Hertz Global Holdings' Management Presents at Merrill Lynch & Co., Inc.'s 2013 New York Auto Summit (Transcript)

| About: Hertz Global (HTZ)

Hertz Global Holdings, Inc. (NYSE:HTZ)

Merrill Lynch & Co., Inc.'s 2013 New York Auto Summit

March 27, 2013 11:50 am ET


Elyse Douglas - Chief Financial Officer and Executive Vice President

Leslie Hunziker - Staff Vice President of Investor Relations

Unknown Analyst

Might have let people kind of roll into the room. We're going to kick it off with Hertz Global Holdings. And with us from the company is Elyse Douglas, who's the Executive Vice President and CFO; as well as Leslie Hunziker, who I think, well, everyone knows and is IR. Hertz has been on a great run. They've really improved over the last 2, 3 years. Really since the downturn, they've done nothing except explode and have more growth and higher earnings. It's been good for bonds, it's been good for the stock. And I think without further ado, we'll turn it over to Hertz.

Elyse Douglas

Thanks, Doug. Okay, let me see if I can get this going here. All right, let me first point out our disclosure around forward-looking financial statements and on the financials that are included in the presentation for you to take a look at.

And I'm going to start the discussion today, really talking about the investment proposition for Hertz. We are a diverse global portfolio, and you can see some of our brands represented on the bottom of the page, and we're going to talk more in detail about each of them. Today, I'm going to cover the fact that we have superior growth strategies within our business, and I'm going to highlight 4 of them that have been growing at double digits.

We have a culture of operational excellence, and that's really evidenced by the fact that we've taken $2.6 billion worth of costs out of this business since we implemented our Lean/Six Sigma program in 2006. During this period of time, we've also made a number of investments and some investments in technology, which we think put us as the leader in technology in the Rent-A-Car space, and I'm going to talk to you about some of the new products that we'll be launching this year.

And lastly, while we've invested in a lot of our strategies over the past several years, those investments will decelerate, and we are going to see an uptick in cash flow going forward. So for 2013, we forecasted that our corporate cash flow, which is available for debt paydown, investments or return to shareholders of between $500 million and $600 million, which is up from about $225 million in 2012.

Okay, this slide gives you a total picture of the Hertz Corporation, $9 billion of revenue. You can see that a little over 84% of that is in the rental car space. Within Rent-A-Car, we have a significant presence in the airport, and we're particularly happy to have the new Dollar Thrifty brands included in our portfolio of airport brands. Our off-airport business is $2.7 billion today, and then about 6% of our Rent-A-Car business is represented by Donlen, which is our fleet management company.

On the flip side, our equipment rental business is a $1.4 billion business. About 92% of that business is in North America, and you can see there they were spread across a number of different -- we service a number of different industries, the construction industry, industrial and fragmented, which are pretty much railroads, government hazmat.

Our adjusted pretax in 2012 was over $900 million, and you can see that on revenue growth of 8.7%, our adjusted pretax profits grew at 32.5%.

As I mentioned, it's a global business, and this gives you a perspective of our corporate locations around the globe. So we list here what our corporate revenues are, our employees and locations, and you can see that we're represented in all the major continents.

On the bottom of the page though, we've given you a snapshot of what our total network presence is, and this includes our franchisees, both Hertz and Dollar Thrifty. So when you include our corporate-owned operations as well as our franchise network, we generate over $13 billion, $13.8 billion of revenues, and we have a presence of 10,600 locations worldwide.

So moving on to the profit story. Let me start with the top line and the trajectory of earnings. And you can see since 2009, our revenues have grown at a compounded average growth rate of 8.5%. And we've broken out here our 2 major business lines, and you can see that HERC, even though it has seen significant improvement over the last several years, is still a little bit more than $0.20 below where we were from a revenue perspective versus the peak year which was 2007.

On the flip side, you can see it in the rental car business, we're actually $710 million above where we were in the peak of the business. Keep in mind that this is in spite of having headwinds in Europe, and so we believe that we've got a great trajectory ahead of ourselves as the European markets stabilize and the HERC recovery continues.

So over this period of time, we've deliberately looked to build a portfolio of businesses to address our company's mobility needs. And we really feel that today we have that covered. We've got Donlen in the leasing space. We now have a stable of brands to address the airport leisure market, the various segments, the high end as well as the mid-tier end. We have our car-sharing Hertz On Demand operations, which I'm going to talk today about how we're going to leverage that further. And then we've got a number of verticals within our equipment rental business to really change the nature of that, to take some of the cyclicality out. One of them that's highlighted here is Cinelease, which is our entertainment business, which is a higher-margin, high-return-on-capital business.

