Hello, and welcome to the Hertz Global Holdings Fourth Quarter and 2012 Earnings Conference Call. The company has asked me to remind you that certain statements made on this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance and by their nature are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only of this date, and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements is contained in the company's press release regarding its fourth quarter results issued this morning and in the Risk Factors and Forward-Looking Statements section of the company's 2011 Form 10-K and 2012 quarterly reports. Copies of these filings are available from the SEC, the Hertz website or the company's Investor Relations department. I'd like to remind you that today's call is being recorded by the company and is available for replay starting at 12:30 p.m. Eastern Time and running through March 11, 2013. I would now like to turn the conference over to our host, Leslie Hunziker. Please go ahead.

Good morning. You should all have our press release and associated financial information. We've also provided slides to accompany our conference call that can be accessed on our website at hertz.com on the Investor Relations page. Today, we'll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and at the back of the slide presentation, both of which are posted on our website. We believe that our profitability and performance is better demonstrated using these non-GAAP metrics. Our call today focuses on Hertz Global Holdings Inc., the publicly traded company. Results for the Hertz Corporation differed only slightly, as explained in our press release. With regard to the IR calendar, we'll be presenting at the JPMorgan Leveraged Finance Conference in Miami tomorrow, the JPMorgan Gaming & Lodging Conference in Las Vegas on March 8 and the CSFB Global Services Conference in Phoenix on March 11. And then on April 2, we'll be hosting our 2013 Investor Day and Financial Modeling Workshop in New York City. The agenda and registration information will be sent out later this week. This morning, in addition to Mark Frissora, Hertz's Chairman and CEO; and Elyse Douglas, our Chief Financial Officer, on the call, we have Scott Sider, Executive Vice President and President of Vehicle Rental and Leasing, The Americas; Michel Taride, our Executive Vice President and President, Hertz International; and Lois Boyd, Executive Vice President and President of Hertz Equipment Rental Corporation. They'll be on hand for the Q&A session. Now I'll turn the call over to Mark.

Good morning, everyone, and thanks for joining us. 2012 was a remarkable year for Hertz on many fronts. Through organic initiatives and acquisitions, all of the strategic pieces of our portfolio are now in place. Let me start on Slide 5. From a strategic perspective, we have 4 sizable growth businesses that recorded another year of double-digit revenue improvement, exceeding their respective markets' growth rates. Leisure value rental car, on Slide 6, is the fastest-growing segment of the U.S. airport market. It's a segment where we've wanted to operate on a national level for some time. In 2012, after an unusually drawn out regulatory process, we finally were able to acquire Dollar Thrifty, which closed on November 19. As we work through the early stages of the integration, we have found a well-run company with strong human resources and opportunities for additional synergies, particularly in the areas of fleet and IT, which I'll talk about in a minute. These brands have a lot of potential for Hertz, and therefore, we expect to continue to generate double-digit growth in the value segment as we did with our recently divested Advantage brand. Despite little to no investment in 2012, Advantage U.S. revenues were up more than 25% and its adjusted pretax income nearly doubled. The scale and brand cachet of Dollar Thrifty, along with its higher price point and national scope, upgrade our position in the airport value segment while presenting new opportunities off-airport and overseas. Moving to the next slide. Another recent acquisition is already generating double-digit growth. We fully integrated Donlen Leasing business in 2012, cross-training our respective sales forces, launching 5 new products and services and securing run rate revenue of about $45 million from new accounts. As a result, Donlen's total revenue increased 16% to $471 million last…

Thanks, Mark. Good morning, everyone. Let me begin on Slide 21 by reviewing our fourth quarter financial results. On a consolidated basis, we achieved a record fourth quarter revenue of $2.3 billion, an improvement of 15.1% over the prior year. This record stands even if we exclude the 45 days of revenue earned from the November acquisition of Dollar Thrifty. On a GAAP basis, we recorded a pretax loss of $40.3 million in the fourth quarter, which includes $144 million of acquisition costs related to the Dollar Thrifty acquisition and sale of Advantage. These costs represent $0.24 per share on a GAAP basis. If you back out those costs, instead of a $0.09 loss, it would be $0.15 of earnings. Adjusting for these costs and other noncash and onetime items, we delivered record adjusted pretax income of $213.5 million, an increase of 29.3% over the similar 2011 quarter. In addition to the benefit from revenue growth, we improved depreciation expense as a percent of revenue by 230 basis points, as monthly depreciation per unit for worldwide RAC was 14.5% lower than the fourth quarter of 2011. Direct operating expense increased slightly as a percent of revenue, reflecting the addition of Dollar Thrifty. We also had a difficult comp in the 2012 fourth quarter due to a large property sale gain in the prior year. Adjusted net income was up 35.5%, resulting in adjusted earnings per share of $0.33 a share, an increase of $0.09 or 37.5% over the 2011 fourth quarter. The 2012 3-month earnings were calculated using 421 million shares. In instances where we have a GAAP net loss, we are required to use a basic share count. The opposite is true when we record GAAP net income. So for example, the full year share count is fully diluted…

