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

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 fourth 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 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, our most recent Form 10-Q 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 to all of you. Let me start with the headline. We delivered record results in 2012 with strong revenue growth, continued margin expansion and record earnings per share. We capped the year by delivering a strong fourth quarter, highlighted by positive volume growth in all segments, further margin expansion and a significant improvement in North American pricing trends. Let's talk about how we got there. We said in our last earnings call that we are going to take an aggressive posture on pricing. That's exactly what we did. In North America, we instituted 4 price increases in the fourth quarter alone, all with good effect. Pricing in North America declined less than 1% in the fourth quarter, which is a significant improvement compared to the prior 3 quarters. For the month of December alone, pricing increased over 100 basis points. But we didn't stop there. We instituted 2 price increases for January, 2 for February and 2 effective for March rentals. The results of these actions continue to be encouraging. January pricing was up year-over-year, more in fact than December was, and our existing reservations give us a measure of confidence that pricing could end the quarter being positive. And don't forget that our reported pricing includes a contracted commercial pricing component that continues to track down in the 2% range. Most of the price increases were the typical $5 a day, $30 a week variety and they primarily impact leisure rentals. For those on the call who don't follow the industry closely, these price increases are generally not cumulative and directly only impact a portion of our overall rental volume. There are a couple of reasons for this. One, price increases tend to atrophy over time as competitive rates get out of balance with…

Thanks, Ron, and good morning, everyone. Today I'd like to discuss our full year and fourth quarter results, our 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 in the earnings call presentation on our website. The fourth quarter marked our 10th consecutive quarter of year-over-year revenue and adjusted EBITDA growth, with our top line increasing 4% to $1.7 billion, primarily due to higher volumes, and adjusted EBITDA growing by 22% to $78 million. For the full year, revenue increased 25% to $7.4 billion, primarily due to the acquisition of Avis Europe. Adjusted EBITDA grew 38% to $840 million, a company record. Margins expanded by 110 basis points to 11.4%, and diluted earnings per share grew 47% to $2.43. For analysts who calculate EBITDA before deferred financing fees and stock-based compensation, our 2012 adjusted EBITDA would be $39 million higher or $879 million. In the fourth quarter, revenue in our North American segment increased 5%, driven by commercial and leisure volume growth. While pricing declined 0.5 point. Leisure volume increased 6% in the quarter, a significant achievement on top of the 9% growth we achieved last year in Q4, and leisure pricing was unchanged. We also saw good growth in our commercial business, with volume up 5% in the quarter, while pricing declined 1 point. Growth in small business rentals helped both our volume and price metrics as we continue to focus our efforts on growing in our most of profitable segments. North America adjusted EBITDA more than doubled to $47 million, and margins expanded 270 basis points. Results benefited from volume growth, higher ancillary revenues, lower fleet cost and lower vehicle interest expense. Our per unit fleet…

[Operator Instructions] Our first question comes from Afua Ahwoi with Goldman Sachs.

I have 2 questions. First on pricing, I know you mentioned that most of your revenue expectations in 2013 will be volume-driven, but maybe you could help us with an idea of maybe where you're tracking on pricing within those expectations. I know you said the first quarter is -- may be positive, but are you extrapolating that for the rest of the year? And then second, on your depreciation costs, can you maybe give us an idea of where you are as a percent of sales within the risk through alternate channels and then maybe if you could tell us how much you make when you sell to through channels, as opposed when you sell via auctions, so that we can figure out where you could go if you continue to expand in that area?

