Hertz Global Holdings Inc HTZ
Q1 2010 Earnings Call Transcript

Transcript Call Date 04/26/2010

Operator: Welcome to Hertz Global Holdings' First Quarter 2010 Earnings Call.

The Company has asked me to remind you that certain statements made on this call contain forward-looking statements within the meanings of the Private Securities Litigations Reform Act of 1995. Forward-looking statements are guarantees of the 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 as 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 first quarter results issued this morning, and in the risk factors and forward-looking statements section of the Company's 2009 Form 10-K. This filing is available from the SEC, the Hertz website, or the Company's Investor Relations department.

I would also like to remind you that today's call is being recorded by the Company and is also being made available for replay, starting Wednesday, at 9 am Eastern and running through May 10, 2010.

I would now like to turn the call over to our host Leslie Hunziker. Please go ahead.

Leslie Hunziker - IR: Good morning, and welcome to Hertz Global Holdings 2010 first quarter conference call. You should all have our press release and associated financial information. We also provided slide to accompany our conference call, which can be accessed on our website at In a minute, I'll turn the call over to Mark Frissora, Hertz's Chairman and CEO. Also, speaking today is Elyse Douglas our Chief Financial Officer. In addition, we have Scott Sider, Executive Vice President and President of Vehicle Rental and Leasing, The Americas, Michel Taride, Executive Vice President and President of Hertz International and Jerry Plescia, Executive Vice President and President of Hertz Equipment Rental. They'll be on hand for the Q&A session.

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 differ only slightly as explained in our press release.

Now, I'll turn the call over to Mark Frissora.

Mark P. Frissora - Chairman of the Board and CEO: Thanks Leslie, and good morning everyone. Thanks for joining us. I'm sure all of you have seen our announcement this morning on our acquisition of Dollar Thrifty. I'll talk more about it later in the call, so let me say briefly that this is a very important and strategic transaction for us and that it fills a gap in our product portfolio with a strong mid-tier value offering. Having Dollar Thrifty under the Hertz family of brands, product and services will allow us to expand our global presence, boost our market position and realize the financial benefits from the substantial synergies between the two companies.

Now, let's take a quick look at the latest quarter on slide six, and then we'll get into the details of the acquisition later on in the presentation today.

2010 is off to a very promising start. In the U.S., rental car volumes are exceeding our expectations, with strong advanced bookings through the peak summer season. Similarly, Europe's reservations for the summer months are robust as well, and while Europe rental got up to a slow start, today the rebound we're seeing is well ahead of where we thought it would be at this point in the year. So the momentum in rental car across the globe is very encouraging.

We're cautiously optimistic about the return of demand for rental equipment. In the first quarter we benefited from the industrial market's early recovery in select regions of the world. In terms of worldwide volume, from the trough to peak, between this January and April, units on rent are up 14.5%, and utilization has increased over the same period by 790 basis points.

This brought a bid of good news to the challenging market conditions for equipment rental overall. Seasonal weakness and a tough year-over-year comp are hurdles we were expecting, but the year-over-year revenue increase in our industrial business exceeded our expectation. The only concern we have going forward is whether pricing in the equipment rental market will improve at the same rate as volume.

In addition to the tough conditions in the equipment rental market for the first quarter, we had two unusual hurdles to overcome. The first was the severe winter weather that affected all of our businesses. We incurred lost revenue in the U.S. and in Europe due to rental cancellations resulting from the severe and erratic storms. We also had incremental cost related to snow removal. And rental car utilization was impacted by the volume interruption, as well as fleet redistribution due to an increase in one way rentals and reduced car sales when some U.S. auctions in the North East were negatively impacted by the harsh winter weather.

In February, we experienced a second disruption when Toyota issued a recall on its most popular vehicles. Ultimately, the recall turned out to be only a two week event and we've already been fully compensated for the lost sales and their associated costs. However, utilization in U.S. suffered, because in the end, we had to ground nearly 13% of our fleet while waiting for details on the specifications of the recall and the resolving repair.

When we first learnt about the recall, we had no idea how long our fleet would be out of service, so we immediately stopped deleting older cars and to a smaller extent took early delivery of future orders for some of our other OEM suppliers. This put us about a month behind plan with fleet sales in the quarter. The good news is that here, at the end of April, right now, we have the fleet right sized to the demand, which puts us in great shape heading into the peak summer months.

