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

Thank you, Joanna. Good morning, everyone and thank you for joining us. On the call with me are Larry De Shon, our Chief Executive Officer and Martyn Smith, our Interim Chief Financial Officer. Before we begin, I would like to remind everyone that the company will be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause actual results to differ materially from such forward-looking information. Such risks, assumptions, uncertainties and other factors identified in the company’s earnings release and other periodic filings with the SEC as well as the Investor Relations site of the company’s website. Company undertakes no obligation to update or revise its forward-looking statements. Our comments today will focus on our adjusted results. We believe that our financial performance is better demonstrated using these non-GAAP financial measures. All non-GAAP financial measures are reconciled from the GAAP numbers in our press release and in the earnings call presentation, which is now available on our website. With that, I would like to turn the call over to Avis Budget Group’s Chief Executive Officer, Larry De Shon.

Thank you, Neal and good morning. 2018 was a successful year for our company reporting our ninth consecutive year of revenue growth increasing adjusted EBITDA by 6% and expanding margins. Our results were particularly strong in the Americas this year with adjusted EBITDA growing 15% and margin expanding 100 basis points. We achieved this by driving profitable revenue growth, including higher underlying pricing, highlighting the benefits of our new revenue management system, which we finished rolling out across the United States in Q4. Our results also benefited from a 7% reduction in per-unit fleet cost and higher utilization for the year. We ended the year on a very strong note by delivering a record fourth quarter profit performance as our Americas segment pursued pricing over volume in the quarter, yielding 2.5% higher revenue per day, our best year-over-year increase in pricing since 2014. Our strong pricing performance and substantially lower overall per-unit fleet costs enabled us to grow our adjusted earnings per share by 18% and we plan to continue pursuing pricing over volume as we enter 2019 to provide ourselves even more opportunities to improve utilization and increase rate. I will let Martyn review the quarter and our guidance for 2019, but before doing so, I wanted to spend a few minutes reviewing our overall strategy and highlighting some of our achievements this year. Starting with profitable revenue growth, a number of years ago, we embarked on a journey to improve the rental experience we offer customers by making renting a car more transparent, convenient, personalized, and seamless. Today, customers can use our award winning Avis mobile app to make, modify, or cancel a reservation, view available cars and choose the exact car they want before getting to the lot, flash the lights to locate their vehicle, lock and…

Thanks, Larry and I appreciate the comments. We have done great things at Avis Budget since I joined more than 1.5 years ago. And I have really enjoyed my time working with you and the team again. I believe the company has a great future ahead of it and I wish you all the very best. With that, I am now going to discuss our fourth quarter and full year results along with our cash flow, liquidity and outlook for 2019. My comments today discussing changes in revenue per day pricing and per-unit fleet cost will all refer to changes in constant currency, i.e., excluding exchange rate effects. I will also focus on our adjusted results which are reconciled from our GAAP numbers both in our earnings release and earnings call presentation. Firstly, starting with an overview of our fourth quarter for the total company, a combination of 3% overall volume growth, strong Americas pricing and 6% companywide lower per-unit fleet cost enabled us to grow adjusted EBITDA in constant currency by 4% in the quarter, being up 1% after a $3 million adverse impact from foreign exchange, with adjusted earnings per share increasing by 18%. For the year, we increased revenue by 3% to $9.1 billion driven by 4% overall volume growth and reducing companywide per-unit fleet cost enabling us to deliver a 6% increase in adjusted EBITDA with margin expanding by 30 basis points for the year. Overall fleet interest expense was up $28 million primarily due to higher North American interest rate what was largely offset by an $18 million benefit from foreign exchange movement, a 28% increase in adjusted earnings per share was achieved through higher adjusted pre-tax income, a lower effective tax rate of 27% and a 6% reduced average share account. Moving now to…

Thank you. [Operator Instructions] Our first question comes from John Healy from Northcoast Research. You may ask your question.