Thanks, Elyse. As you can see, we made substantial progress on the actions we outlined last year to further penetrate equipment rental end markets, generate revenue synergies with Donlen, expand our insurance replacement network and add a national value brand in rental car. We've never been in a better position strategically in the rental car business. We've long enjoyed the #1 premium preferred brand, and now we've added 2 established value brands, which we can grow across Europe and through our travel partnerships and use to accelerate our off-airport business. And in the off-airport business, we'll also be incorporating and rolling out new technologies that enhance our car-sharing model this year. Company-wide, we'll drive growth and further improved profitability by continuing to make smart investments. While very disciplined in our approach to capital spending in 2013, we expect to invest in new disruptive technologies for rental car that are in line with our asset-light strategy and will ultimately reduce costs and drive revenue through greater customer satisfaction. Additional investment will be made to grow our equipment rental fleet, sales force and location network as the cycle continues to advance. Of course, in 2013, we'll also be spending on the integration of Dollar Thrifty, which we now think can deliver an estimated $300 million in cost synergies and another $300 million of revenue synergies. The additional $100 million of cost synergies will take longer to realize than 2 years, because a good portion of them relate to technology opportunities that have a longer implementation period. Timing of the revenue synergies are tougher to forecast because we're only just beginning to test the waters. Now let me walk you through the rest of the guidance and talk about some of our other assumptions. I'm starting on Slide 38. With 2 months behind…

[Operator Instructions] We'll take our first question from Brian Johnson with Barclays.

I just want to drill down on pricing, a housekeeping question and then kind of a market temperature question. On the housekeeping, when you say worldwide pricing flat year-over-year, is that to the as-reported Hertz Corporation RAC, or is that to as if you had owned DTG and had divested Advantage?

It's just everything. Yes, I mean, everything, Brian. So it relates to all the above, and it's saying that in the Europe and in -- it's as reported. I guess that'd be the best way to define it. Anyone else in the room want to...

It's just RPD year-over-year.

Yes. Okay?

We'll go to the line of Michael Millman with Millman Research.

Regarding prices, well, you said January was up 6% for Hertz, and for the year, you're kind of talking about flat. So could you talk about whether you think that January, basically easy comp and not continuing or you're being super conservative, or is there something else that we should be aware of?

Well, I guess in terms of our assumptions, we've built that into our assumptions, and then you can judge what you want. I mean, obviously, January was a high watermark, but what you need to understand about January is that we finished the year with longer fleet length rentals and a strong holiday season. So the actual revenue per day actually kind of flowed into January as well. So it kind of inflates January a little bit more than what January probably actually was, and that's true of all rental car companies. So while January looked really great, we would expect some of that was artificially inflated. February we believe is strong as well. Where this thing goes, no one knows. And so we always try to be conservative on pricing because what we don't want to do is mislead investors. So the assumptions are what they are, and it's based on what we see going forward. And hopefully, the environment is more positive than what we see. So at this point, it's a positive environment, and we're hopeful. As I've said in the past, usually when fleet costs go up, pricing goes up with it. Usually when residuals go down, pricing goes up. So we're hopeful the overall environment continues to be positive.

Our next question is from Christopher Agnew with MKM Partners.

Good to see you emphasizing free cash flow story, and I just wanted to dig into your '13 guidance. And you talked about raising non-fleet investments. Can you quantify how much above what would maybe be a normalized pace are those non-fleet investments in '13? And then very quickly, any update on your goal to become investment grade?