So we believe we have all the pieces to -- in place right now, and we're going to optimize these strategies to really drive profits and cash flow. Now let me talk a minute about the -- some of the key drivers within our business. These are 4 components on our business which have been growing at double digits and we expect to continue to grow at double digits.

The first one being the off-airport business. One of the key components in this business is insurance replacement. Today, we operate -- we have -- we do business with 195 of the top insurance -- 200 insurance companies, and that business grew 14% in 2012. And I'm going to spend a little bit more time on the next slide around what we're doing in the off-airport space.

In the leasing market, this is Donlen, this is -- allows us to offer integrated leasing and fleet management packages to our customers, both within Rent-A-Car as well as in equipment rental.

The Leisure segment, again Dollar Thrifty, gives us 2 solid brands to address the Leisure mid-tier segment, and I'm going to tell you in a few slides as well what else that brings to the party. And then lastly, equipment rental. Equipment rental grew by 14.5% in 2012, and that's even without a recovery in the non-res space. And we're going to talk a little bit about what that will deliver in terms of increased earnings going forward.

So let me spend a couple of minutes now on the off-airport space. In off-airport, it's an $11 billion market, so it's as large as the airport market. And today, we only have a 12% share, so we have a lot of runway in terms of gaining share in that segment.

We're going to be using our technology to really expand our presence there on an asset-light basis, as well as to be able to offer consumers 24/7 rentals. And I'm going to talk about that when I highlight some of the things we've been doing in the technology space. We've been growing off-airport locations about 300 a year, and we're going to be adding another 300 locations in 2013. That brings our total locations to over 2,500 this year, and we'll have over 2,800 by the end of '13.

The off-airport market does have lower RPD characteristics than the airport market. But what this slide shows is that it also has lower cost characteristics as well. So in addition to not requiring the same level of fleet, we don't need as many full-sized, heavily contented cars, we have more compacts, more high-mileage cars in the off-airport to service the insurance replacement market. You can see here that labor and other expense costs on a per day basis are significantly lower.

So what we've compared here is a mature off-airport location, which is a location that's been open for 2 years or more, compared to our average airport location. And you can see that labor costs on a per day basis are 8% lower, our DOE is 34% lower and SG&A is 48% lower. In addition to that, because of the long life of rentals in both the Leisure and in particular, in the insurance replacement segment, we've got much greater utilization, 220 basis points improved utilization off-airport. So what we like to say is that the profits are comparable to the airport profits. It's a much higher return on asset basis because of the nature of the business.

Okay, let me spend a couple of minutes on Donlen. Donlen, in 2012 compared to a pro forma '11 basis grew at 16%, which is well in excess of the 4% growth in the commercial leasing space, and that's because they're more than just a traditional leasing company. The company does offer leasing services, and you can see here in the upper left-hand quadrant where we offer advice on acquisition, disposition as well as licensing and titling for the fleet leasing program. We also offer fleet management services in the area of vehicle maintenance, damage, as well as fuel maintenance.

We offer a telecommute -- a Telematics package, which really goes to drive our productivity and helps for fleet management purposes. And then there's also a neat little business, equipment financing business, which is a syndicated model. So this is a model whereby we arrange long-term financing for customers who are looking to finance large-ticket fleet like Class 4 trucks. That loan then is syndicated to a third party like a bank. So it's -- Donlen does the fleet management but it's an asset-light strategy. And all of these services are provided with a robust reporting package as well as a set of analytics.

Let me move on to the Leisure segment, which is a growing segment of the market. And as you can see here, Dollar Thrifty really gives us a presence in that fast-growing, profitable mid-tier segment, where we did not have a presence historically. I think the other things to point out on this chart here is, the market has really moved to multiple brands within an existing company. So Hertz owns Dollar Thrifty, Avis owns Budget, Enterprise has National and Alamo. So you effectively, today, have 3 companies that own -- that control 97% of the market. So consolidation has -- the market is very consolidated today.

And I'm going to spend a little bit more time in highlighting exactly what Dollar Thrifty does for Hertz. One, it adds a presence, 1,580 locations Dollar Thrifty has today, generating revenues of about $1.6 billion and a fleet of a little over 113,000 cars. What it does is it improves our market share on airport from 26% to 37%, and that market share is really all on the sweet spot, which is the less price-sensitive, faster-growing Leisure segment.

