Welcome to the Avis Budget Group Second Quarter Earnings 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. Neal Goldner, Vice President of Investor Relations. Please go ahead sir.

Good morning everyone and thank you for joining us. On the call with me are Ron Nelson, our Chairman and Chief Executive Officer and David Wyshner, our Executive Vice President and Chief Financial Officer. Before we discuss our results of the second quarter I would like to remind everyone that the company will be making statements about its future results and expectations which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and the current economic environment and are inherently subject to economic, competitive, and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guaranteed 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 are specified in our earnings release which was issued night and our form 10K and. If you did not receive a copy of our press release, it is available on our website at avisbudgetgroup.com. Also, certain Non-GAAP financial measures will be discussed on this call and these numbers are reconciled to the GAAP number in our press release. Now I would like to turn the call over to Avis Budget Groups Chairman and Chief Executive Officer, Ron Nelson.

Thanks Neal and good morning to all of you. Let me say a word about Dollar Thrifty and then move on to the business of the quarter. As you know, last week we submitted a bid to acquire Dollar Thrifty Automotive Group for $46.50 per share in cash and stock. We believe strongly that our bid constitutes the superior proposal to acquire the company, and would note the Dollar Thrifty has not said otherwise. We want to reiterate our continued strong, but responsible interest in acquiring Dollar Thrifty as a representative substantial growth opportunity for our company. Other than that, we don't and won't have anything else to say on this topic during today's call, and I will ask you to refrain from any questions or comments on the Dollar Thrifty situation during Q&A. Turning to our business, as I look at how far we have come and where we are going, I am very enthusiastic. Our first half results highlight that we have come through the worst period, our industry has ever experienced, and emerged stronger, more nimble competitor. We permanently lowered our fixed cost infrastructure, diversified our fleet and improved our liquidity. We related the market share gain and manage the business through profitability, and in the process reset the business at a revenue level, from which we now expect to grow profitably and restore margins too, and beyond historic levels. Most importantly, we have heightened our focus on the customer experience we offer, which has already produced significant improvements in our customer satisfaction metrics. Under the banner of Customer Led Service Driven, we are undertaking this initiative across both brands on a global basis that allocated resources with the same commitment and energy, we have so successfully devoted to our performance excellence initiative. Over the longer term,…

Today I would like to discuss our second quarter results, our fleet and our capitalization and liquidity as well as expand on some of Ron's comments regarding our outlook. My comments will focus on our results excluding certain items. As Neal mentioned, these results are reconciled to our GAAP numbers in our press release. Our adjustments are relatively small totaling just $5 million in the quarter. In the second quarter, revenue decreased 1% to $1.3 billion. Adjusted EBITDA grew by 46% to $98 million and pre-tax income was $34 million, an increase of $28 million versus second quarter 2009. All three of our operating segments reported significant growth in adjusted EBITDA reflecting our company-wide cost reduction efforts and improving volume trends. This was the third consecutive quarter that all three of our operating segments reported an increase in adjusted EBITDA. In our domestic car rental segment, revenue declined 5% reflecting a 6% decline in rental days and a less than 1% decline in price year-over-year. Notably, pricing was up 6% compared to the second quarter of 2008, illustrating our ability to maintain most of last year's price increases, even as volumes start to rebound. Adjusted EBITDA increased $11 million for the quarter, driven by product penetration, 14% decline in pre-unit depreciation cost and the benefit of cost saving initiative partially offset by lower volume. Domestic depreciation declines were due to lower cost per model year 2010 vehicles, as well as strong used car market. International revenue grew 16% year-over- year, driven by 13% increase in pricing. Excluding the impact of foreign exchange, pricing was flat and ancillary revenues increased to 11% for rental day. Adjusted EBITDA grew year-over-year primarily due to a favorable impact from foreign currency, a 4% decline in per vehicle depreciation cost on a constant currency basis,…

(Operator Instructions) Our first question comes from Chris Agnew with MKM Partners.

First of all, I wanted to ask about corporate travel, as it's 50% of your mix. I don't know if I missed on the call, if you gave us any specific numbers. But I would guess that your phone trends are a little lighter than certainly one of your competitors talks about. And also, maybe if I look at the hotel companies, and what they talk about in terms of double-digit volume trends. I am just wondering what we need to be thinking about in terms of maybe reasons for the difference.

Yes, Chris, It's Ron. A couple of things that I would ask you to think about, one obviously is definitional. You need to be sure that we are both defining commercial, as encompassing the exact same segment. But probably the more important impact is that, government business is a lot like association business. It's included in our business channel. You post a rate to a website, and you get government business or you don't. We moved away from a fair amount of government business, because it just wasn't that profitable, and so with the very tight fleet you end up not servicing a lot of it. I think our government business was down 30% or 40% during the quarter, and I suspect that that accounts for a big amount of the difference. Having said that, I suspect that our fleet was very tight during the quarter. As I said in the call, we had a lot mid week LOR restrictions, so there probably was a little bit of commercial volume that we could get, but to me, that's opportunity in the back half of the year, but I think the principal reason is the amount of government business that we walked away from.