Yes, I think we're spending kind of probably a couple of hundred million dollars more year-over-year than we normally would spend. So then in terms of investment grade, I guess, I don't know, we feel like we still have the 2- to 3-year trajectory, where we'll be investment-grade statistic-wise, maybe faster than that, depending on the free cash flow. We think the company -- I mean, if you were to get rid of some of the investments that we're going to be making this year and next year, absent that, we're probably an $800 billion-a-year cash flow, free cash flow company. We expect to get at that level in the near-term future, near term being the next 2 to 3 years. So feel pretty excited about cash flow generation of the company. And while we make these strategic investments, a lot of them are asset-light and actually get us more profit and revenue than the existing kind of business model does. So they're investments, but they'll pay back in a higher ROI way than some of our traditional capital investments do.

We'll go to the line of Rich Kwas with Wells Fargo.

I'll sneak 2 in. Mark, what's the -- first of all, what's the U.S. GDP assumption for the year? And the second question is on '14 CapEx. I know you're not going to give guidance for '14, but just should we think about HERC gross CapEx, that's going to be down in '13 year-over-year. There's a non-res pickup later this year. Do you feel you have to spend a significant amount more money -- significant more money to get the fleet rightsized for resumption of growth in the non-res sector?

Okay, so U.S. GDP growth assumption was about 1.5% for this year. In terms of the HERC fleet growth, I'm trying to get the exact number here for you, but...

For '14?

Yes.

I don't have the number for '14, but what we're going to do is work both on really watching the market and also on utilization, our utilization metrics, to really improve performance around fleet.

Yes, in terms of fleet growth, we're really trying to drive more productivity on the assets rather than grow -- actually just, as you will, kind of build a field of dreams, throw fleet at it and hope it comes. So it really depends on the non-res construction growth. If non-res comes back hard, obviously, we're going to fund that growth. But at this point, again, pretty modest fleet growth this year, in fact, actually less than last year, and we'll see what '14 holds, depending on the non-res opportunity.

Next, we'll go to the line of Afua Ahwoi with Goldman Sachs.

Just switching targets a little bit. On the Dollar Thrifty $300 million revenue synergy, I understand you're still early in the process, but could you maybe help us identify some of the buckets you've found to get you to that $300 million number?

Well, yes, I mean, some of the big buckets would be, obviously, the travel partnerships that we have. They all want Dollar Thrifty, so I have -- we have a high share of airline partners, a high share of hotel partners, a high share of AAA. All those partners will get Dollar Thrifty in one way or another, and so those partnerships represent 30% of our revenues today at Hertz. Now we don't expect them to necessarily represent 30% of Dollar Thrifty's, but again, that will be an area of synergies. The second area of synergies will be the number of locations that we have today. Some of them will get Dollar Thrifty as a brand. So today we have 3,000 locations in the U.S. In Europe, probably 1,000 to 1,200. And we're not going to put them in every location, but a lot of our off-airport locations will have it. And then there is the brand that we had, which was Advantage, and that brand in Europe is certainly being replaced by another brand, and it's going to be Dollar Thrifty in some cases. So we'll expand in Europe significantly this year with the Dollar Thrifty brand. And I guess the only other thing in terms of revenue synergies that we're adding that I think is kind of noteworthy is the fact that we'll be giving some technology to Dollar Thrifty, which the fleet -- the fleet policies that we have with them and the way we work Hertz and the technology solution between the 2 companies, it's going to drive revenue growth. We're already seeing Dollar Thrifty grow significantly off of their base rate the last couple of years. Their growth today is probably triple what the growth was in the fourth quarter. They're having very strong growth rates, and our fleet-sharing is helping that. The fact that we're over-fleeted on the weekends and that's their peak, that's really driving revenue growth, and that's going to accelerate, we think, this year as we come up with our interim IT solution. So that's going to be a big area, just plain organic growth for Dollar Thrifty due to fleet-sharing that we're doing between the 2 companies, and they have countercyclical kind of fleet demand levels.

We'll go to the line of Fred Lowrance with Avondale Partners.

Two-part question here. Just, Mark, you already mentioned your fleet costs are going to be down in 2013. But then you've also done a good job in recent quarters, and here on this call, you're noting that generally, when fleet costs are up, pricing is up and vice versa. So with the backdrop of fleet costs being down this year, one, how much of that year-over-year decline is just a mix shift on Dollar Thrifty? If you could quantify that. And then secondly, when you've got at least one of your peers greatly incented to push pricing higher this year because of a huge fleet cost headwind, how are you thinking about where you are on a market share basis at this point and how that might impact your strategy on pricing?