Overall, I'm really pleased with our financial performance at the beginning of the year, when you exclude the impact of weather conditions and this prior recall, even our utilization was in line.

On among the topic of fleet efficiency, let me take this opportunity on slide 7 to spell any notion you may have that we are over-fleeting based on inflated demand expectations, and therefore jeopardizing pricing for the sake of share. That's just nonsense.

In the U.S., we have improved fleet efficiency since 2007. In '07, it was 77.82%, in '08, it was 77.7%, in '09, it was 79.63%, and while the first quarter of 2010 was impacted by unusual situations outside of our control, efficiency, so far for April is slightly ahead of last year's level in the similar period. You just can't deliver high utilization if you are over-fleeted.

It's important to remember that Hertz is a highly diversified growth company, executing a much different model than our competitors. With that in mind you understand that we're fleeting appropriately to capture the recovering base demand, including the strong return of the corporate traveler, as well as our own expansion into the leisure economy market, where we have 25 new advantage locations under a year old, with plans to open an additional 25 locations this year.

The off-airport sector, where we're in the process of opening hundreds of locations to service insurance replacements accounts better, and the car sharing market where we are ramping up promotions to convert members into users. Our fleet growth for 2010 is primarily directed at these opportunities, as we are only planning for modest growth in the airport leisure segment.

The bottom line on pricing is that Hertz commands a premium price for our premium service. We will institute price increases as frequently as appropriate; that is when demand is rising and the market is supportive. On the next slide in the U.S in early January we raised prices on February forward rentals. Unfortunately, these met with competitive resistance and had to be rolled back. In early April we tried again, with the price increase nationally for airport leisure rentals beginning in June. This increase has been sustainable because of the strong summer demand. Finally, just last week we raised prices again in about 50% of the U.S locations.

Coming now to recession, we’re starting to gather momentum and transaction days and price are equal drivers of growth strategy across every business. As I told you, our model is differentiated from the rest of the market. We have six lines of business, which individually have total revenues ranging from a $0.5 billion up to $1.8 billion. And each business has a different cadence and its own growth characteristics. On slide nine, we’ve illustrated the expanse of our opportunities in these businesses even if we only get back to the 2007 peak. For example, total rental car revenues in the U.S. from commercial accounts at the airport is down $337 million below 2007 levels. That means at the end of 2009 we still had 33% more growth to capture before we’re back to peak revenue levels in this business. The good news is we’re on our way. You can see that commercial airport revenues improved 7% in the first quarter and that includes a 17% volume increase in March. Similarly, on a consolidated basis, you can see that there is a huge amount of growth opportunity capitalized on over the next couple of years; it is significant.

Okay now let’s get into the specifics for the first quarter starting on slide 10. On Q1 consolidated, total company consolidated revenues was up 6.1% in the latest three months driven by another strong performance in U.S. rental car as the business traveler returned. The increase in rental car demand more than offset a 15% revenue decline in equipment rental. Our worldwide rental car customer satisfaction scores improved nearly 12% in the first quarter as we continued to refresh our fleet, capitalize on our richer mix of car classes, and improved overall service through lean six sigma process initiatives, which are currently being rolled out across our major airport locations in the U.S. and Europe. We took actions in the first quarter to generate cost savings of $99 million or 33% of our total 2010 targeted savings. You can see our progress on the next slide. Worldwide rental car net depreciation per unit improved 12% due to improved fleet management practices on both the buy and sell side. All of this helped drive our consolidated adjusted pre-tax margin 330 basis points higher and our consolidated corporate EBITDA margin 140 basis points higher than last year. As I said, the U.S. rental car business continues to be the catalyst behind the company’s progress as seen.

Switching to U.S rental car. In the U.S. total revenues were up 9.9% in the quarter compared with last year. Other growth, you can see on slide 12 that airport contributed 45%, Advantage accounted for 33% of the increase, off airport added another 21.5% of that increase. Ancillary revenues, which is included in each business unit’s revenue, also made a large contribution. Commercial rentals on airport, which are made up of large corporate customers and small business account programs, delivered a 7.4% revenue increase over last year on escalating demand for our large business accounts. Our small business accounts, which are highly contributory, are not yet seeing the same pace of recovery as their Fortune 500 counterparts. But as that business ramps up, it will incrementally benefit both volume and pricing.

