Dollar Thrifty Automotive Group's CEO Discusses Q4 2010 Results - Earnings Call Transcript

Executives

H. Buster - Chief Financial Officer and Senior Executive Vice President

Scott Thompson - Chief Executive Officer, President and Director

Analysts

Fred Lowrance - Avondale Partners, LLC

Michael Millman - Millman Research Associates

Christopher Agnew - MKM Partners LLC

Sachin Shah - ICAP

Michael Friedman - Noble Financial Group

Judy Delgado

John Healy - Northcoast Research

Neil Portus - Goldman Sachs Group Inc.

Jordan Hymowitz - Philadelphia Financial

Stephen O'Hara - Sidoti & Company, LLC

Dollar Thrifty Automotive Group (DTG) Q4 2010 Earnings Call February 24, 2011 9:00 AM ET

Operator

Welcome. And thank you for joining the Dollar Thrifty Automotive Group Fourth Quarter and Full Year 2010 Financial Results Conference Call. [Operator Instructions] Now, I will turn the call over to Mr. Cliff Buster, Chief Financial Officer. You may begin, sir.

H. Buster

Thank you. Good morning. And welcome to the Dollar Thrifty Automotive Group fourth quarter and full year 2010 earnings release conference call. Scott Thompson, President and Chief Executive Officer, and I will be the hosts for today's call.

Some of the comments contained in this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed in forward-looking statements due to many factors. These factors include, among others, matters that Dollar Thrifty has noted in its latest earnings release and filings with the SEC. Dollar Thrifty undertakes no obligation to update or revise forward-looking statements.

Today, the company will use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers and can be found in today's press release or posted to the company website under the Investor Information tab.

Now I would like to turn the call over to Scott to discuss our fourth quarter and full year earnings.

Scott Thompson

Thank you, Cliff. And good morning, everyone. I'm proud to report that the company achieved its eighth consecutive quarter of year-over-year double-digit growth in corporate adjusted EBITDA.

Now for the highlights. For the full year 2010, we reported $258.3 million in corporate adjusted EBITDA excluding merger-related expenses. This represents an increase of 160% over our 2009 performance and $100 million better than the best year in the company's 61-year history. This, during a year when the economy was less than robust. We reported corporate adjusted EBITDA for the fourth quarter of 2010 of $30.2 million, and excluding car gains in 2009 and merger costs in the current year, the fourth quarter is up dramatically from the same period last year.

We reported tangible net worth of $515 million and unrestricted cash of $563 million, again, record numbers for the company. Lastly, but maybe most importantly, we achieved record customer service scores, demonstrating our focus is not just on short-term profitability, but that we're also making investments in our future through training and technology. As an example, we rolled out our choice product offering in 22 locations throughout 2010 and plan to open 11 additional locations in 2011. Customer feedback on this program has been exceptional, as it reduces rental transaction time and provides customers with flexibility to choose the vehicle of their preference from a group of available vehicles. Overall, it was truly an outstanding year for Dollar Thrifty.

Now turning to the financial details of the fourth quarter. Rental revenue for the quarter was up 1.6% compared to the fourth quarter 2009, driven primarily by a 2.8% increase in transaction days, partially offset by a 1.2% decrease in revenue per day. This quarter we had a challenging comparison on RPD as we realized a 12% increase in RPD during the fourth quarter of 2009. Additionally, this year's winter storm in late December mitigated pricing opportunities in the critical Christmas holiday period.

Consistent with the third quarter of 2010, we are now realizing fleet cost levels that will be less impacted by gains on sales than earlier quarters in 2010. Fleet depreciation per unit in the fourth quarter 2010 totaled $308 per month, which reflects effectively breakeven results on disposition of vehicles. During the fourth quarter of 2010, we continue to reap the benefits of productivity and cost reduction initiatives, and for the second consecutive quarter, we realized reductions in operating expense dollars while increasing the company's revenue base.

Corporate adjusted EBITDA for the fourth quarter of 2010 totaled $30.2 million. Excluding merger-related expenses, corporate adjusted EBITDA totaled $32.3 million, an increase of 23% compared to the same period in 2009. I'd also point out that this increase was achieved in spite of a $16.3 million decline in the gain on sale of risk vehicles in the fourth quarter 2010 as compared to the fourth quarter 2009.

