Dollar Thrifty Automotive Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: Dollar Thrifty (DTG)

Dollar Thrifty Automotive Group (NYSE:DTG)

Q1 2012 Earnings Call

May 09, 2012 9:00 am ET


Vicki Vaniman - Executive Vice President, Secretary and General Counsel

Scott L. Thompson - Chairman, Chief Executive Officer and President

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


Christopher Agnew - MKM Partners LLC, Research Division


Welcome and thank you for joining the Dollar Thrifty Automotive Group First Quarter Financial Results. [Operator Instructions] This conference is being recorded. If anyone has any objections, please disconnect at this time. I would now like to turn the call over to Vicki Vaniman, General Counsel.

Vicki Vaniman

Thank you. Good morning, and welcome to the Dollar Thrifty Automotive Group, Inc. First Quarter 2012 Earnings Release Conference Call. Scott Thompson, Chairman, President and Chief Executive Officer; and Cliff Buster, Chief Financial Officer, 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 our company website at under the Investor Info tab.

And now I would like to turn the call over to Scott to discuss our first quarter earnings.

Scott L. Thompson

Thank you, Vicki, and good morning, everyone. We're pleased to report not only another quarter of significant year-over-year improvement, but also the highest first quarter profit in the company's history. A strong used vehicle market combined with continued emphasis in the area of cost control, productivity initiatives, fleet utilization and balance sheet management enabled us to achieve these results in spite of a competitive rate environment.

Net income for 2012 first quarter was $40.4 million or $1.35 per diluted share compared to net income of $16.5 million or $0.53 per diluted share for the first quarter of 2011. This represents 155% increase in earnings per diluted share compared to the first quarter 2011.

We're also pleased to report adjusted -- corporate adjusted EBITDA for the first quarter of 2012 of $76.8 million compared to $36.3 million for the first quarter of 2011, 111% increase compared to prior year.

Revenue -- rental revenues for the first quarter of 2012 increased 2.1%, driven primarily by a 6.5% increase in rental base partially offset by a 4.2% decrease in revenue per day. We continue to be very pleased with the continued growth in the leisure travel volumes and the strong demand for our value-oriented product offering.

Revenue per unit, or RPU, totaled $1,115 per unit per month the first quarter 2012 compared to $1,131 per unit per month for the first quarter of 2011. We're more focused on RPU than RPV or total revenue. We believe that it's consistent with our return-on-asset approach and it's helpful when thinking about the appropriate fleet growth.

Fleet cost improvement was a substantial component in the escalation in profitability this quarter. Fleet cost per vehicle for the first quarter of 2012 declined to $136 per month compared to $251 per vehicle per month in the first quarter of 2011. Consistent with last quarter, our base depreciation rates continue to benefit from the ongoing strength in the used vehicle market. Additionally, during the first quarter of 2012, we realized gains on sale of risk vehicles of $14.3 million compared to $7.9 million in last year's first quarter.

Cliff will now review additional financial highlights for the quarter.

H. Clifford Buster

Thanks, Scott. Before I go through the financial highlights, I would like to address our diluted share count, which has been a bit complex. During the last 3 quarters of 2011, we highlighted that our diluted share count had increased significantly although there had been no significant equity grants since 2010. This was the result of the application of the treasury stock method for accounting purposes in computing diluted shares.

The diluted share count in 2011 increased due to 2 factors: Our inability to benefit from the tax deduction resulting from assumed stock option exercises due to the fact that the company was not a cash taxpayer in 2011, which effectively lowered the number of shares assumed to be repurchased under the treasury stock method; and secondly, the appreciation in our share price reduced the number of shares assumed to be repurchased from the proceeds of option exercises.

Based on tax regulation currently in effect and our current projections for significant pretax income for 2012, we now expect to be a cash taxpayer in 2012, although at a substantially lower rate than the statutory rate. Accordingly, or perhaps due to diluted EPS, we are now assuming the repurchase of shares related to the benefit of the tax deduction from stock option exercises.