On slide 13, revenue per day or RPD which encompasses both price and mix was up over the prior year. For our Hertz airport operations, excluding Advantage, overall RPD was up 1.2% on 3.1% higher transaction days. In the airport leisure segment, we increased RPD 3.4% despite no change in volume year-over-year. On the flip slide commercial airport RPD declined 1.4% while its transaction days were up 7.1%. Switching to off airport, RPD was up 1.9% on 6.5% higher volumes driven by both the leisure and vehicle replacement businesses.

On the next slide, U.S. fleet efficiency fell 320 basis points in the first quarter. In addition to the Toyota recall and the severe weather conditions, the increase in short-term corporate rentals accounted for the balance of the decline. As I mentioned, utilization is now back on track and up year-over-year. Monthly depreciation per vehicle was 14.4% lower than the 2009 first quarter’s level driven by strategic fleet management actions including lower acquisition cost. U.S. rental car employee productivity improved by 3.7%. Our net promoter score rose 790 basis points in the U.S. or 18%, reflecting the appeal of a newer fleet and the addition of popular new car classes. And on the used car front, residual values are significantly improved from last year when we experienced some of the lowest levels in our history. The U.S. rental car adjusted pre-tax margin was up 410 basis points in the first quarter. For corporate EBITDA, we achieved a 380 basis point margin improvement benefitting from better-than-expected U.S. leisure demand, recovering corporate volumes, and disciplined cost management.

Switching to Europe now, the European rental car on slide 15 got off to a slow start this year, due to adverse weather conditions and an air traffic controller strike in France, and a continued revenue decline in our truck and van business there, which typically follows lagging commercial and industrial trends. But things are getting better. Revenue per transaction was up nearly 2% while direct operating expenses were down about 2% and monthly net depreciation per vehicle favorably declined 10% due to stabilizing residual values across the continents and lower acquisition cost for the 2010 model year vehicles. Europe’s adjusted pre-tax loss improved 25.6% from last year on a nearly 1% decline in revenue. The recovery in select European regions is happening earlier than we had anticipated. We saw a surprising upturn in both price and volume beginning in March for corporate and leisure rentals. In fact, March was the first month in 18 consecutive months that we reported rental rate revenue growth in Europe. We’ll have to monitor this against the travel interruption caused by the volcanic activity in Iceland, but based on the advanced reservation (build) we believe a more favorable trend is underway in Europe.

On the next slide for equipment rental, in the first quarter, rental volume was down 14.4% from last year, but sequentially, year-over-year volumes declined at a much slower pace than the 2009 fourth quarter’s 24.2% decline. The positive catalyst came from momentum in the industrial sector, primarily from new petrochem projects in Canada after oil topped $80 a barrel and from infrastructure project in the southeastern United States. For all of North America, industrial volumes were positive year-over-year in the first quarter and pricing was down only about 5%. Worldwide our pricing in the latest three months was down 8%. I’ll note that the year-over-year pricing comp was much tougher for Hertz than for some of our competitors as our pricing was down only 4.2% in last year’s first quarter. One of our competitors had 11.5% decline in the first quarter of ‘09. In the face of this downturn for the last 10 months, we’ve been tightening Hertz’s cost structure by implementing long-term process improvements, rationalizing locations, and deferring major maintenance projects for underutilized fleet.

Now we’re working to get our equipment overhauled or tuned up in time to capture the early demand in the markets we serve. This requires more substantial investments and maintenance that until recently have been deferred. In the quarter, maintenance costs were equal to last year despite a 15% revenue decline. These factors drove equipment rental’s worldwide corporate EBITDA margin down to 33.8%, still in line with our expectation. By the second half of the year, we expect corporate EBIT margin to return to last year’s 40% plus levels. Based on our positive first quarter volume trajectory, which continued into April, we believe that the first quarter is the bottom of the seasonal and cyclical (trough) and expect to continue to see sequential monthly improvements going forward.

Switching now to revenue opportunities; our diversification of businesses, markets, and products is a competitive advantage for Hertz. We are extending our Hertz umbrella brand across a range of services allowing us to sell more products to existing customers and reach out to new markets. Products like Connect by Hertz, off airport insurance replacements, and our multi-month rental offering will help smooth out the seasonality of our revenue, and new brands like Advantage, appeal to the most price conscious segment of travelers, where we currently have only a limited share.

In support of the Hertz classic brand, we launched a new national TV campaign in the middle of March called Journey On, from which we've received very positive feedback and gotten thousands of online reviews. The advertising campaign is next scheduled to launch in France in May in time for the holiday summer booking season.

