in demand and we'll be able to supply. So, we're going to monitor the demand for that. If the demand is there, we'll continue to grow it. So, we have expectations it will grow, but it could be a wide range depending on the market demand.

[Operator:]

And we do have a question from the line of John Healy with Northcoast Research. Please go ahead.

[John Healy:]

Thank you. I wanted to ask a follow-up question on the ride-hailing side of the business. Could you give us some thoughts on where you think your market share may be when you look at the Ubers and the Lyfts of the world? Do you think you're kind of punching above your weight in terms of percentage of partnerships with those players right now? Or is it too early to tell?

[Kathryn V. Marinello:]

I'm not quite sure. Let me see if I get the question right. Are you talking about our share versus what Uber and Lyft have, or our share of rental car companies and other partners with Uber and Lyft?

[John Healy:]

I apologize, your share with Uber and Lyft compared to your rival competitors in the traditional rental car business.

[Kathryn V. Marinello:]

I guess, I'm not really aware of any other – there are a few other programs that are getting involved in testing this space. I will say, I think the rental car industry has an advantage where we have obviously chains of maintenance and damage providers in this area. We have the locations. We have the experience in managing the fleet. We have readily available, well-maintained 30,000 to 40,000 mile cars. We have a great retail network to very profitably sell those cars. So, we have a very low depreciation per month of cost on these cars and a very nice long length of keep and very high utilization. So, from that extent, I think we're in a unique position to leverage capabilities we already have and make the most of it and maximize those assets for the company. So, we really haven't seen anybody really successfully leverage their book of business and their assets in the same fashion, but I'm sure there'll be more entrants, and so we plan to keep very focused on getting our capabilities around this and continuing to leverage what we have to be the best in this space for these partners.

[John Healy:]

Great, that's helpful. And then one kind of big picture question, you guys probably closed this year close to $300 million on EBITDA. I think your comments about an industry return level, to me that implies somewhere around $1 billion of EBITDA. So, there's a gap, let's call it a $700 million and what I'm trying to put pencil to paper, you've got the $300 million of investment you've called out. So, there's this $400 million kind of delta and I'm trying to understand where that comes from for you guys. Is it over the next couple of years? Is it a situation where you simply just need to grow the revenues of the company to get back to kind of an industry level of EBITDA? But I'm just hoping you could provide us some perspective of where you think that gap between current state of the company, your investments and industry level of return, where it truly comes from.

[Kathryn V. Marinello:]

Okay, let me address that. So, first of all, last year, if you think of it, the level of depreciation expense has never really – we've never seen a higher level of per unit per month depreciation expense to the tune of $50, $60 higher than where we're running today. At other times in this industry, we've seen depreciation rates down around $260, $270, all right? So, right now we're running just a little bit north of $300 million. So, obviously, that's one of the levers managing the level of depreciation. We also saw last year – probably we've never seen lower pricing in this industry as well when depreciation rates were about as high as they ever could be. So, I think to say that it's simple, the math on this one is underestimating the complexity of delivering what the equation is and very simply it's getting more price, more days and maximizing the utilization on our fleet. And when I joined the company, the tools, the processes around those things were not – were being built and put into place and the cost of cars was at an all-time high. And now, we're also double dipping on our IT expense and double dipping on what people have to do to manage through all of the development, management training, et cetera, and the distraction of massive technology conversion. Keep in mind, we are converting every single system that this company uses and that decision was made back in 2015 and 2016. And now we're working through and executing and maximizing the value we're going to get out of that. So, it was basically a perfect storm around any kind of negative expense and negative pricing that could hit this industry or uniquely to us, I would say based on the technology issues we were facing into as well as our loss of focus around the brands and marketing around those brands. So, as we put in place a great marketing team, brand management, we do have the strongest iconic brand in this industry I will stand firm on, 100 years of brand strength. We're bringing back and marketing and pricing tools that will make a difference. And I will say in the last couple of months, we're excited about the fact that we're getting not just price, but we're also getting days and we're getting it not at the expense of utilization, right? So we're not giving up price to get utilization, right? And we're not giving up price to get days. And as we are much smarter on managing the fleet and the car buys and we see more rational residual values because there are not a ton of cars being dumped into in the auction market. And we have – and then I'll finally say, I don't think anybody has a better capability around now buying and selling cars and putting them where they belong. So, those are all things just being put into place while we're – we have both hands tied behind our back from a technology perspective. So, I think that's where we come back to, we will see higher RPU and we will see better retention and growth around the days in our customers, and that's how I see us getting back to industry competitive EBITDA. If you look at all the structural underpinnings of this company, there is no reason why we can't be competitive and everything we're doing right now puts us back on that track.

[Operator:]

And we do have a question from the line of James Albertine with Consumer Edge. Please go ahead.

[James J. Albertine:]

Great. Thank you and good morning. I hope you can hear me okay. Apologies, I'm on a mobile. I dialed in a little bit late. If you had addressed in the prepared remarks, I must have missed it, but wanted to touch on fleet costs and residual outlook for your really primarily European businesses. It seemed a little bit higher versus trend in prior quarters, why don't you just touch on that and maybe get some broad sort of view on the outlook for 2018? Thanks.

