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 introduction, I would like to turn the conference over to Mr. Neal Goldner, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Tanya. 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 for the first 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 in the current economic environment, and inherently subject to economic, competitive, and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release, which was issued last night, our Form 10-K, and in other SEC filings. If you did not receive a copy of our press release, it is available on our website at avisbudgetgroup.com. Comments on this call regarding our results are intended to be a reference for our results, excluding certain items, which are non-GAAP financial measures and are reconciled to GAAP numbers in our press release and on our website. Now I'd like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.

Thanks, Neal. And good morning to all of you. There are a number of items I want to address today in varying degrees of detail. High on my list is our first quarter performance, followed by an update on the progress of the strategic initiatives we laid out for you last quarter. And then I want to touch upon our outlook and then conclude with an update on the Dollar Thrifty situation. Touching briefly on our first quarter results, despite the unusually large and frequent snowstorms in North America, floods in Australia and an earthquake in New Zealand, our team was able to capitalize on the economic recovery and take full advantage of the decisions we've made over the last year to accelerate our revenue growth and expand our margins. Just to summarize, revenue increased 7%, pricing trends remain stable and we successfully implemented a price increase effective as of April 1. Our adjusted EBITDA more than doubled with each of our segments once again recording earnings growth. Margins further expanded reaching the highest first quarter level we have achieved since becoming an independent public company. Our decision late last summer to add fleet has enabled us to capture incremental demand, including more of our corporate customers' midweek needs. And we're making real progress in key strategic growth initiatives, which I'll talk more about in a bit. I want to expand on each of these somewhat, though, and then have David share more detail with you in his comments. In terms of top line performance, all of the revenue increase in the quarter was volume-driven, as pricing was down across both brands. The drivers behind the lower price was somewhat unique to us, at least in the case of tough leisure pricing comps, but also included the impact of weather-related…

Thanks, Ron. And good morning, everyone. Today I'd like to discuss our first quarter results, our ongoing cost saving initiatives and our balance sheet, 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 and on our website. In the first quarter, revenue increased 7% to over $1.2 billion. Adjusted EBITDA more than doubled to $83 million and margins expanded 330 basis points to 6.7%. All three of our operating segments once again reported growth in adjusted EBITDA, reflecting higher rental volumes and the benefits of our company-wide cost reduction and productivity efforts. While our reported direct operating costs increased 30 basis points as a percentage of revenue, they declined more than 20 basis points, excluding the impact of rising gas prices and higher truck maintenance expense and made a strong demand in that segment. SG&A expenses increased 18% in the quarter. While higher rental volumes had some impact on selling expenses, much of the increase reflects the investments in our strategic growth initiative, including the launch of the Avis print and broadcast campaign, as well as co-marketing partnerships with airlines and others. Net income increased to $12 million and diluted earnings were $0.11 per share. Over the last 12 months, our adjusted EBITDA is $454 million, and for those investors and analysts who compare companies' EBITDA, excluding deferred financing fees and stock-based compensation, our trailing 12-month adjusted EBITDA on that basis is $493 million. Turning to our segments. In the first quarter, Domestic Car Rental revenue increased 6% to $929 million, reflecting a 7% increase in volume, partially offset by a 2.6% decline in pricing, reflecting difficult comparisons with January and February…

[Operator Instructions] Our first question comes from Brian Johnson with Barclays Capital.

Yes, you talked about the leisure price -- you talked about the leisure pricing, but you included within that both the airport and then you've had significant growth in off airport, which of course is a lower price point, often longer rental time period. Could you maybe give us some color if we were just to look at airport leisure pricing, where that pricing trend had been going?

Sure, Brian. On airport, leisure pricing was down 4%, off airport, it was down 3% and the weighted average worked out to 4%.

Okay. And second set of questions is around your change to your vehicle depreciation forecast. Just first, just want to clarify your accounting for that. When you see a better used car marketplace, are you marking the expected residuals of existing vehicles in operations up, or do you wait until the actual auction or other disposal events to book backing versus where that piece of equipment had depreciated to?