Our performance during the seasonally challenging quarter highlighted the fundamental changes we have made in our business model, as the company is reporting the highest fourth quarter corporate adjusted EBITDA in the last five years. We continue to maintain a sharp focus in revenue management, employee productivity and expense control while simultaneously keeping continued improvement in customer satisfaction scores a top objective.

Now Cliff will take a deeper dive into the financial details of the quarter.

H. Buster

Thanks, Scott. Non-GAAP net income excluding merger-related expenses totaled $9.5 million for the fourth quarter of 2010, a 23% increase from the fourth quarter of 2009. Again, excluding the impact of merger-related expenses, non-GAAP diluted earnings per share for the fourth quarter of 2010 totaled $0.31 per share compared to $0.28 per share in the fourth quarter of 2009. I would point out that our share count increased approximately 10% from the fourth quarter of 2009 as a result of our common stock offering in last year's fourth quarter.

Now turning to Table 1 in the press release. Rental revenues for the fourth quarter of 2010 were $335 million, a 1.6% increase compared to the prior-year period. Our fleet utilization during the fourth quarter of 2010 increased 90 basis points from the fourth quarter of 2009, as we increased our average fleet size at a level below the 2.8% increase in transaction days. Selling, general and administrative expenses, or SG&A, in the fourth quarter of 2010 were effectively flat with prior year levels, although SG&A for the fourth quarter of 2010 was negatively impacted by $2.1 million of merger-related expenses.

Direct vehicle and operating expenses, or DV&O, in the fourth quarter of 2010 declined $10.2 million or 5.7% on higher revenues compared to the fourth quarter of 2009. The decrease in DV&O for the quarter was primarily attributable to increased favorability in our insurance programs compared to prior year and lower maintenance expenses resulting from a significantly newer fleet.

You should note that excluding merger-related expenses incurred during the quarter, operating expenses, SG&A and DV&O totaled 60.9% of revenues for the fourth quarter of 2010 compared to 65.1% of revenues in the fourth quarter of 2009. I think this ratio would compare favorably in the industry and helps to support our value position in the industry.

Vehicle depreciation expense for the quarter increased 12.7% from $80.9 million in the fourth quarter of 2009 to $91.1 million in the fourth quarter of 2010. The increase was primarily the result of the $16.3 million decrease in vehicle gains Scott mentioned earlier. The gains were lower due to approximately 11,000 fewer vehicles being disposed of during the quarter and gains on sales of vehicles normalizing from their record levels realized in the prior-year period.

Interest expense net of interest income totaled $23.9 million for the fourth quarter of 2010, up from $22.9 million for the same period last year. The increase in interest expense was driven by incremental borrowings made in December in advance of the first amortization payment on our Series 2006 medium-term notes, combined with reduced interest income, as the company deployed excess cash balances on hand in 2009 to reduce our fleet indebtedness and to reinvest in the rental fleet.

Now moving on to key balance sheet items on Table 2 of the press release. Cash and cash equivalents totaled $563 million as of December 31, 2010, an increase of $63 million from December 31, 2009. Restricted cash declined $346 million to $277 million due to a net reduction in fleet debt of $321 million, in line with a higher overall fleet investment due to newer fleet inventory compared to year-end 2009.

I would like to highlight that the favorable impact of the various tax legislation changes enacted during 2010 resulted in the company having refundable overpayments for tax purposes of approximately $66 million as of the end of the year. We expect to recover the majority of these amounts through refunds in 2011, which will further improve our cash position.

Revenue earning vehicles net of depreciation totaled $1.34 billion at December 31, 2010, an increase of $113 million or 9.2% from December 31, 2009, levels. The increase in the book value of the fleet resulted primarily from a significant refreshing of the fleet, as well as slightly higher inventory levels.