Dollar Thrifty was primarily a Leisure brand. We have the opportunity to leverage our existing travel partners to develop incremental revenue strategies for Dollar Thrifty. We also have the ability to grow internationally, and the scale will give us more infrastructure -- more scale with the airports as well as buying power with the OEMs.

The one thing I want to mention before I leave Dollar Thrifty, is that there is a significant revenue synergy and cost synergies associated with the acquisition. We announced that we have 300 of revenue synergies and 300 of cost synergies to achieve between now and the end of 2015. And those cost synergies, let me focus on for a minute, are in the areas of fleet, procurement, operations, IT, as well as headquarter costs.

Let me move on to equipment rental. Our equipment rental business in 2012 grew greater than 14%. You can see here that the growth in equipment rental is really being driven by the industrial segment as non-res was still down. In 2012, non-res was down 10%, but the industrial markets were up 7%. But obviously, we grew at a faster clip than that, partly because we're taking share from some of the smaller players, as well as being able to get better pricing with the refreshed fleet.

You can see here that on the right-hand side, in 2007, construction was 50% of our business, and today, it's 37%. So as non-res construction rebounds, and we are starting to see some glimmers of activity there, we should see some significant profit growth within the equipment rental space. You can see that today, our profits are still 30% below where they were in the 2007 peak, so tremendous runway here and potential for future profit growth.

As I said, because the markets have improved, we have seen this improvement in industrial, and we're beginning to see some improvement in the non-res. We have been investing in the fleet over the past 2 years. So our fleet age today is just over 42 months, and that's down from over 50 months back in the beginning of 2011.

The middle chart on the left-hand side really shows the trajectory of price and volume. And you can see here that that's been in positive territory since 2010. And on the bottom, you see how time utilization has improved dramatically over the period, up 10% from the beginning of 2011, to 67% time utilization. And time utilization drives pricing, and so for 2013, we're expecting to see 2% to 3% improvement in price and 10% to 12% improvement in volume.

And then on the right-hand side really highlights those acquisitions that we've made over the past few years. You can see $240 million in acquisitions, and that's really to address specific needs. So whether it's to fill a gap geographically, like Arpielle did which gave us a bigger presence in the profitable New York Metropolitan area, or whether it's to grow in a vertical such as oil and gas or Entertainment Services, that's really what we've addressed with these acquisitions.

So I showed you that our revenues since 2009 grew at a compounded average growth rate of 8.5%. This chart shows you the growth in profits over that same period. And you can see here that we've grown our adjusted pretax at a compounded rate of 65.5% since 2009. So that's pretty damn impressive, especially when you look at it in light of the fact that Europe is still 73% below its peak profit levels and HERC is 40% below the peak. And again, we think those are going to be 2 key drivers that are going to continue this trajectory.

The other thing I mentioned was cash flow. And you can see here on the top -- on this chart where we show cash flow from operations, which is before fleet investment and other investments, you can see that we've grown by over $1 billion since 2009. And we've seen some acceleration in that between 2011 and 2012.

We have, over the years, been investing in acquisitions as well as in our fleet. We are going to continue to see some investment in the fleet assets a little bit that we'll probably invest about 20% less than what we invested in 2012, but we'll still make some significant investment there. And on the non-fleet CapEx side, we are going to be making some investments over the next 2 years to really address the technology that we're going to be rolling out, that I'm going to talk about in a few minutes, as well as to refresh some of our facilities in Rent-A-Car and add some locations for the equipment rental business.

But all that is going to drive between $500 million and $600 million of corporate cash flow, and that's really what's available to pay down debt, to make acquisitions as a return to shareholders, and then again, it's up from about $225 million in 2012.

And it's really the strategies that we've put in place, the continued growth and profitability that's going to accelerate cash flow going forward. So again, improve profitability and margins and continue development of our asset-light strategies, and improvements in the balance sheet will continue to accelerate cash flow beyond the levels that we've forecast for 2013.

Let me talk a bit about some of the key drivers in terms of that profitability. So one has been our ability to develop our fleet management capabilities, and it's really on all sides of fleet management. So with Donlen and with Dollar Thrifty now, we have a bigger buy, which gives us more purchasing power in terms of buying the fleet. So you can see with Donlen, it's $665 million and you can add another $810,000 [ph] for Dollar Thrifty.