So it's Ron. We haven't taken the pricing experience in the first quarter and really reflected it throughout the balance of the year yet. I think, as you know, I'm always loath to forecast price increases in our business plan because I think it drives other expense items that, for some -- for whatever reason, tend to lead the revenue. And so we were fairly conservative on our assumption. As I said in my comments, our pricing assumption is significantly more conservative than we're experiencing now. But I would tell you that the comps were easy in January, they get a little harder in February and they get a little harder in March. And so, you need to be careful about extrapolating the pricing gains that we're seeing in the first quarter out through the balance of the year. But the guidance that we gave, clearly, has more conservative pricing than we are currently experiencing. In terms of our depreciation cost through alternative channels, it varies from channel to channel from time to time. We continue to sell -- I think we sold 40% of our cars or so through alternative channels. For the most part, the 40% is still a wholesale channel, direct-to-dealer and online or smart lane and things like that are all wholesale channels. What -- where you get the savings in those channels typically is on freight and on time-to-market and from last revenue and until sale. The price dislocations tend to average out, at least it's my view, that they average out over the course of the year. You can take advantage of them at given points in time. So when I think our direct-to-retail venture with AutoNation, is it's still in its -- still in small stages. We'll expand it this year, but it's -- we're not selling enough cars at this juncture to make a meaningful difference in fleet costs. But we've done a lot of analysis on fleet costs over longer periods of time and when you look at our fleet cost per unit on a quarterly basis or on an annual basis and track it over the last 4 years to our competitors, we actually haven't seen much variance at all. And you asked a question about risk versus program, I think as David said, we upped our risk percentage this year from high 50%s to the mid-60%s. We are comfortable in that. And I think I've answered your questions.

Our next question, John Healy with Northcoast Research.

Ron, I want to ask about the corporate side of things on the pricing side. With that being down 2% this year, and I think it's been down for many years in a row, is there a thought that with fleet cost maybe moving high, or definitely moving higher over the next couple of years, that the corporate side of things, at some point in the future, can turn, can stabilize? And I'd appreciate any color you can give on the competitive environment and on corporate. Sounds like you won [ph] a contract. But I'm trying to understand kind of where the price declines are coming from. Is it competitive? Is it the a Fortune 500 customers just pushing you down? And is there any way we could turn that maybe over the next couple of years?

It is competitive, John. And I think it remains competitive particularly in the very large accounts that are north of $10 million, $15 million. Look, we have a passion for raising prices in the commercial section. Obviously, you can't take pricing down an average of 2% for the last 3 or 4 years without it doing nasty things to your margins. So as hard as we're pushing on leisure, we're pushing equally as hard on commercial. I think in the near-term though, where you're going to see commercial pricing improve on a composite basis is because of mix. Our small business volume being up more than average is helpful because small business RPDs key off of leisure pricing. So that -- we're up as much in small business pricing in January and February as we are in leisure pricing. So I think that's going -- that changes the mix a little bit and it tends to average up the down 2% that we're tracking in the large commercial. We've changed our incentive plan now for all of our sellers. So that they are compensated on the basis of how much price increase they're able to get from their accounts. While it's too early to declare victory, I can tell you that in our mid-market business, we're actually starting to see some gains in pricing. And whether it's related to the incentive program or just the fact that we're pushing harder, I'm not sure, but I don't care quite honestly, as long as we get pricing. Large commercial, particularly in the very large accounts, we're pushing, but it's still a very competitive segment.

Got you. I appreciate that. And a question for David, a little bit more on the fleet cost. When you look at the 15% to 20% North America increase, if you were to pull out the $125 million or so headwind from the model year '11s, what do you think the increase would be based on just a base cost increase for you guys and then maybe how much incremental cost there is associated with you guys increasing the mix of your fleet and kind of making the fleet a bit more richer?

John, I think when you look at the 15% to 20% increase we have in North America, the way you're breaking it down makes a lot of sense. And in particular, if you take the midpoint of that 15% to 20% range, just to make it a little easier, start at 17.5%. If you look at about a 4% increase due to the combination of inflation, mostly inflation and a little bit of mix in there as well, that leaves around 13.5%, which given that we had about $940 million of fleet expense in North America in 2012. The 13.5% is almost exactly the $125 million that we're talking about. And as we look back at the benefit that we had in 2012, and I read a number of the comments that came out last night. I see people worried about the increase that we have in 2013 and wondering what's causing that. And I think what people are missing is that we had a really good 2012. We did a lot of things right, the channels we used to dispose the vehicles worked well, the timing of our risk car dispositions clearly worked in our favor and that was some optimization activity on our behalf. And part of the challenge that we're seeing here in 2013 is that we are facing a tough comp because of things we did well last year. Now the good news is that $125 million of benefits that we had in 2012 that turned into additional cash and additional cash flow that's on our balance sheet and is now available to us. So I think the way you're looking at trying to break down the fleet cost, makes a lot of sense from our perspective.