Related to that, just can you comment on the activity and in corporate pricing that you're seeing? With recovering corporate volumes are you able to go back to your corporate customers, and start talking about getting pricing?

The markets still remains very competitive. There is three of us that are actively competing for commercial business, and procurement managers are still very focused on managing costs. We are always trying to get price increases, believe me. But in this environment our commercial rate increase in the second quarter we were flat on pricing, and a lot of that has to do with the gains in small business that we are getting, because the RPDs are higher, and we are changing the mix of the business. Large $1 million plus accounts just start getting very significant price increases if any.

Just a final housekeeping question, maybe for David. Can you give us an idea of what, if it's all a tax credit benefit will be for the rest of the year, and does that also extend into next year?

The most of the tax credits relate to Australia and they have been recognized in the first half of this year, that is a 2010 program and we took advantage of it primarily in the first half of the year. I wouldn't expect to see much more than, than what we have already recognized.

Our next question John Healy with North Coast Research.

A question for you on fleet, Ron. You talked a lot about program cars beginning to move into the market, and some attractive prices on those vehicles. Can you talk about how you feel about that for next year, in terms of the programmed cars moving back in the market a little bit, and what you think that would do to the fleet dynamics in the industry? And maybe how we should think about the stability of the competitive environment based on that?

Everybody's going to make their own fleet decisions, John, depending on the variability or the seasonality of the business. Our fleet flex is up about 20% during the summer quarter, and program cars are the right vehicle to do that. As you know we also used program cars for high end luxury vehicles and convertibles, and the things that we simply don't, I think it's prudent to take residual risk on. Our model year '11 mix which, as I said earlier we would have liked to take up into the low to mid 60s for risk, is probably going to end up remaining about where it is in 2010 50-50, just because of the decrease pricing that we're seeing on program cars. Honestly, I don't see a lot of impact on competitive pricing from differing fleet costs dynamics. Ultimately it will your margins, but I don't think that it alters the competitive profile much in the marketplace.

We should take your comment on program cars as not necessarily a significant change in strategy, but just the ability to keep depreciation costs lower, based on the attractive terms you're getting program cars at a similar cost as a risk car?

Yes, what we're trying to balance, yes, the objective is to get the depreciation cost as low as we possibly can without taking on what we think is imprudent risk in the resale market. So every fleet deal, we pour over pretty assiduously about balancing program and risk and delivery dates and things of that nature to make sure that we've optimized depreciation for the risk characteristics.

I was hoping we can talk, David, a little bit about the cost side of the business, continuing to make some really nice strides there. You mentioned some of your further thoughts on moving to more into self service, and being more efficient on how you touch the customer. Can you talk about maybe where you're having the most success on the cost side of the business today? And maybe where you see additional opportunities, if there are additional opportunities that can be meaningful to the cost structures, as we move into 2011?

Sure, John, and good morning. We are seeing cost benefits really throughout the P&L primarily in direct to operating cost. Maintenance and damage has been a significant positive for us. Really as a result, we think of two things, one being decisions we've made on the revenue side in terms of what sorts of business we are going after most aggressively, and then also just in terms of the cost of doing what we need to do on the M&D side, so we are seeing significant savings there. The last issue is on the fleet side, where obviously we have had some very significant savings this year. And even as we look ahead to next year, there are few more program cars will help us not only in manage some costs down, but also a better manage some of the shoulder period, that exists on a seasonal basis. So we see that as an opportunity as well. The last issue is on the fleet side, where obviously we have had some very significant savings this year. And even as we look ahead to next year, there are few more program cars will help us not only in manage some costs down, but also a better manage some of the shoulder period, that exists on a seasonal basis. So we see that as an opportunity as well.

Just last question, kind of stick with the theme of fleet and cost, when you look at your remarketing strategy that you have today, how do you feel that, that may change over the next year or two? I know one of your competitors who talked a lot about selling a lot more cars direct to dealers and being more innovative with your marketing process. Is that something you are taking a close look at right now, and we should expect to hear more commentary from you on going forward.

It is certainly something that we are looking at, have been looking at very closely and very carefully, somewhere between a quarter and in a third of our fleet sales are, our risk fleet sales are already going through a non-traditional channel, and the vast majority of that is working to buying ways other than auctions to sell to dealers. At this point, we're not actively involved in the retail space and I think that's relatively, and at this point I think that's are likely to continue to be the case but we have significantly ramped up as an non-auction portion of our wholesale sales, which were just a few percentage points several years ago, to now being in the range of 30% of our risk car sales.