Now, let me give you an update on slide 17, on a few of our growth initiatives, before I turn the call over to Elyse for detailed financial review.

For the urban hourly renters, we continue to expand Connect by Hertz, adding five new universities to our car sharing program in the first quarter, including the University of Kentucky, bringing the total to 38 schools. Our Connect membership now exceeds 15,000 subscribers.

For the value conscious travelers, our U.S. pre-paid rental program continued to build momentum, generating $20.7 million of revenue in the first quarter. Since launching in December 2008, this program has delivered nearly a $103 million of revenue.

Our Advantage economy leisure offering, which we acquired in April of 2009 has surpassed our expectations for market share, margin and volume. In the first quarter, we are on pace for annual revenue run rate of nearly a $150 million. Today Advantage is profitable with 25 airport locations, covering major U.S. leisure destinations, including the one recently opened in Texas.

The brand already has 1.3% of the U.S. airport revenue, and we have plans to open an additional 25 airport locations by year-end. In the first quarter, demand for Advantage's rentals and its ancillary rep products were strong, especially in advance of Easter.

In the $10 billion off-airport sector, we opened up a 100 net new locations in the first quarter, primarily collocating with body shops, hotels and repair facilities to serve the needs of insurance replacement customers.

Off-airport rentals, which also include leisure and local business rentals, and monthly or multi-month rentals are typically priced lower than airport rentals due to the higher utilization achieved, but they also have a much lower cost structure than airport rentals, enabling the off-airport business to generate equally profitable growth in mature markets.

Off-airport leisure and business demand continues at a stable pace as airlines cut capacity and consumers opt to drive to their leisure or local business destinations.

Finally, total U.S. ancillary revenue from up-selling car classes and marketing additional products like insurance, refueling, child seats, ski racks and DVD players increased 23% year-over-year in the first quarter as both airport and off-airport locations focus on these revitalize program.

We are investing in our employees, innovating our products offering, and refreshing our fleet. As a result, our service scores are climbing. We are successfully executing a growth plan that is positioning us to deliver even more for our customers.

With that, I’ll turn it over to Elyse for a more detailed financial review.

Elyse Douglas - EVP and CFO: Thanks, Mark, and good morning, everyone.

Let me begin on slide 18; we are very pleased with the first quarter financial performance. The recovery that began in U.S. rental car late last year continues to build momentum and the turnaround is evidenced in the results.

On a consolidated basis, we’ve generated $1.7 billion of revenue, a 6% or $96 million increase over the same period last year. As Mark mentioned, worldwide rental car growth more than offset the continued revenue decline in worldwide Hertz. I’ll talk more about revenue growth drivers when I discuss results by business units in just a minute.

On a GAAP pre-tax and an adjusted pre-tax basis, we were able to reduce last year’s losses by 24.9% and 40.7%, respectively. The improvement was driven by reductions in depreciation expense and SG&A, which were down as a percent of revenue on a GAAP basis by 370 and 50 basis points, respectively. And direct operating expenses remained flat as a percent of sales year-over-year in spite of equipment rentals revenue decline.

Adjusted EPS improved 52% in the quarter, reflecting a $0.12 per share loss in the latest period compared with the $0.25 per share loss in the first quarter of 2009. The improvement was driven by higher revenue, efficiency savings, lower depreciation costs and reduced restructuring expenses.

Diluted earnings per share on a GAAP basis improved by 27% from a loss of $0.51 to a loss of $0.37 per share last year. The strength in U.S. rental car operations, together with the stabilization of European rental car helped to offset the challenging quarter experienced by our worldwide equipment rental business as it came up against the toughest year-over-year comp since the recession began.

Now, let me give you some more detail on the performance trends by business units.

On slide 19, our worldwide car rental revenue for the quarter of $1.4 billion was up 10.8% year-over-year or 7% excluding the benefits of foreign currency. U.S. revenue growth was up close to 10% while Europe was essentially flat. Other international markets saw revenue growth, particularly Brazil, Australia and New Zealand, which were up 19%, 4% and 8%, respectively, excluding currency impact.

Worldwide rent-a-car generated corporate EBITDA of $54.4 million within the quarter, which is seasonally the lowest volume quarter for the Company. The reported earnings represent a $65.3 million year-over-year improvement. This improvement was driven by revenue growth, lower per unit deprecation per month and the realization of cost efficiencies, all contributing to the 450 basis points adjusted per-tax margin improvement experienced during the quarter.