Thank you. Larry, I wanted to ask just kind of a big picture view on capital allocation. I know you guys have done a nice job of balancing, returning capital to shareholders and still investing in the future. But if I think about everything that’s going on the business, there is a lot of potential, and I wanted to get your thoughts about capital allocation going forward, if we should expect you guys to continue to shrink the share count a few percentage here, or may it make sense to be more aggressive with the type of investments that you’re making in the businesses like Fetch or – and even on the investment side of things, are you looking at mobility from a larger context, excluding the consumer and thinking about remarketing, thinking about auctions, there are a lot of changes going on there with some of those businesses. And I was curious to know you guys, as you define mobility or defining it outside of the rental business itself?

Yes, John, I think we’re keeping our definition of mobility fairly open and broad at this point of time looking for opportunities that makes sense for us that both align with what we know how to do and do well every single day. So, from a capital allocation perspective, I don’t think we’re literally limiting ourselves in any way. We’re keeping our options open. At this time of the year, we’re always planning on how we should approach to capital allocation for the year. As you know, we don’t buy much stock back in the first – really all in the first quarter and really very little in the second quarter. We tend to buy it more in the back half of the year. We really have to see how our acquisition pipeline matures as we go throughout this year. We have some opportunities that we think that are out there, but we want to make sure that we understand that. And yes, we are looking at other types of mobility investments like we made in Fetch. So, I think the options are all open. What we want to do is do the – make the right investments that makes sense for us on improving our profitability in the short-term, as well as setting us up for success as we look at how mobility will evolve over the long-term. And of course, we always keep an eye to returning free cash flow to our investors as well. So, it’s a balancing act between where all the opportunities are and what will really drive meaningful EBITDA opportunities for us going forward, but we’re leaving our options fairly open and fairly wide.

Great. Thank you, guys.

Our next question comes from David Tamberrino from Goldman Sachs. You may ask your question.

Great. Good morning, Larry. I have two questions for you, one, a little bit near term and the next one on the Connected Car piece. You mentioned in the prepared remarks that you’re seeing some weakness from the government shutdown in January. Just trying to gauge how much of an impact that’s really having on your business. I know, first quarter is generally seasonally softer and it sounds like with the Easter shift it’s going to be a little bit more softer, but I did see one of the trade publications on rental cars saying that rental bookings maybe dropped about 50% year-over-year in January. So, I want to see if that’s – how much we should be thinking about for your business or if that’s a little larger than what you actually saw?

Yes, good morning, David. Yes, the report on the very large drop in government business, we did not see that kind of drop. What I would say is, if you look at how we trended in the government segment all year along, we did see a change in that trend in January and then it came back to where it was in February. So, you’re right, January is not a huge month anyway, but there is definitely a change in how we’ve been trending, how we’ve been growing the government segment all year long, but it’s nothing to the effects of that were – what was in that article.

Okay, good to know. Second, just on the Connected Car piece, how much, if any, of an improvement you’re expecting in your 2019 guidance from being able to recoup more for fuel from accurately gauging it from increasing or improving your operations, improving your utilization as a result of your current connected fleet or is – are those benefits still 2019 plus to 2020 beyond?

Yes, we’re actually learning a lot as it relates to Connected Car. As we get more and more cars in-fleeted with the connectivity, it allows us to kind of broaden our scope as far as our operations as the opportunities that are out there in more and more locations. Kansas City [ph] our Mobility Lab, and that’s where we really focus our attention from a learning perspective. And we do see opportunities as we manage the fleet, get assets back faster, particularly those that are overdue. We do see the benefits of collecting gas, it’s not exactly where we want it yet, so we want to get that penetration even higher. So, there is a lot of work that goes into using the technology and then making sure that everything works to the point that you can really operationalize it and maximize the opportunity of it. So, there’s a lot of learnings that we go back and we put back in place, there’s a lot of learnings that we take from it that we have to then go back and refine our technology, and then we’re getting more and more OEMs on to this as well, and then with each OEM that starts delivering Connected Cars, there is a learning process that goes back and forth as well. So, this is going to be an evolution over a long period of time. As we improve gas collection, as we improve asset control, which then improves our utilization, and a number of other things around like managing miles, for example, across the network of our fleet in a much more efficient way than what we could do without it, without the connectivity. And this year what we’re doing is, we’re building out our next-generation platform, because there’s one thing for the cars to be able to generate data. It’s another thing we’d be able to operationalize the data to be able to use it and do the right data analytics on it and turn it into action in the automated way. Without that, it’s just really a lot of data. So this is a year that we’re dedicating to really building out the technology that enables us to take advantage of what the data can actually do for us. So, I would say that the benefits are really more in the longer term, yes, there are some short-term benefits in 2019, which we will take advantage of, but I would really think of it more 2020, 2021.