On the right-hand side, you can see the improvements in fleet efficiency or utilization, which really have come from the growth in some of those off-airport markets, as well as some of our Lean/Six Sigma, and improving our efficiency in off-airport through -- and our airport and off-airport locations through Lighthouse. So you see a 200-and-some basis-point improvement there in utilization.

And then lastly, we've really focused over the last couple of years in becoming experts in the used car market. As we've migrated from a more programmed fleet, where the OEMs basically guarantee the price of the fleet at the end of a period of time, we've merged -- migrated to a risk fleet. And in order to do that, we've had to develop the capability to sell cars.

And so you can see here in these bottom charts that there are different levels of profitability depending on the channel. And this chart really compares the alternative channels to the wholesale market. So if we can sell a car directly to a dealer, we can make $500 more per car by eliminating that wholesale channel. That's really the fees that you pay to the wholesaler. And if we can sell directly to the retail channel, there we can make $1,100 more per car. And these numbers take into consideration all the costs associated with the channels as well.

In addition to that, these channels have less sensitivity to changes in residual value than the wholesale market does. So you can see in 2012, we only sold 15% of our cars in the retail channel, and we have a target to sell close to 30% in -- by 2014.

In addition to that, Dollar Thrifty has a 94% risk fleet, and there -- they've been selling almost 2/3 of their cars in the wholesale channel. So we also have the ability to sell their cars through these channels that we've developed over a period of time.

And it's really these factors that have allowed us to outperform the market. So when you look at the Manheim Index of 2012, the index dropped by about 130 basis points. Whereas if you look at our performance in our residuals in 2012, we actually improved by 400 basis points. So it's really the penetration of these strategies that helps us to do better than the overall market.

I mentioned our capabilities in terms of process excellence. And you can see here the accomplishments since 2006 when we launched our Lean/Six Sigma program. So we've taken $2.6 billion out of the business to-date, and again, this is not volume-driven, this is true cost take-out. And we're expecting another $300 million in 2013.

Throughout this period of time, we've improved labor productivity in 26 consecutive quarters. We do this again through our disciplined Lean/Six Sigma program. We have 225 black, green and yellow belts in the company. And in terms of our Lighthouse program, we've really only touched 42% of our revenues to-date in both HERC and Rent-A-Car, so we still have the ability to gain greater efficiencies by rolling that out further to the rest of the organization.

Now let me spend a minute on some of the technology and innovation that's gone on over the past several years. One area is in the development of video kiosks, and we believe we have cutting-edge technology here. And we're using these kiosks in both airport and off-airport. So in the airport, we use them to really manage those peak periods during the day, so we don't have people waiting in lines. So rather than have to staff up for those peak levels, we can use the kiosks where they really access our team of people in Oklahoma City to really manage some of that flow of work, and that helps to improve our customer satisfaction, as well as reduce our operating costs in the airport.

In the off-airport market, we're really using the kiosks to expand on an asset-light basis. We are putting a kiosk and a dealership, a body shop, a hotel, a retail operation, and we don't necessarily have to staff it up in order to service those rentals.

We're also going to be rolling out the technology in conjunction with our Hertz On Demand, which is our car-sharing technology, which will really convert our off-airport locations to a 24/7 operation. Today, the off-airport really is a Monday through Friday and a half day on Saturdays. It's not a 24/7 operation. So we believe using this technology, coupled with our car-sharing technology, will allow individuals to sign up to be a member. They'll be able to make a reservation online, go to a location where the car is in close proximity to where they are, basically use the technology to access the car either through swiping a key fob or punching in a passcode that's given to you on your cellphone, get in the car and drive away.

So what -- really what we're doing is we're making the car, the rental counter. So again, low-cost, asset-light and ability to expand our off-airport presence and expand the market.

In addition to that, we've been making some technology changes to address customer satisfaction issues. So we've launched eReturns, which rather than stay and wait for your return ticket from the instant return agent at the rental car location, we'll e-mail that to you automatically.

In addition, we've launched Mobile Gold Alerts. So you've probably seen our Carfirmation commercials, where basically, we let you know when you land, which car you have available and what slot it's going to be so that you can go directly to that car. In addition to that now, we've upgraded that so that you can change the car. You can -- we give you different options. So if you're -- we tell you it's a Camry, but we give you an option for an Altima or something else at the same price. We'll also give you the opportunity to upgrade the vehicle and have that be specific in the text or the e-mail that we send you as you land. Today, that's available in about 25 airports, and we're going to be rolling that out across the network. So we're really excited about where we are in terms of our technology development and how that's going to unfold.