Our next question, Steven Kent with Goldman Sachs.

Could you talk about fleet levels, more broadly across the industry. Do you perceive that the industry is also keeping their fleet levels in line with demand, and what is your research showing? And then just so I have a better understanding of your commercial business, especially with your biggest accounts, how much of your commercial business is really through long-term contracts where you're negotiating ahead of time, and when do those come up for renegotiation for 2011?

Let me take the first one or the second one first. I'd say somewhere between 60% and 70% of our commercial volume is done under contract. It's principally our $1 million plus customers on our mid market commercial customers. The contracts there tend to be anywhere from a year to 18 months. They all have reopeners in them, but I would say for the most part they tend to last the full duration. In terms of fleet levels around the industry, our sense is that particularly over the summer that everybody has been relatively tight. It bounces between competitors as to who has the LOR restrictions first during the week, but generally we are not seeing anybody significantly over fleeted and doing any sort of damage to pricing in the industry. I would say, Steven, that's really been a trend for the last 18 months that the fleets by and large, have been pretty carefully aligned with demand, and pricing has been pretty true.

Our next question, Brian Johnson with Barclays Capital.

Could you give us the exact price volume percentages for leisure versus commercial?

The volume which was down domestic 6% overall was down 3% in commercial and down 8% in leisure. And pricing was flat on the commercial side and down 1% on the leisure side, which is how we got to, and that rounded to minus one overall.

Okay, and within commercial what percent of that did you say about 30% of that decline could have been through the, what was the impact of government on that percent growth rate?

What I said, Brian, is that our government business was down between 30% and 40%. Government just looking at and it's probably about 15% or so of our commercial volume.

A year ago, sir, did you have more government, do you think, than your major competitor? So this is just getting down to levels they are? Or are you ahead of others and backing away?

No, I don't think so Brian. I think a year ago we were probably doing the same thing. We had fleets pretty tight. We were looking to optimize midway profitably. So we were restricting. We weren't posting market clearing pricing in government. So, I think we were down in the second quarter as well. I can check that for you, but I'm pretty sure that's the case.

On the fleet depreciation side, with the fleet cost guided flat to down in 2011, and with better used car pricing, can we assume that depreciation is the same, or should we assume it actually gets better into model year 2011?

When we talked about the fleet cost the model year '11 fleet cost being similar and possibly lower than model year 2010. We really are talking about depreciation cost. So, that's the right way to interpret that is our view on model year '11 depreciation cost. That helps?

Does that mean what you're paying the manufacturers, it sounds like it's getting better on the program side and about the same on risk?

What really matters to us on a per unit basis is the per month cost, and that's really what we are talking about. There are no particularly noteworthy trends in terms of the cap cost or the purchase prices, but what really matters is per unit per month cost and that's what we are talking to and addressing.

In terms of your fleet purchase patterns, in terms of the timing of that through the year, and taking on the new models, are you done buying cars for the late summer, early fall? Do you not get more until the winter, and just how should we think about the fleet sizes? Any difference from normal both in terms of the purchases and the overall seasonality of the fleet, any difference in from usual year?

I think what's different about this year is that we are probably further along in overall purchases than we ever have been at this point in time during the year, but I think your presumption is right. We're pretty much done for the balance of 2010 in terms of the fleet purchases and purchases that we are negotiating now or towards the first half of 2011 [total of] deliveries during that period.

Just a little back I realized on leisure, is there anyway to split the budget pricing trend versus the core Avis brand pricing trend?

We do not publicly split out the results by brand.

Our next question Steve O'Hara with Sidoti & Company Steve O'Hara - Sidoti & Company: I just had a question on the cost savings and if you look at most of the costs year-over-year, a lot of them more up with the exception of vehicle depreciation. The SG&A line, is this going to improve as you start to get the benefit of maybe the LAX transaction, and you see more of a better comparisons going forward?

A few things in there. We feel good about a number of the comparisons not just on the fleet cost side, but also the trends we are seeing in direct operating cost. It is a little bit hard, when you adjusted the P&L because there are FX issues that are coming in since the mix of cost in international is a bit different. Direct operating cost in domestic car rentals are down as a percentage of revenue. Obviously fleet costs are down very significantly. The only area that moved up with SG&A, we did invest in some marketing, particularly Internet-related marketing that drove some cost up in the second quarter that benefited both second quarter and we will benefit third quarter revenue. The other item in there is that we also had some expenses related to the potential acquisition Dollar Thrifty no show up in SG&A as well.

Our next question Derrick Wenger with Jefferies & Company. Derrick Wenger - Jefferies & Company: What is your availability on your lines now? What was your CapEx in the second quarter, and what's your outlook for CapEx?