Our ending fleet was up approximately 5% over prior year as a result of our decision to moderate vehicle dispositions during the seasonally weak fourth quarter in the used vehicle market and defer those sales until the peak used vehicle selling season in the latter half of the first quarter. We expect this will negatively impact first quarter's utilization but will be positive to the company's overall financial performance for the full year of 2011. Fleet debt decreased $321 million from December 31, 2009, to December 31, 2010, with fleet debt now totaling $1.25 billion. The reduction in fleet debt resulted from the repayment of $500 million of medium-term notes during the year, offset by borrowings under new lower-cost variable funding facilities.

Now turning to liquidity and capital resources. As previously announced, during February, we completed a comprehensive amendment to our senior secured credit facility that restores the company's ability to borrow under the $231 million revolving portion of that credit facility, further enhances our liquidity by removing restrictions on use of letters of credit and cash balance and provides greater flexibility. We greatly appreciate the ongoing support of our lending group in completing this amendment.

As of December 31, we had $750 million of undrawn capacity available under our $300 million three-year variable funding note facility and our $450 million 364-day variable funding note facilities. These facilities combined with our significant cash position provide over $1 billion of liquidity to address future debt maturities, including $600 million of medium-term notes that began controlled amortization in December.

Corporate debt totaled only $148.1 million as of December 31, 2010, less than one turn of leverage based on trailing 12-month corporate adjusted EBITDA, while corporate debt-to-book capitalization at December 31, 2010, declined to a relatively low amount at 22%. We ended the year with tangible net worth of $515 million, which represents an increase of 40% since the beginning of the year. Finally, capital expenditures for 2010 totaled $23 million and are expected to be similar in 2011, as our capital expenditures generally approximate non-fleet depreciation expense.

I will now turn the call back to Scott for a discussion of possible merger activity, the $100 million discretionary share repurchase program announced today and our outlook for 2011.

Scott Thompson

Thank you, Cliff. I would now like to make a few brief remarks about possible merger activity. As I'm sure you will respect, I will be limited on my comments on this topic during Q&A.

As reported, yesterday, Dollar Thrifty submitted its certification of substantial compliance with FTC Second Request. In addition, it's our understanding that on February 4, 2011, Avis Budget submitted its certification of substantial compliance with its Second Request. Based on the timing of these submissions, the company expects to have greater clarity around the FTC's official position in the near future. We have devoted a substantial amount of time and financial resources to propose Hertz transaction last year and now the Avis Budget process. We are very eager to bring clarity to the antitrust matters for the benefit of our shareholders and our employees.

We've previously disclosed that Dollar Thrifty and Avis Budget have no agreement written or verbal with respect to merger terms including price. We've agreed to work on the Avis Budget attempt to receive FTC approval after a possible transaction. Since September 30, 2010, when our shareholders last voted on a proposed merger transaction, we have continued to demonstrate the company's ability to generate significant sustainable cash flow, and it expanded our unrestricted cash position. If any offer is received to purchase common stock of the company, the Board of Directors will consider it in light of the facts and circumstances at the time, consistent with their fiduciary duties. There's no assurance that any merger terms can be agreed upon in the future.

Now for a few comments on our recently announced share repurchase program. Clearly, we are conservatively financed and have excess liquidity. Management and the Board of Directors continue to monitor our strategic alternatives, expected business environment, financing options to determine the proper level and type of leverage for the company. In this regard, the Board of Directors of the company has authorized a share repurchase program providing up to $100 million for share repurchase in future periods. This purchase will be subject to legal limits and contractual restrictions under our credit agreements. The company will make share repurchases on a discretionary and opportunistic basis as part of an overall process of optimizing the company's capital structure.

Now turning to 2011 outlook. We expect that travel activity will continue to expand in 2011 as a result of the ongoing mending of the overall economy, and as such, anticipate single-digit growth in transaction days during 2011. Based on the RPD trends experienced during the fourth quarter of 2010 and year-to-date through February, we expect RPD environment to be competitive in 2011, particularly during the first quarter.

Overall, we expect RPD for the full year of 2011 to be consistent with 2010's level. Based on the above, we are projecting rental revenues to increase 2% to 4% compared to 2010, with the increases to be driven primarily by growth in the second through fourth quarter. From a fleet cost perspective, we continue to anticipate that fleet cost will be within our previously disclosed range of $300 to $310 per vehicle per month. Vehicle cost may be significantly impacted by future gains or losses on disposition of risk vehicles as a result of changes in the overall used car market. While we expect the used vehicle market will remain robust in 2011, we have not factored the recent record Manheim Index levels into our future residual assumptions.