We've also been successful in 2012 in our franchising strategy. Over the last 2 years, we've franchised about $170 million of corporate revenues. And we're really proud of the fact that we've been able to sign agreements with 2 significant dealership networks, Emil Frey in Switzerland, as well as the Penske Automotive Group here in the U.S. We're also franchising in the equipment rental space where we have signed franchisees in Afghanistan and Chile.

Now as we improve our corporate operations, it becomes less compelling to franchise a corporate location, but we will continue to look at those opportunities that have appropriate economic returns. But we're going to also be focused on penetrating white space through the franchised network. So geographic locations where we haven't a presence today, we'll be using the franchised network, as well as helping our existing franchisees continue to grow their networks and expand our off-airport presence.

We've also made a lot of progress over the last several years in improving the balance sheet. Throughout the entire cycle, we've maintained more-than-sufficient liquidity to operate our business. And you can see here that we've pretty much refinanced all our corporate debt within the last several years, so that we have a very favorable maturity profile. You can see that on the bottom chart where we really don't have any significant corporate maturities until 2018.

And on the fleet side, we've been able to improve the terms and pricing, as well as we continue to opportunistically turn out -- term out some of our fleet debt, and we'll continue to do that in '13. One more thing to note here is that in 2012, the weighted average blended interest rate on the total debt of the company was 4%, so we're -- very favorable fleet financing rates, as well as we've been able to significantly improve the corporate rates over this period of time.

Let me finish by highlighting our guidance for 2013. You can see that we're expecting revenue growth of 21.4%, pretax growth of 48.6%, earnings per share growth of 44.9%, and again, you see here that corporate cash flow. And you can see the trajectory here on the bar charts for revenues and profits.

This next slide really just shows the numbers behind those bar charts, and there's only a couple of things I want to point out here. One is if you look at the pretax growth here, you can see that our margins have gone from 2.8% to 12.2% in '13. As I said, we saw 32% growth in pretax in 2012, that's off of a 96% growth rate in '11 and a 75% growth rate in 2010.

And then cash flow from operations. On the bottom, we deduct the fleet investment here so you see what it is after fleet growth. And again, you can see a positive trajectory between '11 and '12, where we went from $423 million to $780 million, and that's in spite the significant investments. This, again, is before acquisitions. But you can see how that accelerates in 2013 to $1,350,000,000.

So we believe that having all the pieces together now, again, are going to create opportunities for us to continue to grow profits and margins in 2013 and beyond. So with that, I'd like to see if you have any questions.

Question-and-Answer Session

Unknown Analyst

Does anyone from the audience in the back there? We have somebody.

Unknown Analyst

Can you talk about pricing? Avis has positive pricing year-to-date, and when you say you're going to grow faster than the market, obviously, your fleet costs are lower. Does that allow you to keep your pricing below them, or would you follow them, or has things changed?

Elyse Douglas

Yes. So pricing in 2012 was not a positive story but a lot of that was driven by commercial accounts. So when you look at the different segments in the market, the commercial pricing was down more than the Leisure pricing. So I think what we're seeing now, what we said in our conference call for the end of the year, as we did report our pricing trends for December and January -- did we give February?

Leslie Hunziker


Elyse Douglas

No, we didn't give February. And we said that pricing is positive. And then the other point I want to make is, what we've said is, is that as fleet cost go up, pricing goes up. We've gone back and looked at our business, we've looked at the correlations, very highly correlated. So as residuals decline and we're anticipating, as everyone is, a decline in residuals, that's a function of fleet cost. So we have alternatives to offset that fleet cost decline. Some of it is in rolling those businesses that require less of a higher contented car or a lower class of car. That helps to drive our fleet cost down. Using those remarketing channels help to drive our fleet cost down. So we do have some offsets to that decline in residuals. But you can rest assured that our #1 goal every day, every minute, every hour, is to get the maximum price, right? We want to make sure, and we've got a team of people that do nothing but look to -- for ways that we can maximize the pricing in the field. So fleet cost residuals are going down, which means fleet cost -- there is a component of fleet cost that are going up, so we think that the environment is such to be positive for fleet for 2013. But I can't really talk prospectively about pricing. Does that answer your question?