Our revised EPS guidance for 2012 reflects the current company's current expectations that it will be a cash taxpayer in 2012 and that it will be able to benefit from the tax deduction on stock option exercises. The tax regulations change favorably with respect to bonus depreciation methods. It might negatively impact our diluted shares outstanding and positively impact our free cash flow in future periods.

Now turning to Table 1 in the press release. Rental revenues for the first quarter of 2012 were $339 million compared to $332 million in the first quarter of 2011, an increase of 2.1%. Our vehicle utilization for the quarter increased to 81% from 79.7% in the comparable prior year period.

Selling, general and administrative expenses in the first quarter of 2012 decreased $3.4 million from prior year levels as there were no merger-related expenses incurred in the first quarter of 2012 compared to $3.5 million of merger-related expenses incurred in the first quarter of 2011. Direct vehicle and operating expenses in the first quarter of 2012 increased $5.9 million compared to the first quarter of 2011, even though it was primarily impacted by higher maintenance expenses incurred in advance of the significant fleet refresh that will occur by June 30, combined with higher expenses for gasoline and toll road products. Increased cost for gasoline and toll road products are directly offset through higher ancillary sales revenue.

As a percentage of revenue, DV&O and SG&A were effectively flat with the prior year after excluding merger-related expenses in the prior year period.

Vehicle depreciation expense for the quarter decreased 43.7% from $74.2 million in the first quarter of 2011 to $41.7 million in the first quarter of 2012. The decrease is attributable to the factors Scott mentioned earlier on the call with respect to base depreciation rates and risk vehicle gains.

During the first quarter of 2012, the company sold approximately 14,400 risk vehicles at an average gain of $993 per vehicle compared to approximately 6,900 vehicles sold in the first quarter of 2011 at an average gain of $1,146 per vehicle.

Interest expense, net of interest income, totaled $17.1 million for the first quarter of 2012, down from $21 million for the same period last year.

Moving to key balance sheet items on Table 2 of the press release. Cash and cash equivalents totaled $492 million as of March 31, 2012, compared to $509 million as of December 31, 2011. Restricted cash totaled $214 million as of March 31, 2012, down from $353 million as of December 31, 2011. The decrease in both unrestricted and restricted cash is attributable to the seasonal investments in our rental fleet. Use of unrestricted cash for seasonal fleeting was partially offset by cash generated from operations and the releveraging of our Canadian fleet, which I will discuss momentarily.

Revenue-earning vehicles, net of depreciation, totaled $1.76 billion at March 31, 2012, an increase of approximately $290 million from December 31, 2011, levels. The increase in the book value of the fleet since year end is attributable to the seasonal fleet increases. The average fleet operated during the quarter was up 3.6% compared to the prior year period. Vehicle debt increased $73 million from December 31, 2011 to March 31, 2012, with vehicle debt now totaling $1.47 billion. The increase in vehicle debt resulted from borrowings to support seasonal fleet investments, our fleet refresh and the releveraging of our Canadian fleet.

Now turning to liquidity and capital resources. The seasonal fleet investments I previously mentioned were funded utilizing a combination of restricted cash, borrowings under our fleet financing facilities and unrestricted cash. As of March 31, we had excess cash enhancement in our securitization trust of approximately $30 million. As previously announced, during the quarter, we completed a new 5-year, $450 million revolving credit facility, providing the company with substantial operating flexibility and bolstering our already strong liquidity position. As of March 31, we had approximately $235 million of available capacity under the facility.

Additionally, during the quarter, we completed CAD $150 million fleet financing facility for purposes of financing our Canadian rental fleet and refinanced approximately $60 million of the rental fleet in Canada that was previously funded with excess cash.

Finally, as noted in our press release this morning, subsequent to March 31, we made the decision to reduce letters of credit outstanding for collateral enhancement in our securitization by approximately $145 million, utilizing a portion of our excess cash to meet the collateral enhancement requirements. This move allows us to reduce our corporate interest expense by approximately $6 million on an annualized basis.