Sure. We do not mark the car to market to reflect an improvement in the used vehicle market. We will adjust our depreciation rates and adjust them downward to try to get to having minimal gains on vehicle sales, to the extent we see strength in the used car market. But there's no markup of vehicles and any adjustment to depreciation rates is done on a perspective basis. And then gains, if any, are recorded when vehicles are disposed of.

Okay. So just to clarify then when you say you adjust the depreciation rates, is that on something that you put into service that quarter?

No, well, yes. But we adjust...

Or on the vehicle that were already in service coming into the quarter.

Correct. Both, we will adjust depreciation rates on vehicles that are already in service, as well as the rates for vehicles being brought into service.

Okay. And then the $30 million in used car sales gains you talked about, couple of questions. How does that compare to the first quarter of last year? And then do you have any disclosure of roughly how many used cars you've disposed of? So if you can think about on a gain per vehicle basis?

The gain on vehicle dispositions was in the $8 million range in last year's first quarter, I believe. And we had in the range of 15,000 risk dispositions in the first quarter. So you can see that our gains on vehicle dispositions, whether on a per-unit basis or in total, were strong. Because we were pleasantly surprised by the strength of the used car market, particularly the late model used car market, in the first quarter.

Our next question comes from Chris Agnew with MKM Partners.

I want to ask sort of broader question on fleet cost. And outside of the recent spike in used car prices that David, you talked to, used car prices are at multiyear highs. And obviously, that's not going to last forever. So how do you weigh some of the structural changes you're making, the way you manage your fleet and remarket your fleet versus what a more normalized used car market looks like? So basically, is there scope for the structural changes to lower per unit fleet cost more permanently?

I don't think we're changing the way in which we manage fleet based on the cost of fleet, Chris. I think we look at what the market is demanding by way of fleet mix and type of car. And we try and target our fleet acquisitions to the marketplace. I think our view on the used car market is that, obviously, there's been a supply squeeze from the last couple of three years. It seems to have really caught up with the marketplace in the first quarter, as reflected by what happened. And actually, January and February were months that were not out of the ordinary from prior experience. It was really in March when the market accelerated quite a bit. So I don't -- I don't think we're changing our fleet strategy, if I understand your question, based upon used car values. We think very carefully about the program and risk mix. As it turned out, obviously, it would've been better to have more risk cars this year. But over time, we think that program cars have served us well and serve a valuable purpose. And as it turned out, that's not lost on the manufacturers either because program car prices were actually more compelling than risk car prices on a risk-adjusted basis, if you will. So I'm not sure if I've answered your question. But...

I think on the last call, you sort of talked about a couple of strategies where you would manage the fleet based on your two -- your dual class car brand strategy. I think -- and just kind of a follow-up to that, whether you think about how to manage the fleet, newer cars on Avis, slightly longer length aged cars on Budget. And also you talked a bit before about strategies, sort of online Internet remarketing and retail remarketing. I think you had an agreement with someone. So it's more along those sort of strategies.

Chris, that's exactly right. We are doing that. We are continuing to optimize how we use vehicles between our brands, our hold periods and so forth. And also our disposition methods, including the fact that we saw the auctions performing very, very well in the first quarter. And continue to take advantage of both physical and online auctions and to do well. I should also use this as an opportunity to correct something I said a moment ago. We had 21,000 risk vehicle dispositions in the first quarter. The number I had and Dave was -- 15,000, it wasn't right, it was 21,000.

Our next question comes from John Healy with Northcoast Research.

A question for you guys about the margins in the business. You've done a great job over the last two years in really fixing up the operating expense and SG&A lines. I'm trying to understand a little bit more of where you're really finding the operational improvement? And maybe you can give us a few examples of what the biggest things you've changed in the business are to improve the margin? And with that, I was curious if you could try to quantify today where you're at in terms of the combined cost savings you get by operating both the Avis and Budget brand together? And are you finding ways to bring those brands even closer together than maybe you had a year ago or two years ago?