Turning to worldwide rental car fleet efficiency on slide 20, as Mark mentioned, the Toyota recall and the unusually harsh weather had a negative effect on fleet utilization in the latest quarter. In the U.S., in addition to the recall and weather, the return of the corporate traveler whose average rental transaction length is only two to three days had an adverse affect on fleet utilization.

You’ll remember that corporate travel volumes were down significantly in 2009 while off-airport volumes, which have an average transaction length of six days were growing. In the 2010 first quarter, 32% of our domestic risk car deletions were sold through alternative channels, and not through traditional wholesale auctions. As Mark motioned, this typically reduces cost of sales, improves sale price and keeps cars on rent longer.

Now, let’s take a close look at rental car’s fleet cost measured as monthly net fleet depreciation per unit. Our year-over-year worldwide car costs were down 12% in the latest quarter. In the U.S., we reduced car costs on a per unit basis by 14.4% from a year earlier. As you can see on slide 21, our domestic monthly depreciation costs have been decreasing sequentially since the fourth quarter of 2008 when used car residuals were at historic low.

The sequential quarterly improvements in car costs are credited to our execution of disciplined fleet sourcing strategies, better portfolio mix and continued strength in the domestic used car market.

We expect lower year-over-year depreciation for the full year 2010 as we add better priced cars into our fleet and continue to optimize the mix to serve a variety of customer preferences.

In Europe, monthly depreciation per car also continued to improve in the first quarter, falling 9.6% from 2009’s first quarter on a constant dollar basis. And just like U.S. rental car, our purchasing terms have improved with our latest round of fleet negotiations, helping to counter the stabilizing, but still low residual values across the continent. For the full year, we expect U.S. and European car costs to be down 5% to 6%, and 7%, respectively.

On a worldwide basis, our fleet was 66% risk at the end of the first quarter, with an average fleet age of 8.2 months, younger by almost two months versus last year. At quarter end, risk cars in our U.S. fleet also represented 66% of the total domestic fleet and the average age of the overall U.S. fleet was 7.7 months, compared 10.2 months in the first quarter of 2009.

We continue to sell our U.S. risk cars at approximately 20.5 months and bringing in new cars in order freshen-up our fleet to enhance the customer experience. In Europe, we’re also refreshing the fleet with a more appealing mix of cars.

Now, let’s turn to the results of our equipment rental business on slides 22 and 23. Hertz’s first quarter revenue was $237 million, a decrease of 15.2% year-over-year. Volume declined 14.4% in the latest quarter, with pricing down 8% versus down 4.2% in the 2009 first quarter. Industry fleet capacity remains high, keeping pricing pressure on the entire industry.

In the quarter, we reduced the equipment rental’s business’ direct operating and SG&A cost by 6% in the quarter. However, the pace of revenue decline and the increased maintenance cost on an older fleet drove corporate EBITDA margins below 40%. However, we do see demand for industrial and construction equipment beginning to pickup into the second quarter. This is causing us to further increase maintenance spending in order to get underutilized fleet ready for rent, as Mark indicated. You can see that our equipment rental fleet on an average acquisition cost basis was down 6.2% year-over-year.

Moving to slide 24, first quarter equipment fleet repurchases were $31.9 million versus disposals on a first cost basis of $88.8 million. This compares to first quarter 2009 where additions were $31.9 million and disposals were $220 million on a first cost basis. And while there is some improvement in equipment residual values, prices still remain unattractive. Therefore, we currently expect to sell limited amounts of equipment at auction this year. At March 31, our worldwide equipment fleet age was 47 months, a two-month increase from 2009 year end.

Now, let’s move onto slide 25 for an update on our $1.7 billion international refinancing. We expect to complete the remaining fleet debt refinancing sometime this summer. In Europe, where the bulk of the refinancing will take place, we are currently negotiating three related financings; a secured revolving credit facility, amending and extending our existing fleet securitization facility, and a bond offering. We are in the process of finalizing the terms and conditions of these transactions and expect to close in June. In Australia, we expect to utilize securitization or other secured financing as our primary source of fleet financing, and to continue to opportunistically access operating and capital lease financing that is locally available. Finally, we are going to upsize our Brazilian facility through a syndicated loan process with existing and new lenders. We continue to be confident that these refinancings will be in place over the course of the summer. We also feel very comfortable with the progress we’ve made towards completing this refinancing, and we will be providing additional details as each transaction closes.