Unknown Analyst

A bunch of questions here on the front then side.

Unknown Analyst

What's your ideal mix for the next couple of years [indiscernible] program?

Elyse Douglas

I think we're pretty much going to be at the ideal. We'll be at 95% risk cars. So the question is, what's the ideal mix, for those who might not have heard. And I think we're pretty much at that -- we'll always have some small percentage of program cars, because the peak point for the business volume is in the third quarter, and then it drops off in the fourth quarter, which is a low point in car sales, right? The car sales market is at the low point in the fourth quarter. So in order to really mitigate any kind of residual impact on defleeting in that fourth quarter, we'll always maintain some percentage of program cars for that summer peak. But I think we're pretty much at the optimum. Could it go a little bit higher? Yes, sure, it could, but I think at 95% risk cars, I think we're in a good place.

Leslie Hunziker

Yes, and I think if you keep in mind, last year, on average for the full year, we were at 76% risk. So we're expecting 95% on average this year. So it's a pretty big bump that we'll get. And some of that comes from Dollar Thrifty, they have a 95% risk fleet to begin with, and some of it will be the Hertz fleet continuing to ramp up its risk. So this year will be a big bump and then as Elyse said, we're at a pretty optimal level at that point.

Elyse Douglas


Unknown Analyst

General Motors is just talking about how they want to reduce the amount of cars generally that they put into rental fleets. Is that partly because, and Honda mentioned the same thing, that when they come out of rental fleets, it hurts residuals. Yet at the same time, they are not supporting residuals. You just mentioned, they're not supporting residuals anymore and you happen to go more at risk. Those 2 things seem somewhat disconnected. Can you kind of parse out how much of the residual problem coming out of rental fleets was the volume of cars in the fleets versus the way they were remarketed coming out?

Elyse Douglas

That's kind of hard for me to comment. I'm not quite sure what they're talking about. But the reality is the cars that come out of the rental fleet go on to used car lots, a majority of them, okay? The used car market is huge, right? So I don't see the rental car fleets really having a big impact. In reality, I think as we move to more risk cars, we hold those cars for 18 months, so there's fewer cars coming into the used car market than there would be if you had a program car that turns every 8 to 10 months. So I'm not quite sure what their point is.

Leslie Hunziker

And some of that residuals would probably go to some of the off-lease starting to come in. I mean, we've had a nice couple of years where because in the recession, the OEM stopped leasing. That again, our sweet spot, 1- to 2-year-old cars, the other group in there is the off-lease vehicles. So some of that could be coming in but...

Unknown Analyst

And just as a follow-up, is it getting harder for you to acquire the cars you want for your fleet because of this talk about...

Elyse Douglas

We've been -- I've heard that said for 5 years, that the OEMs want to get out of selling to the fleets. And quite frankly, we have not felt an impact. There are some that have more discipline than others associated with that, but we have had no problem acquiring fleet. There's just a lot of competitors out there and a lot of people providing quality cars.

Unknown Analyst

So just back on the pricing question. For the revenue growth guidance for 2013, what percent is price versus volume? And then if you just think about it in the big picture, there's been so much consolidation over the last several years. Are you kind of at a point now where pricing power has plateaued because there are only 3 competitors, as you said, left?

Elyse Douglas

Right. In our guidance, we basically said RPD flat, but there's...

Leslie Hunziker

Rental car.

Elyse Douglas

For rental, yes, for rental car.

Leslie Hunziker

2 and 3.

Elyse Douglas

And 2 to 3 up for equipment rental. But let me just make a couple of comments. One is, as I mentioned, we have a different mix of business than our competitors, and our strategies are growing, some of those lower RPD mix of business. So flat is not a bad thing, in many cases. We're also conservative when we build our plan around pricing because we don't have a crystal ball, and we really don't know where pricing could end up. And if we were to put price into our model and not have it materialize, it would have a big impact on the bottom line. If we put more volume and less price, it puts a discipline into the organization to manage their costs better. So we tend to have a more conservative assumption built into our pricing in terms of our guidance. But clearly, if pricing is better than flat RPD for the year, it's upside to our numbers.

Unknown Analyst

I'm just going to wrap this up, then we have a lunch now across the larger room. And Hertz, thank you very much for a great presentation.

Elyse Douglas

Thank you, Doug [ph], and thanks, everybody, for attending.

Unknown Analyst

Pretty good profitability.

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