Our next question, Brian Johnson with Barclays.

Yes. You've been maintaining that depreciation increases in North America could be offset by pricing. As you -- and it seems to me at least some evidence of that in December. Couple of things. How is the tenor of pricing to date? And is this Avis-specific price capture, do you think this is endemic of or symptomatic of a market clearing at a healthier price level?

First of all, I hope that we haven't said that we're going to offset the impact of fleet cost with pricing. I think what we probably said is that given the fact that fleet costs are increasing for everybody, given the used car market that everybody benefited from last year, there's going to be a natural inclination to try and maintain margins by raising pricing. But I want to be clear that I don't think we've ever said that we're going to offset the impact of $125 million fleet cost benefit with pricing this year.

No. Partial offset.

Well, I'm not sure that we've ever quantified whether it's largely, marginally or partially or significantly, but either way. Secondly, in terms of the tenor of pricing, as you know, where we're getting the price increase is in the spot market. Spot market tends to be more leisure-oriented, and what you should expect is that there's more pricing strength in Budget than there is in Avis. So, although I will tell you on the leisure front, both Avis and Budget are up. The tenor is quite good. I think we've pointed out we posted 4 price increases this year with 2 to come in March. The adoption rate from the competition is mixed, but on balance, good. I think the Enterprise complex has been a fast follower in almost all of it, and Hertz, Dollar is mixed. I mean, in some cases, they were quick, in other cases, they're not so quick. But all these things are driven by fleet positions and markets. And so you can expect somebody to go on with a price increase if they're over-fleeting in a particular market. They're just simply not going to eat the fleet to do it. But I have to say that the pricing environment is really the best that it's been in the last 3 or 4 years and it always gets tougher in the second quarter, particularly given that Easter's now in the first quarter this year. So we'll see where everyone's spine and backbone is in the second quarter on pricing. But we're going continue to be aggressive. We're going to do what's in our best economic interest.

Okay. And a couple of housekeeping questions. Any visibility into the depreciation going into 2014? That is has most of the benefit of some of the residual role, some of the gains on sale rolled off, or are there still some benefit of it in 2013 that means that 2014 will go up from where we are here?

Brian, wow, I guess the disadvantage associated with providing 2013 guidance is that the questions about 2014 begin. I think it's, obviously, 2014 fleet cost will depend a lot on where the model year 2014 negotiations land, and it's too soon to handicap that. But as I look at the 2013 numbers that we're forecasting, I think they represent a normalized level. There's nothing in there that I think of as pushing them particularly in one direction or another versus what I would consider normalized.

Okay. And any improvement opportunities in Trucks? Is that kind of where you want the margins and is it -- I know it shares many Budget locations, is it a kind of critical business for you?

I think there are significant opportunities in Truck, but they're longer term in nature. As we talked about last quarter and as I mentioned today, we are in the process of repositioning that business to be a somewhat smaller, and hopefully, more profitable business over time. That process is going to take at least the first 6 or 9 months of 2013 and possibly close to the entire year. But we view that as a significant opportunity for us over time. I think it's a valuable business to us. It's an effective use of the -- or expansion of the Budget name. And clearly, at this point, it does only represent around 6% of our revenue.

Our next question, Chris Agnew with MKM Partners.

David, I know you touched on this in the script, but there is quite some confusion on fleet costs and I guess in comparison with Hertz. They're guiding fleet cost per unit down -- flat to down 1% to 2%, North America. And even excluding the timing difference you outlined, the 13.5% or the $125 million, there's still a fair delta to guidance. So would you mind sort of clarifying and giving a little bit more color on why you see the difference there?

