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 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 Senior Executive Vice President and Chief Financial Officer. Before we discuss our results for the first quarter, I'd 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 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 other SEC filings. If you did not receive a copy of our press release, it is available on our website at ir.avisbudgetgroup.com. We've also provided slides to accompany this morning's conference call, which can be accessed on our website as well. Also, certain non-GAAP financial measures will be discussed on this call, and these measures are reconciled to the GAAP numbers in our press release. 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, and thanks to all of you for joining us. On our Investor Day scheduled for tomorrow, we're going to limit our prepared remarks a bit today. There are still some items we do want to cover, but we're going to save the substance of our strategic dialogue for tomorrow's presentations. As a reminder, if you're unable to join us in person tomorrow, our meeting will be webcast so you can follow along in real-time or later at your convenience. First, the clear headline is that we had a record first quarter. We had positive rental demand in the majority of our markets. And while pricing in North America was as expected, we did take the necessary actions in February to tighten our fleet and move the price up the 2 times we saw the opportunity to do so. These actions drove some improvement in pricing trends in the second half of the quarter relative to the first, although not enough to end the quarter with year-over-year pricing gains. Margins improved significantly year-over-year, largely a result of stronger-than-anticipated risk car residual values while also driving higher margins, was a meaningful assist from our continued focus on growing in the most profitable segments and channels. David will share some more detailed data about that. Second, travel demand in Europe appears to be stabilizing around moderate increases in the northern part of Europe and softness around the Mediterranean countries. That said, the beginning stages of the Budget relaunch, especially in Spain and the U.K., are generating very impressive gains in forward reservations, providing some early validation of the Budget opportunity. In addition, the ongoing integration efforts in Europe remain on track. We continue to expect a run rate of $35 million of synergies by the fourth quarter, and…

Thanks, Ron, and good morning, everyone. Today I'd like to discuss our first quarter, our fleet, our recent financings and balance sheet and 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. Following our fourth quarter earnings release, several investors asked us to provide additional financial and operating data regarding Avis Europe's historical results. Based on these requests, we recently posted additional quarterly and annual information for 2010 and 2011 on the Investor Relations section of our website. We hope this will assist you in modeling your consolidated results going forward. Turning to our results. In the first quarter, revenue increased 31% to more than $1.6 billion, primarily due to the inclusion of Avis Europe. Excluding Avis Europe, revenue was up 5%. Adjusted EBITDA increased 43% to a first quarter record of $119 million. Our European operations had an EBITDA loss of $7 million during what is a seasonally slow quarter there. So excluding Avis Europe, EBITDA increased 52%. First quarter results benefited from organic revenue growth and lower per unit fleet costs. Direct operating and SG&A expenses both increased as a percentage of revenue, but the increases were largely due to the Avis Europe acquisition. In our North America operations, direct operating costs declined 30 basis points as a percentage of revenue. And SG&A increased about 0.5 percentage point, as we invested in marketing our brands at levels that were lower than in the fourth quarter but higher than a year ago. Our corporate interest expense in Q1 was higher than what we expect for future quarters due to pre-funding of debt paydowns and some hedge losses. For the quarter, net income increased 17% to $14 million,…

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

I wanted to ask a big picture question to you, Ron and David, about leverage and capital allocation going forward. The leverage ratio the company has come down pretty meaningfully, and as imagined by your comments, you're feeling pretty good about the EBITDA trajectory of the company. Can you maybe walk us through where you're at in terms of comfort with the balance sheet and confidence in the cash flow generation of the company and how you might be feeling about deployment of cash flow over the next 2 years? I imagine that's a couple of slides tomorrow, but I was hoping to get a sneak preview.

Well, let me see if I can deal with these serially. I think that we've said in the past that we're comfortable with leverage ratios in the 3x to 4x range, and obviously where we're at now, we're on the lower side of that. And I think our priority is actually to get it down a little lower over the course of this year. We've done a fair analysis -- a fair amount of analysis as to what it would take to improve our debt rating, and we're not entirely sure that going much below 3x actually benefits us too much. So I think that we're going to be happy to stay right around and put up the 2.8x to 3.2x range. We continue to think that pretax income is a good surrogate for free cash flow. We feel good about our ability to generate free cash flow. Even in our toughest year, in 2008 and 2009, we generated free cash flow. So the businesses do have fairly consistent cash flow generation. I think in terms of priority uses of free cash flow, probably this year, you start with reducing debt. Right after that is tuck-in acquisitions, as we would call it, either licensee acquisitions. And then I think you get down to share repurchases and dividends, but I think that neither of those are a likelihood for 2012.