We will continue to focus on cost control and productivity initiatives. Excluding merger-related expenses, we expect to be able to slightly more than offset the company-wide inflation pressures with future cost savings. We expect significant declines in interest expense in 2011 as a result of deleveraging our fleet combined with lower interest rates on our new financing facilities compared to the maturing debt. Interest rates on our recently completed variable funding facility range from 100 to 300 basis points less than maturing facilities that carry a fixed rate of interest of over 5%.

As disclosed, throughout 2010, the company benefited from approximately $63 million in gains on vehicle dispositions, which were partially a result of a rapid recovery in the used vehicle market from the lows of 2009. We are not anticipating that level of gain in 2011, and thus, expect corporate adjusted EBITDA to decline on a year-over-year basis. Based on all of the above factors, the company is targeting exclusive of any merger-related expenses, corporate adjusted EBITDA of $175 million to $200 million in 2011.

In conclusion, Dollar Thrifty was successful transitioning from a turnaround strategy to one of maximizing profitability and shareholder value. The management team and the Board of Directors are excited about Dollar Thrifty's competitive position as we begin 2011. We have two long-established value brands with significant customer bases combined with competitive operating cost structure and broad product distribution through numerous channels. The company is in excellent financial condition with substantial liquidity, relatively low corporate leverage and significant tangible net worth.

Lastly and without question, most importantly, we have a very talented and motivated workforce that steps up to the plate each and every day to help the company achieve its goal. The management team remains fully engaged in operating the business on a standalone basis while being fully aligned with the interest of our shareholders. We continue on focusing on maximizing value for our shareholders, and consistent with our fiduciary duties though, we will be open to appropriate alternatives.

That concludes our prepared remarks. Operator, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mr. John Healy with Northcoast Research.

John Healy - Northcoast Research

Question for you guys about the competitive environment. Scott, with each of the players now reporting and showing a little bit of decline in RPD in the fourth quarter, I was hoping you could give a little bit of color, because your mix is pretty consistent with your business over a year ago about the competitive environment out there. But is the decline in pricing that we're seeing just a result of weather impact? Or are you starting to see some players try to approach the market to recoup some lost share? Or are you starting to see any of the brands, either yourself or your competitors, start to behave any differently?

Scott Thompson

I guess it's a couple of points. We did have our first decline in RPD in the fourth quarter of 1.2%, which is the first decline I think in eight quarters. I think the first point I would make for Dollar Thrifty is we had a very tough comparison. As you probably know and remember, last year's fourth quarter, we had a 12% increase in RPD. So we were trying to step over a 12% increase, and we didn't get quite all the way over. That would be the first part. The second point I guess I would make is, and I would hate talking about weather, but I think others have talked about it too, and quite frankly, it was significant. There was a significant winter storm that ran through our peak Christmas rental season, which is our highest RPD period in the quarter and was disruptive to business. But having said those two things, I would also say that I think the environment in the fourth quarter was slightly more competitive. I think people were rational, but it was slightly more competitive than maybe some of the previous quarters. I think Hertz has been very clear on their desire to expand the Advantage brand. I think also the Avis Budget folks have been fairly clear that they're looking to retain some share before they were shrinking a little bit as we were. So I would say it was slightly more competitive but still very rational in the fourth quarter.

John Healy - Northcoast Research

When you look at the competitive environment, is it more in the lower end kind of Spartan leisure brand where you’re seeing increased competition? Or is it more in the middle of the kind of market?

Scott Thompson

I don't think I would say it's more than Spartan brand. I just say the market is slightly more competitive overall. And you always have to be careful when you have these discussions because the market changes rapidly from day-to- day, week-to-week, airport-to-airport. So it's very difficult to make generalizations across the entire system.

Operator

Chris Agnew with MKM Partners.