CapEx in the second quarter were $16 million, $23 million year-to-date. As I mentioned on the call we expect that to increase in the back half of the year probably to end up in the $70 million to $80 million range for the full year more likely $70 million to $80 million. In terms of availability under our lines, we have $1.2 billion corporate revolver it's only about $440 million of LCs outstanding as of June 30. So, that left out with north of $700 million of available capacity on the corporate side and as I mentioned we had over $800 million of vehicle backed financing availability at quarter end.

Our next question Ms. Emily Shanks with Barclays Capital.

I wanted to get a little bit of color around the domestic EBITDA performance. You commented in the release that a portion of that was attributable through cost saving initiatives. How much of a boost did you guys recognize in this quarter related to that?

It's always a little bit hard to break out, but the analysis we have done have at in the $20 million range as we say year-over-year, where we expect to be up $50 million to $70 million as a result of incremental cost savings this year, and in the majority of that was in the first half the year. So I think $20 million is the right area to be in.

Then if I caught, Ron, your comments correctly, my understanding for July and August is that you expect EBIT to be up significantly. I'm just trying to get a little bit of help around how we should think about that, when we juxtapose the 3Q '09 EBITDA, which included a $29 million gain from the vehicle sales, which I think, David, you referenced. Just trying to understand should we be looking at 3Q '09 after those gains and then consider things will be up on the year-over-year basis versus that, or what's the best way to think about that?

I think the comment was intended to be adjusted EBITDA to adjusted EBITDA, I wasn't intending to back out vehicle sales gains. They were significant. You're right Emily in the third quarter last year and we're likely not to repeat them, but the same time we're enjoying some fairly significant fleet saving gains along with cost savings gains and volume has come back and we're hanging on to the price. So, it was intended to be an absolute comment, not an adjusted one or a caveated.

My last question would be with Bob leaving, are there plans to replace the COO position? I know that you're acting as that now, Ron, but is there any plan to add to your management team?

We've got a very strong management team that Bob and I put in place over the last five years that has been coming up to experience curve for, I think the newest one is still been here two years. That's Tom Gartland in Sales and Marketing. The team right now is working very well together and we don't see a need currently to fill that position.

Our final question, Jordan Hymowitz with Philadelphia Financial.

Just two follow-ups on the people's questions. One, did you say the dollar amount of gain on sale in this quarter?

We didn't but we can. Overall, we had a slight gain in the million dollar range including our disposal cost. Then obviously if you exclude disposal cost again would be larger, but we've always reported net of disposal cost. It was a slight loss in domestic, a slight positive in international and overall it was a gain of $1 million.

Can you say what disposal costs, because I think Hertz includes and I want to be comparable, because you guys are more conservative the way you report it.

The numbers we report are always on a net of disposal cost basis.

Next going back to the auction percentage, you guys and Hertz both seem to be going down dramatically in the amount of vehicles you're sending through auction. You guys were at like 90% and now you're at 75% to 70% of Hertz was at 87% and they're at 60% going to 50%. I assume you guys are the same way. Can you say like what's the average savings you're getting by not going to auction without going in the different channels? In other words, is it 300, is it 400 what's the average savings per car you're getting by bypassing the traditional auctions?

Jordan, it's very difficult to quantify and compare because it all depends on the cars you are selling the mileage on and the make and model and what I can tell you is that, when you look at both the Odessa and Mannheim auction statistics, we're always getting a good couple three points above, what they call the MMR, which is a indicative value adjusted for make model and mileage. So we tend to do better than the average car rental, sale and auction. So, I think that drives a fair amount of our thinking and I also think you got to keep in the back of your mind that dealer is not going to pay more for a car, if he can buy it, to pay more direct, then he is going to pay it in auction. They have the ability to go to these auctions, but it's very difficult to compare as to what, who's strategy drives more profitability.

Do you have an overall target like Hertz is saying they're well below 50 next year, do you have a target in '11, where you intend to be for auctions?

It not per se, as Ron was alluding to, what it really becomes from our perspective, its an optimization exercise with respect to each group of cars and we are going to sell in the way that produces the best aggregate return and residual value, including the disposal cost and shipping cost and even considering the relative amount of out of service time associated with different channels for selling. With that thing said, I'd expect the amount that's going through non-auction channels to stay the same or increase over the next year, not to decrease, as we can continue to optimize our cost on that basis.

We are now out of time. For closing remarks, the call is being turned back over to Mr. Ronald Nelson. Please go ahead, sir.

Thank you operator and thanks to everybody for your support of Avis Budget. We feel very good about the business for the balance of the year. Volumes are returning. We are holding most of last year's pricing gains. Our cost savings actions are ahead of plan. Negotiations with the OEM has given us optimism regarding our '11 fleet cost and our balance sheet is strong. So, consequently our enthusiasm is high. We look forward to speaking with you in November about our third quarter progress. Thanks very much.

This concludes today's conference call. You may disconnect.