Our next question, Chris Agnew with MKM Partners.

I wanted to ask about corporate pricing and just what is the headwind from contracted corporate pricing coming into the year? Is it similar to the 2% headwinds you experienced in the first quarter? And then can you describe current corporate contract negotiations?

Well, Chris, I think there are really 2 reasons, and they're not any different than they have been over the last couple of years. I think the overarching impact on corporate pricing comes from just the competition in the marketplace. All 3 of us -- Avis, National and Hertz -- are competing very fervently for corporate accounts, and everyone continues to be very aggressive with our pricing. So the 2% that we saw last year I think is probably a good number for this year. The other thing that factors into this is that procurement is taking an increasingly larger role in negotiating car rental rates and travel contracts and so that tends to put a downward bias on rates. Look, I think that we can complain about corporate pricing all we want and we try to get higher prices all the time, but really the answer for us is to figure out how we change our cost structure so that we can maintain our margins in the face of a tougher market. We continued to maintain a 99% retention rate so we're not losing customers by this. If we do lose a customer, it's because we looked at it pretty carefully and concluded that there's not an opportunity to make any money so we let it go.

And could I ask you a quick follow-up on federal cash taxes? When do you expect to I guess start paying or become a full federal cash taxpayer?

It's a good question, Chris, and we're spending a lot of time looking at that now in light of the fact that our earnings expectations for 2012 are higher than they had been. But at this point, I think 2013 is a possibility for us to becoming a partial cash taxpayer, probably at an AMT rate at some point during the year, and we're doing additional work and analysis on that right now. But my best guess would be 2013 is the year that we'd become a partial cash taxpayer.

Our next question, Brian Johnson with Barclays.

I just wanted to focus on the leisure pricing trend in North America. A couple of things. Can you comment a bit on to whether you're seeing, as a competitor noted, sort of Tier 3 players becoming more aggressive and is that likely continue [ph] ? And the second, on the leisure price increases, both at Avis and the Budget, between the 2, where were the price increases focused and what's been the experience so far, not in March, but in April and May to date?

Brian, I actually don't -- haven't seen that the Tier 3 players have been more aggressive. I think that leisure pricing has been on a fairly tight band. And I think if you look at our composite pricing during the first quarter, both leisure pricing and commercial pricing, were pretty much clustered right around the composite pricing for the company. I don't -- in April, leisure pricing improved somewhat especially towards the back half of the month. I wouldn't call Enterprise a third tier player, but what I would say is that they actually did lead 2 price increases over the course of the month that the Budget brand uniquely benefited from. I don't think Avis benefited very much from it, but Budget clearly did, and drove the price increase towards -- that we saw on the back half of the month. So I'm not sure that we would characterize it exactly the same way.

Okay. And so as we think about maybe leisure pricing getting closer to that composite of then [ph] 3%, and then maybe overall then 2%, is it going to come more from the Avis segment or from the Budget segment?

Well, I hope it comes from both, but I think sitting here today I'd probably have to tell you that it's going to come more from the Budget side than from Avis. I mean, you've got to keep in mind that Avis is 60% to 70% commercial. And so with commercial pricing down -- at least large commercial and mid-market commercial down in the 2% range, you right away got a pricing, the weighted average pricing decline of 1% to 1.5% that you're trying to overcome with leisure. So I think it's going to be more on the Budget side.

Our next question, Afua Ahwoi with Goldman Sachs.

Two questions. First on Europe, I know you gave -- given the difference in sort of geographic performance between the North and some of the Med countries, do you have any idea of whether in the second or third quarter if you're more or less exposed in either of these geographies or is it pretty much still evenly split for the full year? And then second, on pricing, you gave the sort of where you are for April, for the April month. Can you give us where that compared to the maybe February and March quarter? Is that essentially in line? Is it better? I just want to get a sense if each month sort of has seen a sequential improvement.

With respect to your first question in Europe, clearly, as the summer goes on or as we get closer into the summer, what goes on in the Mediterranean region will be a bit more important. But interestingly, it is somewhat less tied to what is going on in those economies because a lot of the business ends up being International Inbound business into the warmer areas. And as a result, we see it being tied to the overall European economy a bit more than what's going on in those particular economies such as in Spain and in Italy because of the inbound component. With respect to pricing, I think we feel that the trends have improved month-by-month as we go from February to March and March to April. We have a little bit of noise in the numbers because of the movement of Easter to earlier in the season this year. But generally speaking, February was the toughest. The warm weather in the northern half of the country made Florida just a little bit less popular. We think that it otherwise would had been, and that had some impact on pricing in February because the Florida market is very important in February. March was the beginning of some moderation there as we got our fleet in the industry. I think its fleets, a little bit more in line with where demand is. And April was a continuation and a playing out of that as the fleets were very much in line with demand over the course of the month.