Christopher Agnew - MKM Partners LLC

I want to touch on fleet costs. Your guidance of $300 to $310 per unit, can you approximate what level of Manheim would sort of be in that assumption? And I'm just thinking some of your peers that have richer mix of vehicles for their corporate customers are targeting below $300 per unit, and I was wondering if are there anything -- is there anything specific in your estimates, I don't know, change in vehicle mix, holding periods or your approach to remarketing?

Scott Thompson

I'll take part of that, then I'll hand it off to Cliff to give you the detail on that a little bit more than I am. I guess, first of all, what I can tell you is I expect that our average cap cost per vehicle would be below the other two public companies. Probably because of the nature of the mix of our cars and the fact that we're in, call it, 95% risk. So our average cap cost will be down. And I think we're holding the cars, call it, 18 to 20 months consistently with what we've done. You want to answer the question on the Manheim, Cliff, as to how the Manheim goes? Because although we're very bullish on the used car market, we did not run the current market through the residuals in the future.

H. Buster

Yes, that's right. Consistent with what we've done in the past, Chris, we're still using a more normalized average Manheim of about 115 when we look at setting our depreciation rates, and that will give us significant upside if the market does hold, that would give us upside throughout 2011.

Christopher Agnew - MKM Partners LLC

I mean, is there any specific reason for you running with that number? Or is it just a degree of conservatism?

Scott Thompson

Well, I mean, I think there's a degree of conservatism in there. We're watching the market closely, and quite frankly, everything we see looks pretty good right now. But I think we're uncomfortable budgeting based on the best used car market in the history of the used car industry. So we geared it down to what I call a normalized used car market. And if used-car market does -- stays hot, then we'll have some reasonable sized gains when we dispose of cars later in the year.

Christopher Agnew - MKM Partners LLC

Your rental revenue growth is I guess on the low side of the industry's historical relationship with GDP growth, and I was just wondering how are you thinking about what sort of GDP growth assumption is in your estimates?

Scott Thompson

Low-single-digit GDP growth. And what we're doing, I think you know this, we're not as much focused on top line revenue growth as making sure that the quality of revenues we get are appropriate, so that we end up with high return on assets. And so single-digit revenue growth, and we're not far off that as far as what our day growth projections are. But to me, the more important part of any top line discussion is the quality of revenue growth. This is an industry where anybody can grow revenues. That's just not hard to do in this industry. It's growing quality revenue, which to me is really the secret to running this business.

Operator

Steve O'Hara with Sidoti & Company.

Stephen O'Hara - Sidoti & Company, LLC

I was wondering, I had to jump on the call a little late, but you mentioned the direct vehicle and operating expenses dropped significantly. I mean, is that something that's sustainable as a percentage, and what were the main factors leading to that drop?

H. Buster

Two main factors led to that, Steve. One was the significant reduction in our maintenance expense resulting from the fact that the fleet is significantly newer this year than it would have been last year. We expect that maintenance will fluctuate a little bit over time. The other big contributor was favorability in our insurance programs, vehicle insurance and insurance products we sell to the consumer. We've realized favorability in those programs for the last several years and would expect to hopefully continue that trend.

Scott Thompson

I would agree with everything Cliff just said. I would like to just point out that as I think others have mentioned, the first quarter there were three snow storms that ran through the first quarter that were fairly significant and disruptive. And during the first quarter, I suspect our DVO ratio will not look as good as it has historically due to those storms, but other than the first quarter, very much should be sustainable.

Stephen O'Hara - Sidoti & Company, LLC

And then any further -- when does the window open in terms of when you can buy back shares?

Scott Thompson

Man, I wish I knew that. The window opens when management and the board no longer has any significant inside information that the market doesn't have. That's a difficult time period to guesstimate considering some of the activities that are going on in Washington.

Operator

Michael Millman with Millman Research Associates.

Michael Millman - Millman Research Associates

Can you talk about your ancillary unit growth, how that compared with your T&M growth in the fourth quarter and for the full year?

Scott Thompson

Well, since RPD is down in total in the fourth quarter, the ancillary or incremental revenues, as I call them, they were up. They were positive growth, I believe, single digits, and Cliff is looking for the exact number, if we might find it. But they were up single digits, and that means by definition T&M was down more than 1.2%.