Net interest expense was a $179 million in the quarter, up $15.7 million over last year, driven by $11.5 million of interest on our convertible debt that was issued in the second quarter of last year. This is on slide 26. For the full year, there’s no change in our estimates. We still expect 2010 interest expense to increase by $90 million to $110 million over the 2009 level based on the fleet debt refinancing that took place in the U.S. in 2009 and the upcoming international refinancing. Restructuring and restructuring-related charges in the latest quarter were $16 million, of which $15.3 was cash compared with $38.4 million in restructuring and related charges in the same period last year. These charges mainly relate to employee reductions, facility closing costs, and consulting fees. We still expect restructuring and restructuring-related charges of no more than $50 million for 2010. This excludes any impact from the acquisition. For the first quarter, the GAAP effective income tax rate was 7%. Cash income taxes paid in the quarter were $24.6 million. The GAAP effective income tax rate is lower than the statutory tax rate, primarily due to losses in certain non-U.S. jurisdictions for which no tax benefit is realized. On an adjusted basis, we use a rate of 34%, which is a normalized rate over the long-term. We estimate cash taxes to be $40 million to $47 million for the full year of 2010.

Now if you turn to slide 27, you will see that we comfortably met both of our quarterly corporate financial covenant tests. In fact, our corporate consolidated leverage ratio was 3.71 times, well below the maximum 4.75 times allowed; and corporate interest coverage ratio was 3.29 times, well above the minimum requirements of 2.25 times. As a reminder, the convertible debt issued under Hertz Global Holdings in May is not counted in these covenant calculations since the covenants only apply to the Hertz Corporation results.

On the next slide, let's take a look at cash flow. Cash flow from operations in the quarter was $301.2 million, a 63.3% improvement over the first quarter of 2009, reflecting improving business trends. The first quarter’s levered cash flow, which is cash available to pay down corporate debt, was negative $148.7 million versus negative $36.7 million in 2009, reflecting the impact of increased investment in fleets. As you are aware, at this time in 2009 we were reducing fleet level and extending the average age of the fleet. The fleeting patterns this year are significantly different as demand is building and we are refreshing our fleet with 2010 model year cars and enhancing our mix with higher end vehicles. And last year Hertz was also de-fleeting aggressively as demand for equipment dropped off precipitously. We’ve slowed the pace of equipment sales to roughly half the level of deletions we had in the 2009 first quarter sales as used equipment residuals remained low. I should also note that a more sizeable portion of our U.S fleet is funded by our recently refinanced domestic fleet debt, which lowered our U.S. advance rate by seven percentage points year-over-year requiring a higher use of corporate cash flow to acquire fleet. In the second quarter, we also expect levered cash flow to be negative as we add rental car fleet to meet peak summer demand, but those seasonal investments will ultimately provide positive cash flow when we’ll de-fleet coming out of the peak to adjust for the lower fourth quarter demand. We ended the quarter with the total net corporate debt of $3.8 billion, total net fleet debt of $5.6 billion, and $800.7 million of unrestricted cash on our balance sheet. At the end of the quarter, we had $1.7 billion of corporate liquidity available to fund our growth initiative.

With that, I’ll turn it back to Mark.

Mark P. Frissora - Chairman of the Board and CEO: Thanks, Elyse. Let’s move to slide 29, if we can. The strength of the U.S. rental business continues to dominate our consolidated financial improvement. And in the first quarter, corporate rental car transactions were the biggest contributor to the progress we delivered year-over-year. Companies are now saying that their cuts in travel spending are behind them, which supports the continuation of this favorable trend. The outlook for leisure travel in the peak season gets better each week with reservations for the third quarter currently up double-digit percentages globally. As we look ahead right now volume represents the biggest upside in the 2010 guidance we issued in February. While conditions are still very uncertain as they relate to rental car and equipment rental pricing and Europe is just recovering from the turbulence in the airline industry sparked by Iceland’s recent volcanic eruption, volumes continue to gain momentum. In rental car even with the recent price increases in the U.S. and Europe, the reservation build continues to be strong. Additionally, the return of the commercial customers supports upside volume opportunities worldwide. In fact, in the U.S. in March, commercial airport volumes were up 17% from a year earlier and March 2010 also marked the first time since July of ’08 that both large corporate accounts and small business accounts reported year-over-year monthly revenue growth.