I'll try, Chris. It's a little bit hard because Hertz hasn't shared the details of their analysis with me, nor do I expect them to. We are clearly seeing some inflation in the cost of program cars, as well as in the purchase prices of risk cars. And that is clearly a driver, in our view, of some increase even aside from the benefits in 2012 that we've identified. I do know that -- we all know that Hertz is obviously combining with Dollar Thrifty. I don't know what impact that has on their aggregate numbers. I don't know whether there are any purchase accounting issues. So it's hard for me to know exactly why the 4 or 5-point difference that you're talking about between us and them is there. And then the last point that could be part of it is our mix. We've definitely been adding some higher end cars to our mix. We've got -- we should have double the number of BMWs in our fleet this year than we had last year and that is having some impact as well.

And Ron, can you describe the pipeline for tuck-in acquisitions and maybe give some color on what types of transactions you would like to look at?

The pipeline is always fairly robust. And I would say that it tends predominantly to include licensees more in European markets and international markets than it does in the domestic markets. Our domestic licensee population is actually fairly small. And I would say that in the European operations, the principle objective here is to expand the distribution capability of Budget. So in non-licensee acquisitions, you're likely to see small rental car competitors that are in the value end of the spectrum that we could co-brand and then ultimately, rebrand Budget as a way of expanding our distribution footprint. And that expands your ability to do partnership arrangements, and obviously, drive overall revenue and volumes. So how many of these we'll actually close on, Chris, is a different issue but there is -- and certainly, none of these are large. I would -- a big licensee or tuck-in acquisition for us would be in the $30 million to $50 million range. But generally, they all tend to be a little smaller than that.

Our next question, Adam Jonas with Morgan Stanley.

This is Yejay Ying for Adam. Not to beat a dead horse on the pricing environment, but there seems to be couple of different factors going on in the pricing environment right now. The first is that the rental industry, historically in the past, has been able to use rack pricing to offset -- partially offset rising fleet costs, which you're obviously seeing going up now. The second is the thesis that the pricing structure and the pricing discipline of the industry has significantly improved compared to the past. Could you give us a sense of how different the pricing environment is now compared to past fleet cost cycles where you were also seeing rising fleet costs?

It's hard to relate it to fleet cost. I think that -- I think fleet costs clearly are the driver behind people wanting to increase pricing. But I think it gets down to the fact that everybody enjoyed fairly significant benefits from high residual values that were somewhat occasioned by a lot of different things over the last 2 years and going into the 2013, margins, as fleet cost normalized, margins probably looked like they were getting compressed and so, there's an effort to maintain margins and we're pushing pricing up. I think the environment actually seems to be good for that. We're moving pricing up. As I said, we led 4 price increases and the competition seems to be following in varying degrees. So I think they're experiencing the same sorts of things that we are.

Would you say those price increases have been stickier than -- versus in the past? And like have your competitors been following faster than in the past or is it that just too hard to compare?

It's hard to say stickier because if you do 4 price increases in 2 months, they are -- and your pricing isn't cumulative, that's -- these things just -- fleet doesn't stay static. It moves around, and so as you get -- as your fleet gets out of balance with demand, you lower the price so that you're not carrying a lot of excess fleet. So that's what tends to happen. What I would say is that I think people are following faster than in the past. I think within a few days, we have a pretty good sense of whether our price increase is going to stick at least for 1 week or 2.

Our next question comes from Fred Lowrance with Avondale partners.

Maybe we'll save it for next week, David, when I see you. But I still don't quite get the disconnect between the -- on the fleet cost side where over the past few years, you guys and Hertz, on at least in absolute unit basis in terms of like $250 per vehicle per month, have been turning around the same levels for depreciation over the last few years. So obviously, this, all of a sudden the 30-ish dollar GAAP up for you guys is a little bit confusing, but we'll save that for another time. I'm just more curious on pricing. My data seems to show me that into 2011 because of some over fleeting which carried into early 2012, that normal seasonality on pricing maybe was disrupted and that what we're seeing right now on pricing is maybe just more a return to normal seasonality? Can you discuss how much of this is just normal seasonality and how much of it you think is people really wanting to push prices higher than they would've been, say, if the industry hadn't been over fleeted back at the end of 2011?