Michael Millman - Millman Research Associates

And in terms of your guidance, is your assumption that this other income will continue to grow at a faster rate than T&M?

Scott Thompson

Our assumption is that RPD will be consistent with last year.

Michael Millman - Millman Research Associates

Do you have any thoughts as Hertz is doing buying used cars to augment the fleet and reduce its cost?

Scott Thompson

Yes, actually, a couple of years ago, we started doing that. We don't buy many, so we don't really talk too much about it. But we're in the market selectively buying some used cars at times. It's difficult to implement that strategy in a big way when the used car market is in the best used car market in the history of used car industry. I think at times that the used car market were to get soft, we probably would buy a larger percentage of our cars from used car market. But we do buy used cars, specifically luxury cars or cars that we don't buy as well from the manufacturers. And I think it's a prudent strategy.

Michael Millman - Millman Research Associates

I guess Hertz's argument is that you get rid of the greatest depreciation acceleration by doing that.

Scott Thompson

You would have to talk to Hertz about their strategy.

Michael Millman - Millman Research Associates

Do you have a new current return on asset target?

Scott Thompson

Not that we've disclosed.

Michael Millman - Millman Research Associates

Are you willing to disclose it?

Scott Thompson

No. You've got guidance for 2011, and you've got generally -- we're giving this information, you can figure out what our fleet is going to look like in our balance sheet, you can probably back into it.

Operator

Sachin Shah with Capstone Global Markets.

Sachin Shah - ICAP

I just wanted to clarify, in your press release, you mentioned some f including termination fee paying to Hertz. So I just wanted to clarify, has that termination fee still not been paid to Hertz, and it's awaiting this FTC approval? I'm just trying to understand where that stands.

H. Buster

There is no f, there is no termination fee due to Hertz. The Hertz agreement had a tail on it of 12 months, which if my recollection is correct, I believe runs off October 1. That basically says that if we sign a definitive agreement with another party or announced a definitive agreement, it’s got some legal words in there, then that termination fee would be due Hertz. But if there is no definitive agreement executed within the 12-month period, there's no fee due Hertz.

Sachin Shah - ICAP

So if you enter into an agreement with Avis, that termination fee is due?

Scott Thompson

Correct.

Sachin Shah - ICAP

Now we've been talking about the FTC, and I appreciate the update in the release, but I just wanted to find out competition in Canada and some of the other regulatory approvals that are needed, is there any kind of update on where that stands?

Scott Thompson

You're going to have to talk to the Avis people to get some more current update. You have to remember, the way this process works is if Avis is seeking approval for a transaction and is the point company on all discussions. In our agreement with Avis Budget is that we'll work with them to facilitate transfer of information, but really Avis is the point on all regulatory discussions.

Sachin Shah - ICAP

Now when you said that FTC, you're expecting some kind of update in the near future, are we talking weeks or sometime this quarter or maybe even second quarter?

Scott Thompson

I'm going to point you towards Avis' earnings call and their CEO's discussion of that, again, because they have the most current and detailed information on it.

Operator

To Judy Delgado with Alpine Associates.

Judy Delgado

I just want a little clarity also on the timing mentioned at the beginning of the call concerning the substantial compliance. Based on Avis Budget's submission to the FTC, as you pointed out, within early February, are you expecting greater clarity in early March?

Scott Thompson

I think if you look at the timing of when we certified, each company, that's a different timing agreement with the FTC. I think they would mature at the end of March and the first week in April. Each company has different agreements with the FTC.

Judy Delgado

Would the companies be open to extending that timing with the FTC, perhaps with an understanding of not signing an agreement until a final decision is made, has that been talked about?

Scott Thompson

I can't represent what Avis is interested in doing. You need to talk to Avis about what they're willing to do. I think Dollar Thrifty's management board is willing to do what they think is in the best interest of the company's shareholders, and we'll look at all alternatives as they come up.

Judy Delgado

And can you touch base on the buyback, the thought process there, and why the $100 million and when that would take place?