In the equipment rental business, the demand uptick in the industrial markets helped in part by initial stimulus spending encourages us that the trajectory out of the trough could be a bit better than we expected. Industry pricing across both businesses, however, is still wildcard, but I can tell you with certainty that we will be efficiently fleeted and as always will capitalize on opportunities to improve pricing. In addition to the volume acceleration, strong fleet management execution on both the buy and sell side is driving deprecation lower, outpacing our earlier projections for the year. Our strategy to capture a better residual and improved utilization by keeping our cars on rent right up until the point of sale is generating traction as we pursue alternative used car sales channels in the U.S.

One of our new products is our Rent2Buy offering. We now offer our rental cars for sale direct to consumers in 19 states across the country. On average, since the product launch, we’ve been able to get a much higher price per car than what we would normally get at auction, and our cost of a direct-to-consumer sale is lower than an auction sale. Since the end of 2009, the number of unique visitors to our website has increased 75%, so we are definitely building awareness, and we expect recognition and transactions through this site to continue to grow as a result of our recent partnership with Kelley Blue Book who will provide price comparisons to prospective customers directly from our website, so we’re really stepping up our efforts to capture more retail car sales.

As a result of the higher than expected volumes and the declining deprecation cost as well as the early onset of an economic recovery in Europe, we are updating the guidance we put in place at the beginning of the year to reflect our optimism for the macro environment as well as a greater return on our strategic initiatives. This guidance, however, does not reflect any benefits from the acquisition.

On slide 30, for the year, we now project revenues to be between $7.5 billion and $7.7 billion. The higher revenue coupled with the substantial cost savings achieved in just the first quarter leads us to upwardly revise adjusted per-tax guidance to between $290 million and $305 million, which would be a 46% increase over 2009. Our corporate EBIDTA expectation is roughly 10% higher than that last year as we get more comfortable with the ease of the year-over-year equipment rental comparison in the second half and as the industrial project pipeline expands. Using 410 million shares for the full year, that would deliver earnings per diluted share of between $0.43 and $0.45, a 48% improvement year-over-year.

I’ll remind you that in the second quarter last year, we took salary actions to sustain operations through the most challenging period of the recession. Now that those actions have been reversed, we’ll have a tough comp year-over-year in the current quarter.

For the longer term, one of the things we think people should consider when they think about Hertz is the magnitude of the impact on consolidated profitability when the equipment rental business turns positive. The equipment rental business becomes an unrivaled competitive advantage for us at that point.

Annual adjusted pre-tax margins for equipment rental were 21% at our peak, higher than rental car margins. It has always been an accretive driver of earnings momentum, and with our strong cost focus over the last two years, business segment diversification and global expansion, it should be able to produce even greater profit margins coming out of this cycle.

Now, let’s talk a little bit about the acquisition, starting on slides four and five of the Dollar Thrifty deck. As you know, on Sunday, we signed a definitive agreement, under which Hertz will acquire Dollar Thrifty for $41 per share, including assumed debt in a mix of cash and Hertz common stock. Post acquisition, Hertz will be a $9.3 billion company, with roughly 9,800 locations on six continents worldwide. Our multi-brand U.S. market share will expand from 19% today to 24% post deal, making us the second largest rental car provider.

We’re excited about the opportunity to further expand our customer reach. This is clearly a strategic acquisition, and we believe Dollar Thrifty is an excellent fit for Hertz as you can see on slide six and slide seven

Together, we’ll be able to compete even more effectively and efficiently against other multi-brand car rental companies offering customers a full range of rental options between Hertz, Dollar Thrifty and Advantage brands.

Financially, on slide eight, we believe the deal is attractive as it’s immediately accretive to earnings and structured to maintain Hertz’s strong credit profile. We’ve identified at least $180 million of synergies already, primarily in fleet, IT systems and procurement, enabling the combined Company to operate at even a lower cost.

I’ll note that in our assumptions, we have not included any revenue synergies. But there are actually quite a lot of opportunities there. For example, the Thrifty brand in particular has a strong international presence, which will help to accelerate our leisure value strategy in Europe and other international markets.

Additionally, Dollar Thrifty has a presence off-airport, which will support our strategy to build our position in this growing market. Dollar Thrifty services, suppliers and customers complements Hertz’s business and extend our ability to deliver compelling services to broader base of customers.

With that, let’s open it up for questions, operator?

Read our Earnings Call Transcript disclaimer.
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