We have the flexibility to releverage the fleet in order to return those funds to unrestricted cash for other needs through either borrowings under the revolving credit facility or future issuances of letters of credit.

As noted earlier in the call, we expect to be a cash taxpayer in 2012 although at a level substantially below the statutory rate for federal tax purposes. We currently expect approximately 40% of our book tax provision, which includes both federal and state taxes, will be paid on a current basis in 2012.

We ended the quarter with tangible net worth of $635 million and no corporate indebtedness. I will now turn the call back over to Scott.

Scott L. Thompson

Thank you, Cliff. Turning to merger activity. I'm aware that -- of Hertz's statements made during their earnings conference call, and I really have nothing to add to those statements. And if you have any questions, I suggest you direct those questions to Hertz. Now I'd like to briefly discuss our share repurchases.

As previously announced in February, we completed the repurchase of $100 million of the company's common stock, reducing our outstanding share count by approximately 1.45 million shares or 5% of the shares outstanding. Additionally, the company repurchased approximately $5 million of the company's common stock during March.

As of March 31, the company had remaining authorization of approximately $295 million through its board-approved share repurchase program. The company continues to evaluate all available options and methods, returning cash to shareholders while focusing on its long-term success of the company.

Turning to 2012 outlook. Based on our first quarter performance, current overall economic conditions, our expectations for continued strength in domestic used vehicle market and continued improvement in the leisure travel volumes, we have revised our 2012 full year guidance for diluted earnings per share to be within the range of $5 to $5.60. Additionally, we now expect corporate adjusted EBITDA for the full year of 2012 to be within the range of $285 million to $310 million.

In conclusion, this quarter, we continue to execute on our stand-alone plan, mainly highly focused on maximizing the company's return on assets. The low-cost operating structure and focus on fleet management, combined with our conservative management of our balance sheet, provided us the ability not only to compete effectively but to compete very profitably.

My thanks certainly goes out to our over 6,000 employees for their efforts every day in helping the company achieve its goals. Additionally, I'd like to thank our suppliers, strategic partners, lenders and shareholders for their ongoing support. That concludes our prepared remarks. Operator, would you open the call up for questions, please?

Question-and-Answer Session


[Operator Instructions] Our first question comes from Chris Agnew of MKM Partners.

Christopher Agnew - MKM Partners LLC, Research Division

I just wanted to ask about the good utilization you're seeing and the trends there. And how much of the improvement of utilization relates to initiatives you're implementing or things specific to DTG versus general industry trends on length of rental? And looking forward, how much -- for how much longer do you think length of rental can continue to improve, or for you separately, you can continue to see improvements in utilization?

Scott L. Thompson

Well, congratulations on getting 4 questions in on one. A couple of points. First of all, you've got to go back and look at last year. And last year, utilization was down as we held cars. And so I think we're getting some -- we have an easy compare, but we're seeing last 1, 2, 3, I'm looking right now, 4 months, we've seen improvement in utilization. We saw some more improvement in utilization in April, and May is looking pretty good. So although we have not seen a lift in RPD, we're looking and we're seeing the benefit in utilization. But I don't think, strategically, the company has changed its thinking on utilization. I would say we ran a little bit below where we wanted to last year because of some of the issues with the tsunami. So -- and utilization policy, it certainly has had a positive impact on RPU, which is what we'd expect to see going forward.

Christopher Agnew - MKM Partners LLC, Research Division

Great. And then, and I don't know if -- I might have missed this. Where did you exit the quarter in terms of fleet levels year-over-year?

H. Clifford Buster

At the end of the quarter, I believe we were up 3%, 3.5%, compared to the prior year.


This concludes the question-and-answer session. I'd like to turn it back for closing remarks.

Scott L. Thompson

Thank you. And especially thank you for letting me have an easy Q&A session today. I certainly appreciate your time and interest today and look forward to reporting our second quarter operations.


This concludes today's presentation. Thank you for your participation. You may now disconnect.

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