Scott Thompson

Sure. What we've said is that really we're running this company as a stand-alone company. That's where we are. We don't have any merger agreement with anybody. And when you look at the company, we have $563 million of unrestricted cash. As Cliff mentioned, we've got a big IRS tax receivables coming back to us, so call our unrestricted cash $600 million. We've got less than one turn of corporate debt on the books in an industry where the other two public companies have six turns of corporate debt on the books. And I think we're very bullish about the ability of the company to generate cash flow in the future, as evidenced by our guidance. And I think to be good responsible stewards, we've got to be able to tell the market what we're going to do with some of the money as we produced it. We put that all into pan and shake it around. We don't see the business needing the kind of money that we generated and are generating. And so we think it's our responsibility to give some of it back to the shareholders. We went through and had Goldman kind of run us through our various options and analysis, studying whether or not it would be dividend or buyback, and ultimately, we decided the buyback was the proper form to returning money back to the shareholders. It will be implemented over time. It will be implemented in accordance with our credit agreements and restrictions. As you probably know, companies can't buy stock on undisclosed and there are certain limits at how much you buy each day and all those things, and we'll be buying stock back on an opportunistic basis over time.

Operator

Neil Portus with Goldman Sachs.

Neil Portus - Goldman Sachs Group Inc.

In addition to lower maintenance and insurance costs, I think you mentioned in the past some additional cost control or process improvement programs. Do you in fact have some of those in place? And if so, I just want to better understand what might be factored into guidance this year, if anything.

Scott Thompson

We have those in place. We have those every day in place. I think maybe it might be a little bit of difference is the way we do cost reductions is we work on them every day, and as they’re realized, they roll through the numbers. And we don't project what those cost reductions may be in the future because at the same time we know we're going to have some inflationary pressure in other areas of the business. What we've guided you to is that we think that throughout the year, that we'd be able to have cost savings that more than offset inflationary pressure within the cost structure.

Neil Portus - Goldman Sachs Group Inc.

And then what is the opportunity for the industry to more broadly implement cancellation fees? Has that prospect improved at all?

Scott Thompson

That was being driven by our friends over at Avis Budget primarily. And I don't know exactly what the status is, but my understanding is that there is some of the industries that are not for it. We are clearly the smallest of the big four players in the industry, and we certainly will follow the industry. But I think some of the other larger players have to lead on that particular issue.

Operator

Fred Lowrance with Avondale Partners.

Fred Lowrance - Avondale Partners, LLC

Clearly, I've got your volume growth estimates that you sort of laid out for us for 2011, but maybe more generally, I'm just kind of trying to get a handle on what prospects look for growing the franchisee base this year. And maybe along those lines, with the excess cash that you got on hand, if there's any opportunity to actually put that capital to work to incent franchisee growth above and beyond what you might normally be able to secure?

Scott Thompson

The franchise, whole franchise area has been a good story the last couple of years. It held up very well during the downturn. We see our franchise revenues probably growing at double digits in '11, and we're working diligently overseas to expand some of our franchise opportunities. But these are the kind of things that take a long time. You’ve got to develop the relationship, work through the transactions with new franchisees. So I think it's going to take a little while to get a lot of traction behind new franchises, although I might be wrong. But I think just recently, really the banks have opened up. So that franchisees can finance their own fleet, and that's really a critical issue. We could use some of our capital base to finance or bootstrap some new franchisees. I don't think we're going to have to. I think the credit markets have opened up. And over the next 12 to 24 months, people would be able -- entrepreneurs will be able to get their own financing, and that's probably our preference, but it's a great piece of business.

Fred Lowrance - Avondale Partners, LLC

And just sort of along those growth lines, how do you think about, in general, acquisitions of your own to grow the business? Not talking about an Avis or Hertz merger, but just your own personal search of what's out there in the marketplace?

Scott Thompson

About repurchasing our own franchisee?

Fred Lowrance - Avondale Partners, LLC

No, just maybe there are other independent operators out there, smaller rental car companies that you might wish to acquire. I mean, how do you go about thinking about that?

Scott Thompson

I don't think about it a lot. I think we've got two great value brands that have been in the market for 160 years, 150 years, and there's not a premium brand that I know of for sale that would be a good mix. But to go out and look for another value brand or the Spartan brand. I don't think that that probably makes any sense for us at this point.

Operator

Jordan Hymowitz with Philadelphia Financial.