Understood. That’s very helpful. Thank you, Larry.

Our next question comes from Chris Woronka from Deutsche Bank. You may ask your question.

Hey, good morning, guys. Had a quick another short-term question and then another one on partnerships. But in terms of the ancillary, do you guys think that turned the corner in the fourth quarter? Did that help the RPD at all, and then kind of how do you see that unfolding throughout 2019?

Yes, I’m pretty pleased with what the team has done with our ancillary revenue. They’ve tackled this from a number of fronts, as you know, it’s just hunted us all year long. We have started to turn that ship now and it’s a big ship to turn I have to say, but they’ve put in a number of initiatives not only from new product offerings to automation, technology that allows us to sell to the consumer online, running several different tests around different kinds of bundles and packages that might make sense, some of them do, some of them don’t. So, we’ve learned from that. We keep running different opportunities like that to learn from. New incentive programs for our rental sales agents that tie-in Net Promoter Scores along with the incentive pay, and the test markets we’re running that is proving to be quite successful. So, we have a number of initiatives that are all starting to kind of hit their pace now, and I think collectively come together to really present a better opportunity for us in 2019. So, I’d say that the ship is kind of now finally starting to turn in the right direction and we’re hoping that as we go through 2019 that we’ll start to see the benefits of that play out every single month as we continue to kind of grow these opportunities. So, I think we’re in the right place, I feel really good about where we sit right now with this program.

Great. That’s helpful. And then just on some of the initiatives you’re working on outside of the core business working with some of the municipalities and such. How do those – what’s the nature of those interactions? Is that a pull from – or a push from you guys or a pull from them and how do you kind of see those opportunities in terms of how big the landscape is going forward?

We’ve been in discussions with a number of municipalities. We have really good relationships through our Zipcar brand, who work with municipalities all the time. So, we are in constant conversation with them, so it’s kind of hard to remember kind of where the idea started. I think some come from municipalities and some come from us, but there’s a lot of excitement as you know, most big cities are really looking at how they’re going to plan for mobility in the future and do it in a planful way that it creates more opportunities for them than havoc or gridlock. So, as we’ve been in discussions with them, there’s obviously a role that we can play. Kansas City is probably the most advanced, because not only do we have our Mobility Lab there, but we have a very engaged city that wanted to really work with us as they were also looking at their Smart City initiatives, but there are number of cities out there that we’re talking to. So, we’re testing some things in Kansas City now, which allows us to work with the city to push information to consumers that are renting cars there that they might find helpful around entertainment or restaurants or things like that are just information about the city. So, I think we’re going to see more of this develop in 2019 and 2020, 2021 as we go forward. But we do get calls from a number of municipalities wanting to talk further about us about where we are in this and other technology will be developing in the pipeline going forward that can help enable this. And, of course, this all stems from Connected Car, this is the root of how we can offer these kinds of things to municipalities going forward.

Great. Thanks, Larry.

Our next question comes from Michael Millman from Millman Research Associates. You may ask your question.

Thank you. Just following up and then another regarding Connected Cars. Is there some simple-minded way I suppose for us from the outside to look at your statistics and say it’s working, is that utilization or it’s more broad and we have to look at the company as a whole? And second, unrelated has to do with securitization and asset-backed financing. Have you seen that become more difficult or is it easy for me to say just a matter of price? Thank you.