[Thomas C. Kennedy:]

Yeah. So, Europe was – particularly Europe was up, International up 9% in fleet cost, unit cost in the fourth quarter, 7% excluding Brazil. Keep in mind we sold the Brazil operation in the later part of last year, so when you want to get comparable numbers do with Brazil. We did have somewhat of a impact related to diesel. Diesel made about 60% of our fleet in Europe. It's going to be down to 30% next year. So there is a fairly significant reduction in our diesels going into next year, so that's a good item. Again, Europe was a much higher level of programs versus the U.S. So, it's running in the 50% to 55% range of program cars versus risk cars, there's less residual value exposure. But we expect some increase in fleet costs next year. We haven't provided guidance that you probably heard at the end of our remarks on any of the metrics per se. But nonetheless, we do expect some increase in fleet cost, but we did say we expect International to continue to be stable from an earnings standpoint, so that would imply those other factors that we see in the business that would offset that.

[James J. Albertine:]

Understood. I appreciate that color. And best of luck next quarter.

[Operator:]

And we do have a question from the line of Dan Levy with Barclays. Please go ahead.

[Dan M. Levy:]

Hi, yes. Thank you. I wanted to ask just, first of all, I know you've given some broader guidance and I know no guidance for 2017 or 2018, given these are transitional years. But at what point can we expect communication of, I guess, more firm near and mid-term financial targets? Is this an Investor Day that's out in the future, wait a year, or is that just – will that not occur?

[Thomas C. Kennedy:]

Yeah. So, Dan, I mean, I think given as you said and as a transitional year, there's quite a bit of heightened investment. We're trying to be as colorful as we can in our remarks to give investors and all of you some guidepost on how we think about the business and the trajectory of the business. I think as Kathy said before, as we get in more into the business and now we're getting – I think, we get to a point of more consistency of our performance that would provide us greater confidence providing the guide, more specific guide that we'd get into that. I think we'll continue to revisit that trajectory of that. And predictability, we believe that we've made a lot of progress in the second half of last year in the predictability of our business model internally based on our internal projections on how we ended the year and our revenue trajectory on how we ended the year. But nonetheless, we're going to continue to monitor that and we'll update as the year progresses.

[Kathryn V. Marinello:]

Yeah. I guess, I would add what I found in running companies is that the first year of running a company, you get smarter. After the second year, you really do understand and have a much better understanding and are going to be much more accurate in your predictions around the direction of the company. And I guess I'm going to be humble to say, I've gotten a lot smarter over the last 12 months, but I know there's a lot more to learn and I'm continuing to learn and understand the uniqueness of our company as well as the good news is, I have pretty deep experience over 15 years of managing millions of cars and working for a larger – on a board of a large OEM. But there's a lot of uniqueness around these days with a lot of different inflection points and given the technology changes we're putting in place, I'm going to feel a lot more smart around what kind of guidance I can provide more towards the end of this year. But right now, I think it would be foolish for me to think I'm smart enough about everything going on in this company to provide accurate guidance for people. I'm more than willing to answer questions and give a sense of where we're heading, but to predict at this point would be unwise. But I think we've given a pretty good indication of where we think it's going and I will stand behind again to say, structurally, there's absolutely no reason why we can't be at industry competitive margins here, particularly some of the great assets that we have between our brand, between our retail sales capabilities, those are just two things to point to. And then if on the other side of our technology changes, I think we will have the most competitive forward-looking technology capabilities, both from a basic operating system, but also from an information and data management capability, from a data analytics and artificial intelligence. So, everything we're doing really should put us in a very, very competitive position and so there's no reason why we can't be at the same margins that our industry leaders are at.

[Dan M. Levy:]

Okay, thank you. And I just wanted to follow up actually on one of the prior questions, the idea of the sort of bridge of the $300 million you're at today of EBITDA, $300 million EBITDA today up to $800 billion, $900 billion (01

[Thomas C. Kennedy:]

Yeah. So, I mean, I think there's a fair pushback to how I'd respond to that objectively to say the following. First, price isn't just headline price, price is the mix of business you achieve and how you position your brand. So, candidly, as we've said previously, the Dollar, Thrifty brands is an underinvestment, have not been positioned appropriately in the marketplace and as a result, candidly, you're not getting – relative to the historical brand positioning, not getting the price that you can achieve just from a segmentation standpoint. So, price isn't just headline price. It's segmentation to go to market. It's also how the company has performed relative to other segments in the business that have higher price and we believe we have option there. And again, yeah, unprecedented, we're not expecting 3% to 4% headline price, but we obviously think there is – not only there's headline price opportunity in the industry, but there's a segmentation opportunity for us as well. As it relates to fleet cost, yeah, the industry does a few cycles and they could range anywhere from $280 to $320 in fleet cost range. That isn't necessarily where we're going to be, but what Kathy referred to as you recall and in the first half of the year, we had $350 per unit per car. So, that $50 differential just in the first half of the year equates to over $150 million of profit in the first half of the year, so your $300 million already is $400 million in 2017 pro forma for that impact. Thirdly, with all the systems and technology put in, and as Michael Millman was asking, we are going to have a step-down in technology cost. The technology OpEx is going to go down and we haven't provided guidance, but if the run rate is $400 million, maybe we can get down to $100 million, it's $100 million of that bridge. Fourthly, we have a lot of technology and systems and processes going into our operation side of the business, including the Ultimate Choice, including our new digital and reservation rental system that we believe will obviously, over time, reduce the labor costs and allow greater customer bypass and greater customer self select (01

[Kathryn V. Marinello:]

Yeah. In summary, more price, more days, less car cost, less technology cost and I think it adds up pretty quickly.

[Operator:]

And with that, there are no further questions in queue at this time. Please continue.

[Kathryn V. Marinello:]

Thank you for your time this morning, and we look forward to speaking with you again next quarter. Thank you.

[Operator:]

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