Well, John, I think the margin improvement comes on both parts of the income statement. I think on the revenue line, we're targeting those types of transactions whether it be small business or international inbound that tend to have much higher contribution margins. We have spent a fair amount of effort over the last three years with a sales training initiative at the counter, trying to drive higher ancillary revenue sales in terms of up-sells and GPSs and coverages. I think across the board on the expense lines, we've taken labor out, we're down some 8,000 people, 9,000 people, both on a variable and fixed basis. So I think our fixed labor headcount is down somewhere between 3,000 and 4,000 people. Our PEx process improvement initiative is actually probably reflected in the labor count. So that's really been a beneficiary of that. I don't think you can point to just one expense item and say that, "Gee, that's what it is that drives margins." It's really throughout the whole income statement where we've taken a careful look at every item and try to make it as efficient and as cost effective as possible, without sacrificing the value proposition.

And with respect to Budget, we estimated several years ago that we were saving more than $100 million a year by operating Budget and Avis with significant elements of a shared infrastructure. And I think not only does that continue to be the case, but over time we have found incremental ways to take advantage of having both brands in our stable. And I think those cost savings and those benefits have grown over time. And part of it shows up in the savings that we've achieved and the benefits we've recognized over the last several years. We don't necessarily track it as tied just to the Budget acquisition.

That's helpful. And then Ron, I just want to make sure I understood your comments earlier in the call when you talked about where you wanted to drive -- I believe you were referring to EBITDA margins in the business. I just want to make sure you thought that the medium-term goal, maybe not 2011, was 10% or double-digit EBITDA margins. Was I taking the comments the right way?

You took it exactly right. And I think we got to have a goal, we hit our first goal and I think as we've told everybody, once you hit one goal, then you got to reset to another goal. And so look, I wouldn't put it out there if I didn't think we had a shot at hitting it. Again, I don't think it's a 2011 issue. But I do think it is achievable and I think we'll get there in the medium term and it's not a goal that is unreasonable.

Our next question comes from Fred Lowrance with Avondale Partners.

A question, kind of along the lines of what Chris was asking earlier. But just as I look at fleet cost and obviously the first quarter this year likely to be mostly driven by used vehicle values. But as we look forward into 2012, look at time when used vehicle values maybe continue to come down or even flatten out at some sort of stable level. What are the things that you're doing in the buying and selling process that's actually -- is there anything there that would contribute to lower fleet costs overtime? Or is this something where once we get stable used vehicle values that we might see depreciation start to creep up. Any sort of color on that please?

A few things. I think the key drivers of our vehicle costs are really going to be where we're buying it -- and yes, the price of which we're buying them, and the price at which we're selling them. And I don't mean to be simplistic about it. But, the first point, the price at which we're buying them is going to depend on our negotiations with the manufacturers about future car buys more than anything else. And we're in the early stages right now, the model year '12 buy, and we should figure out over the next several months what model year '12 is going to look like. And then on the disposition side, far and away the biggest driver is the overall strength of the used vehicle market. We are looking at opportunities to improve things a little bit around the margin in terms of further optimizing how we dispose of vehicles. We have a partnership with a large retail chain that we're using to dispose of vehicles. We're doing more direct to dealer, and we're optimizing between online and off-line auctions, all to try to get the best possible price for each car we're disposing of, net of disposition cost, while also making sure that we can push through the amount of volume we need to in an efficient manner. So while we are taking optimizing actions around the margin that may have some marginal benefits to us, I think they will be relatively small compared to the impact of just where we're buying cars and the strength of the used car market.

I would add to that, Fred, it's fairly hard to look at fleet in a static environment. I think that the used car market changes, the prices of risk and program acquisition changes every year. And we've looked fairly carefully that cars that you can run for 30,000 or 35,000 miles, and optimize the depreciation cost and cars that can actually go 45,000 to 50,000 miles without affecting the sort of the marginal cost of depreciation. And I think all those things change based upon the nature of the market. So it's hard to generalize with one strategy that you can sort of lock your head into, and say that this is what I'm going to pursue for the next couple of years. But it is something that we watch virtually every month. Where can we extend lives without affecting the depreciation, and where do we think we need to sell cars to optimize the depreciation. But as I said, fleet and fleet management is the lynchpin of almost every operating decision we make.