So, I’ll take the first question and then let Martyn take the second question. Connected Car is going to play itself out across a number of different metrics. So, there’s not just one that you can point to and say okay, that’s the metric. It will play out in gas collection, it’s going to play out in utilization, it’s going to play out in metrics around our assets, around salvage and damage, it will play out. And really everything – every process where we’ve touched the car from in-fleeting to de-fleeting can be impacted by connectivity. So, it’s going to play out across the operations and it’s going to play out also on the revenue side as we use connectivity to start being able to offer services and products to consumers in a way that they find efficient and helpful and useful for them and products and services they find relevant for their motivation for why they’re renting. So, I think over time, Michael, we’ll be able to point to it over time as we start really building it in a big way as we get the fleet that’s connected higher and higher percentage each year and as we take the learnings from Kansas City and start rolling them out into other markets, but we’re still very much in the very beginning stages of those as we ramp up the fleet, work with all the different OEMs, work with the third-party suppliers. And as we get everyone kind of in the cadence of the improvements that we want to see across a number of these different initiatives, that’s when we’ll start to see it roll through, but it will be really across the operation.

And Michael, just on your asset-backed question. So, we found – we’re in the market in the Q3 of last year, and then just very recently you’ve heard me say earlier about 3 weeks ago and we find actually demand is really strong for kind of quality credit. So, the higher costs we’re booking is to do with the fed curve, it’s not to do with the kind of credit spread. So, we’re finding a really strong demand, but the one I would say kind of mature credit story. And we continue to issue ABS Notes kind of unimpacted by what you kind of read, it’s not ABS, but we also did a high yield bond very successfully in October of last year as well. The credit markets are wide open I think for kind of quality.

Okay. Thank you.

[Operator Instructions] Our next question comes from Hamzah Mazari from Macquarie. Your line is open. You may ask your question.

Hi guys, this is actually Mario Cortellacci filling in for Hamzah. Could you talk to – I’m sorry, could you talk about how sustainable these levels of leisure pricing are? And on the commercial side like we realized that the small business is little more spud and a little more tied to or at least moving in the same direction as leisure. But on the large commercial side, when does that big contracted book of business turnover?

So on – as far as the leisure side, I think it really – what we’ve done is, we’ve built a revenue management system that looks and finds opportunities to yield rate when the fleets are aligned in the industry. And so what we saw in this past quarter is that there were a number of yielding opportunities throughout the quarter that allowed us to kind of drive that kind of rate on the leisure side, particularly, the holiday period, Columbus Day, Thanksgiving, Christmas drove a very high rate per day over those periods of time. And that’s why we’ve built the system and we get smarter with how we use it, and we’ve now rolled it out in the fourth quarter to the remaining markets in the country. So, the entire United States now is on the full system. And we’ll be rolling in Canada out this year and we’ll start in EMEA kind of towards the end of this year and into next year. And so that’s why we’ve built the system and we get better and better in how we use it, but it needs to find those quality times, if you will, to find those yielding opportunities and we then yield – we yield farther out in advance to be able to put most of our fleet into the yielding opportunity. So, as long as fleet stay reasonable in the industry and stay kind of tied to the industry, we’ll continue to look and find for those opportunities to yield our rates. As far as the commercial book of business, look I was really pleased to see in the fourth quarter that we kind of started to turn the tide on that, which has been a multi-year decline to have volume up in commercial and also…

Got it. Okay. And could you give us a sense of your thoughts on potential impact on the used car pricing given where new car inventory levels are or maybe what we could see if incentives pick up on new cars. Just kind of overall, how do you think about residuals going into 2019, and where do you think they could potentially. I’m sorry, where you could potentially be wrong on those assumptions?