Yes, well, I guess on fleet costs, one of the things that I think the -- just to make sure we get our point of view on fleet costs for the industry this year, we decided to try to look at the Manheim Index, MMR, which was down in December and in January. Down, when I say down, it was down sequentially from 124 in December in '12 to 123.4 in January 2013. It's also down year-over-year. Hertz residuals, however, on a year-over-year basis, are up 300 basis points in January. That's our residuals on the cars we sell, okay? So we went from 71.2% to 74.4% unadjusted. So I guess the only point I'm making on this is that while the Manheim Index and while people are kind of forecasting this headwind, we are not experiencing it, and it's due to the shift in channels, where we're selling the cars and how we're selling them, and that's improving our fleet costs. I mean, it's just lowering the depreciation per vehicle. Yes, you're right. Dollar Thrifty, their fleet costs, their average rate of -- depreciation rate per vehicle was lower than ours. That's helpful to us as well. But the other pieces, our cap cost, which is what we buy our cars at in the U.S., are lower year-over-year, and they're lower by over 1%. So we bought our cars for this year. We bought them right and bought them from a wide variety of OEMs. So our overall fleet costs are down there, and that's why we were bold enough to say that 2014 is another year that we'll see fleet costs being flat to down again. We're not -- this is not like a onetime thing for us. Our channel shifting is helping a lot. So I feel pretty good that we're in good shape on fleet costs for the foreseeable future and that we're bucking maybe some industry information that you see from Manheim. Second part of your question, about pricing, we are -- we certainly are willing to give up customers that, on a commercial level, are not profitable or barely profitable, and we are trying to really focus on profitable customer segments and profitable customers. So that's where we're trying to grow our share. So there's a lot of energy around that in our organization, so we're actually willing to give up share and retention in some cases. We're not really looking to -- in terms of pricing, just be there where the market is, take price wherever we can and chase profitable segments going forward. So we were chasing profitable segments last year, but we're probably raising the bar a little bit and our hurdle rate a little bit from where we were in the past.

We'll go now to the line of Adam Jonas with Morgan Stanley.

I want to go back to fleet cost again. You had previously guided to depreciation flat to down 1% or 2% as recently as the Detroit show and now expecting down 4% to 5%. I'm just wondering specifically what drove that change over the course of the last month. And I believe in your prepared comments, you said that you're, within the assumptions of fleet costs, that new prices, meaning your acquisition costs for fleet, should be down, but could you be a little bit more specific on what your assumption is of the underlying used market? And x DTG, x the DTG mix impacts, would you still be able to target lower fleet costs year-on-year?

Yes, absolutely. Yes, we would be able to target lower fleet costs year-over-year x DTG, no question about it. And so in terms of specificity, there's about 15 moving pieces. I tried to give you that in just the last minute or so before your question, so hopefully, that provided enough color for you to understand it. I gave you a 300 basis points improvement in our year-over-year residuals, which is not being experienced, my guess is, from competition or other people. So our strategy is what's driving it, and the depreciation -- lower cost depreciation of Dollar Thrifty vehicles drove it as well, but probably equal parts. I don't want to give you an exact number because, like I said, there are a lot of moving pieces. But I feel really good that regardless of whatever happens in the next 12 months, the next 18 months are going to be very good for us. So hopefully, that gives you about as much information as we have right now that we're disclosing on this.

We'll go to Jordon Hymowitz with Philadelphia Financial.

Most of my questions were answered. One quick question is, is there a limit on debt-to-EBITDA that you guys have?

No. No limitation.

And with that, that's all the time we have for questions today.

All right, listen, thank you all for listening in and appreciate the support that we've had from investors. Our plan is, again, to announce an Investor Day here this week and fill you in a little bit more, in a lot more detail, actually, when we have our Investor Day in April. Thanks, everyone.

Thank you. Once again, today's conference call is available for replay beginning at 12:30 p.m. Eastern Time and running through March 11 at midnight. You may access the replay system by dialing (800) 475-6701 or internationally, (320) 365-3844 and enter the access code of 280527. That does conclude our conference for today. We thank you for your participation. You may now disconnect.