Our next question comes from Jordan Hymowitz with Philadelphia Financial.

You spoke briefly about the hourly car-sharing model, and you said you prefer a different model instead. I'm sorry, can you give a little more clarity on the model you prefer instead, and have you tried the car-sharing model at all?

I think it's a couple of things, Jordan. One is we think it's a way to leverage and grow our local market business, our normal business without having to invest in infrastructure. Two, we think it's a way to capture incremental business at our corporate customer base. Most of our commercial customers now either utilize an employee car or car service to get to the airport, airport transportation. We put cars on their campus and obviously, we have the ability to capture the airport transportation. And truthfully, some of the local volume that our commercial customers have leaks out to Enterprise, because we may or may not have a local office and they clearly have many more offices than either us or Hertz do in the marketplace. So having cars there allows us to capture some of that business that's leaking out. We just think that's a much bigger opportunity than what car share is or at least what it currently is. Now it doesn't suggest that we can't employ car share. I think we have a brand, we have a technology and we actually have hourly rates. But we're just not sure it's a very big business and it's not one that we've actively pursued over the last couple of years.

Do you think it's a business model that would work for the larger scale?

Well I'm not sure what you mean by a larger scale. I think that as that business is currently defined, it would seem to be a large city and college campus type of business model. And clearly, how much fleet do you think you can deploy in that environment. And I think once they start, assuming they start to expand their model to get into daily and weekly rental, then they start competing square into our wheelhouse. And you wonder how successful that's going to be.

Our next question comes from Steve O'Hara with Sidoti & Company. Stephen O'Hara - Sidoti & Company, LLC: I apologize if you've quantified this already, but in terms of the, let's say, wholesale cars you sell versus retail sales, what's the differential in terms of the fleet you sell, and what's generally, if you can give a general price discrepancy between the two if you have like an average?

Sure, Steve. We sell virtually all of our cars on a wholesale basis, either direct to dealers or through, again, through auction channels online and off-line. So we're not engaged in the business of selling directly to retail customers our cars. Stephen O'Hara - Sidoti & Company, LLC: And then I mean is there a general price discrepancy between the two, I mean is it an opportunity possibly down the road? Or just something you guys just aren't interested at this point?

It is an opportunity. I think the size of the opportunity is essentially the difference between a retail and wholesale price for a vehicle, which can easily be in the $1,000 range. And it's that difference net of the cost associated with retailing cars, whether it's a sales commission or marketing cost or infrastructure costs associated with that. So there is an opportunity there, and, right now, the way we're exploring that opportunity is, as I mentioned, through a partnership with a, or a relationship with a national used car sales chain that would allow us potentially to capture some of that. I think that's in its early stages right now, and compared to the overall volume of vehicles we're disposing of is still quite small.

We have time for one final question. Emily Shanks with Barclays Capital.

My question is around the increased adjusted EBITDA margin target of 10-ish percent. Can you give us an update on if that's going to impact your target leverage number longer term and secondarily, where you're comfortable operating the business currently?

Emily, a couple of things. Our goal has been to get our leverage ratios down below 4x, and we're operating there now. And so we are comfortable with where we are, to the extent that our margins improve and our debt levels, excluding the potential acquisition of Dollar Thrifty, our debt levels stay roughly the same, you would probably see some improvement in credit metrics as a result of higher earnings, not really. That would be more of a denominator issue than a numerator issue as you think about the leverage calculation.

For closing remarks, the call is being turned back over to Mr. Ronald Nelson.

So just to recap, we feel great about our position. The investments we're making in our brands are resonating with our customers. Our strategic initiatives are doing exactly what they were intended to do, which is profitably accelerating our revenue growth and positioning us to compete for the long-term. And our balance sheet and liquidity are in great shape and we're building sustainable shareholder value. And David, Neal and I will be presenting a number of conferences over the next two months, and we look forward to seeing many of you on our travels. With that, we thank you for your time this morning, and we look forward to speaking with you again to discuss our progress.

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