We put into our guidance where we thought our used car pricing is going to be for next year. So, our fleet cost per unit is going to be next year, but we are expecting residual values to decline. But we’ve got a lot of things going in our direction – going in the right direction for us as well. Don’t forget, we’ve not fully matured in our ability to sell through alternative channels and within the alternative channels, we still need to move our segments to be able to drive more direct to consumer. So, if you look at the fourth quarter, we moved our alternative channel penetration from 54% the previous year to 67% this past year. But we still have a – we still have a long ways to go. Within that, we’re still selling heavier to direct to dealer, although we have been improving our direct to consumer, we have opened lots last year and our retail lots are starting to really get their momentum as well and we’ll plan to open new lots again this year. So, we want to continue driving direct to consumer, which will also benefit us. I think the second area, where we have an advantage that we are continuing to play out is just the data analytics and the data science we’re putting behind our acquisitions and our and our dispositions. We’re just getting a lot smarter about what we buy, what trim levels we buy it in, what colors we buy it in, where we in-fleet it, where we exit it, what time of the year we exit it, what mileage we exit it down to the derivative. And that’s way more science analytics than we’ve ever done in the past and that also is helping us outperform the market. So, I think a combination of all those things will help us continue to take advantage of the market in the right way. You saw us sell a lot more cars in the fourth quarter this past quarter than we did the previous fourth quarter. We did the same thing in the third quarter. We’re taking advantage of the markets when it makes sense and we’re trying to sell cars in the right place at the right time. So, all this coming together, I think can really help our performance go forward and offset some of the impacts that we might see from residual values declining.

Great. Thank you so much.

Our final question comes from Derek Glynn from Consumer Edge Research. You may ask your question.

Good morning and thanks for taking my questions. How do you view the trade-off between pursuing pricing versus volume and how do you balance those two? And are you willing to see share to generate positive pricing growth?

Balance is the right word to use. It is a balance, and we think that we can maintain our share and drive pricing when the fleets are aligned in the industry, and that’s what we saw as we looked in the last few quarters last year. So that’s going to be the – that’s our goal, that’s why we’ve built the system, that’s why we’ve built the FE is to continually get smarter and find those opportunities to find those yielding opportunities when the fleets are going to be forecasted to be just right. And so the more of those we can find in more markets and more days of the week and more car classes and more lengths of rentals, it matters, it makes a big difference, and it’s way more complicated than any group of revenue management people could ever do without it. So, we are being able to look at a lot more markets to make a lot more price changes in the market and being able to forecast further out which gives us the confidence to hold our fleet and for closer bookings, because we believe that they will be able to yield up when fleets tighten up. If something happens in the industry where fleets got completely out of wax and we would have to reconsider that position, but that’s not in the position in the industry now for quite a while. We have been seeing fleets aligned in the industry as you look past all of last year and we are continuing to see that. So I think we feel good about the strategy and we are going to continue to pursue the price of revolving strategy going forward and that’s why we built the system and that’s why we have gone through all of this several years of development of this.

Thank you. I appreciate that color. And just secondly given the relationship you have with the ride hailing companies to send rentals to their drivers and given the size of that platform, is there an opportunity for you to integrate your full service offering directly within their app not for a driver, but for a traditional leisure customer who may want a longer length rental?

I am sorry you said not for the driver, but for…?

Right. But for a traditional leisure customer who may want a longer length rental, just wondering because given the size of the platforms and the relationships you already have in place, if there is a way for you to tap into their network through integrating your app directly within theirs?

Yes. We actually did that with Didi in China, so we are on their app where customers that they are looking for something that a car hailing solution wasn’t the right solution for then we were on their app where they could book a rental for a different kind of use case was – is what you are referring to. So absolutely we are open to those conversations and those opportunities. We have a great relationship with car hailing companies and we continue to work with them. We have integrated on to Lyft after their drivers as we roll out the providing vehicle for their drivers as we go forward as we mentioned we are already live in Chicago and Atlanta having a number of cities that were going to be rolling out as well and that is the drivers we book it on the driver app directly as we have full integration for our APIs. So absolutely we are up into those opportunities. And like I have said we talked to the car hailing companies frequently about other types of opportunities that we could do together.

Great. I appreciate it. Thank you.

For closing remarks the call is being turned back to Mr. Larry De Shon. Please go ahead sir.

Thanks. So to summarize a combination of good volume growth, strong pricing in the Americas and lower per unit fleet costs enabled us to grow earnings and expand our margins in 2018. We have a lot of exciting things going on in our company, only some of which we discussed today. Looking forward you should expect us to continue to invest in our future by leveraging innovation, to build on our position as the leading global provider of mobility solutions while also balancing this against our goal to consistently improve our profitability. With that, I want to thank you for your interest in our company.

This concludes today’s conference. You may disconnect at this time.