Sure, Fred, I do look forward to connecting with you next week. I think the -- as we look at seasonal factors and other trends that could be driving things, whether any spillover effects from the hurricane and so forth, we're trying to sort all of that out. And it's -- the data points are still relatively limited. And I think that's why Ron, in his comments earlier, wanted to share what we're seeing, which is positive and encouraging, and in some ways, a bit different from the past. But also cautioned that it's early to draw our conclusions about how this will sort out. There were issues last year in terms of volumes in Florida, into Florida being relatively weak, amid a very mild winter across the northern part of the country, and that clearly may have an impact as well. But I think what we're seeing is what feels like a healthier environment for pricing, amid some increases, in our case any way, in fleet cost, and that's encouraging to us and something that, in terms of our own pricing, we're actually actively pushing for. I think another element worth remembering is that 2 points of pricing, which is obviously the difference between say being down 1 and being up 1 is $0.80 a day. And so the moments were talking about in the scheme of things aren't all that great and continue to keep the product and service that we offer very attractive from a customer standpoint. That makes a difference to our margins and to our numbers. But the movements, in terms of aggregate dollars per day are relatively small here. I think the last point I'd mentioned, and just coming back to the topic we agreed to table in terms of the difference in fleet costs, it would certainly be that when we were looking at Dollar Thrifty, we expected some synergies in the -- some significant synergies in the area of fleet cost. And that -- and clearly, I think that was part of -- I have to imagine that was part of what Hertz was looking for as well. So that could be played into some of the numbers being different as well. That would be -- shouldn't be a surprise to anyone since that was part of what everyone talked about in the deal.

We have time for one question. Steve O'Hara with Sidoti. Stephen O'Hara - Sidoti & Company, LLC: Could you just talk quickly about the gains that you had in 2011? I mean, I think they were in excess of $200 million. The gains in 2012, $125 million. So the impact seems a lot bigger in 2013. Can you just kind of quickly describe why there would be much -- the impact would be much bigger in 2013 rather than 2012?

I think so. The gains that we reported which, as you point out, were over $200 million in 2011 and work out to just around $100 million of reported gains, are part of the issue. The other part is that as we saw the used car market being strong and stronger than we expected in early 2012, we adjusted our depreciation rates on vehicles to reduce the amount of depreciation, which in turn would reduce the amount of gains that we would report. And this is what we typically do, which is adjusting our depreciation based on expected residual values. And as a result, the gain figures themselves don't tell the whole story. There's also the issue of the effect of changes in depreciation that impacted 2012 results as well. So I think that was -- that may be part of it. Stephen O'Hara - Sidoti & Company, LLC: Okay. So I mean, if you didn't adjust your depreciation rates in 2012, I mean in terms of maybe 2013, what would the fleet cost be looking up this year kind of without that change?

Yes. Without the $125 million benefit, we'd be talking about a, what works out, I believe, to a 2% to 7% increase in our North America fleet cost on a per unit per month basis.

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

Thanks. Before we close, I think it's important to reiterate what I believe are the key takeaways from today's call. One, North America pricing trends have improved considerably and we are cautiously optimistic that pricing in the first quarter could be up year-over-year. We do remain enthusiastic about our pending acquisition of Zipcar and hope to be able to close the acquisition in March or April. And remember, were it not for last year's fleet cost benefit, we would be projecting an increase in earnings for 2013. And finally, we do believe we have the opportunity to reach $1 billion in adjusted EBITDA by 2015 for many of the reasons that we laid out today. With that, I want to thank you for your time and I look forward to seeing many of you over the course of the next quarter. Thanks so much.

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