Our next question, Emily Shanks with Barclays.

I had 2 questions for you. The first one is around EBITDA. If you could just give us an update on what [indiscernible] used vehicles is by way of contribution this quarter, please?

The gain on sales works out to be right around $40 million in the first quarter, essentially the same as it was in the prior year first quarter. With that being said, I think the number that really matters the most is overall fleet costs, and there in North America is where we saw the 21% decline in per unit fleet costs, and I really think what's going on with aggregate fleet costs, whether it's depreciation or gain or loss on sales, is the most important figure.

Okay. And then just secondarily, I know that you would call that the ancillary revenues as being a big driver of your top line. Can you give us some color around what those specific ancillary services are, whether some of the big buyers that guys are -- that customers are utilizing?

Sure. The largest products tend to be our loss damage or collision damage waivers, insurance products such as additional or supplemental liability insurance, as well as personal effects protection. GPS rentals would be another big item. And one that you've heard us speak a bit about is a new product that we introduced, called Roadside SafetyNet, which provides protection for some of the more nuisance oriented events that can occur during a car rental such as running out of gas or losing a key or locking your keys out of the car. That's turned out to be a very popular and for us a fairly profitable product offering over the last year.

Our next question, Michael Millman with Millman Research Associates.

Following up on some previous questions regarding the corporate versus leisure. Could you give us some idea on a fleet cost [ph] basis of the profitability of the each of those? And secondly, you did talk about Budget growth having an effect on North American revenue per day, but maybe you can drill down a little bit more, particularly compared with Hertz, where your rate seemed to be down twice as much as their rates in commercial, but kind of reverse -- I mean, in leisure but kind of reverse in commercial.

They're very interesting questions, Mike, as always. In terms of corporate versus leisure profitability, we do spend a lot of time trying to find ways to look at the 2, particularly since they're-- they tend to be so complementary. And the analysis boils down to in many ways how fleet costs are allocated between the 2 because often a car that would be rented only for commercial purposes wouldn't be profitable because it's only rented Monday to Thursday or Monday to Friday. And similarly, a leisure car that's achieved [ph] primarily on weekends wouldn't be profitable by itself, either. And so it ends up being a tricky question. But as we look at it, we feel both elements of the business are all profitable and both make a significant contribution. And it varies a bit by time of year. We feel good about the profitability of each of the segments as they're currently structured, and we really do view them as complementary to produce the aggregate amount of profit that we have. In terms of some of the comparisons that are going on in pricing, we look back to 2007 as being the last normalized year. 2008, particularly in the second half of the year, was significantly impacted by goings-on in the economy and the financial crisis. 2007 is sort of the last normal year. And our pricing is actually up a point or 2 since 2007, and our largest public competitor's pricing is down over that same period of time. And so as we look at the pricing trends from a bigger picture perspective, we're excited about the progress we've made to fight for pricing in what is a very competitive market and the fact that we've moved our pricing up a point or 2 over that period of time while our competitor's has been down.

We have time for one more question. Steve O'Hara with Sidoti & Company. Stephen O'Hara - Sidoti & Company, LLC: Could you just talk about -- I don't know if you mentioned this already and I missed it -- but in terms of your risk fleet, what your percentage is and how you think that might evolve over time? As far as I know your competitors are significantly more weighted to risk fleets, and I think Enterprise is as well. I'm just wondering why not adopt a greater percentage of the risk fleet?

Well, I think right now, we have pushed our risk fleet up this year. We're up close to 60%. I think our bias would be to move it up probably another 5 points. A lot of it depends on availability of fleet at the right time and the right time of the year, the right deals. Every time we look at this, we sort of think back to fourth quarter of 2008 when we couldn't sell a risk car. And because we're making these decisions probably some 36 months in advance of when we sell the car, there's a little bit of a bias here to be a little more conservative in terms of going out the risk profile. That being said, I think that we will probably move our risk percentage risk buy up in 2012. We'll probably look to increase it 5 points, but I'm not sure that we want to go that much, much more beyond 55%.

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

So just to summarize, we're excited about our first quarter results and our prospects for stronger earnings growth this year. Our strategic initiatives are working. We've got our fleet levels where we want them. The North American used car market remains strong and Europe appears to be stabilizing. We're very excited about our long-term growth prospects, and we're looking forward to tomorrow's Investor Day to show you why we are so enthusiastic. I certainly hope to see many of you there. Until then, thank you for your continued support.

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