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Executives

Jonathan Schaffer - Managing Director

Scott W. Griffith - Chairman and Chief Executive Officer

Edward G. Goldfinger - Chief Financial Officer, Principal Accounting Officer, Vice President, Assistant Secretary and Treasurer

Analysts

Mark W. Strouse - JP Morgan Chase & Co, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Adam Jonas - Morgan Stanley, Research Division

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

John M. Healy - Northcoast Research

Kevin Kopelman - Cowen and Company, LLC, Research Division

Kerry K. Rice - Needham & Company, LLC, Research Division

Christopher Agnew - MKM Partners LLC, Research Division

Zipcar (ZIP) Q2 2012 Earnings Call August 2, 2012 4:30 PM ET

Operator

Greetings, and welcome to the Zipcar 2012 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jonathan Schaffer of The Blueshirt Group. Thank you. Mr. Schaffer, you may begin.

Jonathan Schaffer

Thank you, operator. I'd like to welcome everyone this afternoon's call to discuss Zipcar's 2012 Second Quarter Financial Results. On today's call from management are Scott Griffith, Chairman and Chief Executive Officer; and Ed Goldfinger, Chief Financial Officer. After management's prepared remarks, we'll open the call up to questions.

Before we begin, I would like to remind everyone that during the course of this conference call, management may make forward-looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations. A detailed discussion of such risks and uncertainties is contained in our filings with the Securities and Exchange Commission, which are available on the SEC's website.

Forward-looking statements made during this conference call speak only as of today's date, and the company undertakes no obligation to update them to reflect subsequent events or circumstances. Also, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures in talking about the company's performance. We refer to adjusted EBITDA as a key bottom line measure of our performance.

There is a full reconciliation of the U.S. GAAP net loss to adjusted EBITDA on our press release, which can be found on the Investor Relations section of our website. Unless noted otherwise, all comparisons are versus the prior-year period. This conference call is also being broadcast on the internet and is available through the Investor Relations section of Zipcar's website.

So with these formalities out of the way, I'd now like to turn the call over to Scott Griffith. Scott, you may begin.

Scott W. Griffith

Thanks, Jonathan. Good afternoon, and thanks to everyone for joining us on today's call. Throughout the second quarter, we continued to expand our market leadership position within the car sharing category in the broader mobility services sector. We posted a solid double-digit increase in revenue while expanding our margins and growing into new geographies.

Driving these gains is a compelling value proposition that continues to resonate with our more than 730,000 members globally. Zipcar represents a convenient and affordable alternative to car ownership in dense urban areas where costs are high and personal cars sit idle more than 90% of the time. We also provide effective mobility solutions for small and medium-sized businesses, government agencies and university communities, all of which are rapidly increasing their adoption of the car sharing model to meet their transportation needs with sensible, cost efficient alternatives.

With a clear leadership position, a loyal membership base and continued technology and services innovation, we remain energized and excited to stay at the forefront of car sharing and mobility services. In a few minutes, I'll outline how we envision leveraging our brand, technology and network advantages in the future.

First, turning to highlights for the quarter. Total membership grew 21% from the prior year to 731,000. Revenue increased 15% year-on-year to $70.8 million. Adjusted EBITDA grew 47% versus last year to $3.4 million, and our net loss was $422,000, an improvement from a loss of $5.6 million in the second quarter of last year.

Our adjusted EBITDA and U.S. GAAP net loss for the quarter were both within the range of the guidance we gave. However, while we reported solid double-digit gains in our top line performance, revenue growth was below our expectations due primarily to lower-than-expected new member additions during the quarter. We also saw slower-than-anticipated growth in the U.K., which is our second largest market.

Lower-than-anticipated new member additions in the period reflected softer returns on our marketing programs, most notably, around our first test of broadcast media launched in March. The campaign, which included both streaming and terrestrial radio, did not meet the objectives we established. For the remainder of 2012, we've eliminated radio from our marketing mix. We expect this change to drive down CPAs from the levels we incurred in the second quarter. We're also taking aggressive steps to reignite growth in new members for the coming quarters, and we have a number of new member acquisition initiatives in place.

First, we're amping up our referral program by making it easier for our newest numbers to refer Zipcar to their personal network. Second, we're opening up new partnership channels. Third, we're enhancing our social media efforts. Fourth, we're implementing enhanced online media tracking and attribution technology. And fifth, we're working to improve our process as related to performance management of our online display media campaigns.

In addition to steps to improve returns on our marketing dollars, we're also evaluating ways to broaden our appeal by reducing barriers to trial and making initial access easier and more affordable. I'll touch on this initiative additionally in a few minutes.

Turning to the U.K., after seeing promising momentum in the first quarter, we experienced a slowdown in growth during the latter part of the second quarter. For the period, year-on-year revenue growth in the U.K. was 6% in local currency. We believe that the tough economy was the most significant reason for the slowdown.

To best position the brand and our offerings in this challenging economic environment, we have a new head of U.K. marketing who's in the process of localizing our approach and applying our best practices to help move the needle going forward. While growth in the U.K. was below our expectations, we continue to make progress operationally in this market with revenue per vehicle up approximately 10% over the prior year.

Just touching on the competitive landscape for both North America and the U.K., it's clear that the car sharing category has gained substantial validation demonstrated by the greater interest from car rental companies and auto manufacturers in the launch of new ability models. Competitive and adjacent activity has increased, and we'll continue to monitor and report on notable competitive activity in the future.

Ed will spend more time shortly discussing our financial performance in Q2 and implications for the balance of the year. Before I turn it over to him, I'd like to cover a number of the recent positive developments in the business and then turn to our broader mission for Zipcar as we look ahead.

Just after the close of the quarter, we met our 2012 objective of adding a second major European market in the year with the acquisition of CarSharing.at, a leading car sharing service in Austria with a presence in Vienna and other cities across the country. The company currently offers approximately 200 vehicles and serves approximately 10,000 members. We believe Vienna will ultimately be a top 10 car sharing market in Europe with significant growth potential and strong government support. CarSharing.at means a partnership -- maintains a partnership with the Austrian Federal Railways, the national railway operator, which represents a strong marketing channel for the service.

Additionally, we see opportunities for greater on-street presence in Vienna, which will help raise awareness among consumers in this market. The acquisition of CarSharing.at has been completed, and we look forward to working with the management team on plans for integration of these operations on to the Zipcar brand and technology platform in the first half of 2013.

We're also well along in the integration of the Barcelona-based Avancar operations in which we increased our stake to a majority ownership position earlier this year. We expect to complete this integration as the year progresses, including the conversion of members and vehicles to our new global technology platform. For the remainder of this year, our focus in Europe will be on the integration of acquired operations and improving performance in the U.K.

On the domestic front, we launched in the city of Austin, Texas, during the quarter, turning what was a university presence into a city-wide network of approximately 40 vehicles. We look forward to building out this market over time as we have done with other Tier 2 cities such as Baltimore and Providence.

With respect to our objective this year of engaging our member with new services and offerings, we made strong progress in Q2 with the rollout of our Zipvan program to Chicago and Toronto with new Ford E-150 full size cargo vans in each of these markets. Chicago and Toronto joined San Francisco, Boston and Washington, D.C. for a total of 165 Zipvans now available in North America in addition to more than 200 Zipvans in the U.K. Since the original North American launch of Zipvan in San Francisco in November of 2011, nearly 10,000 unique Zipcar members have driven a Zipvan, taking advantage of the additional capacity these vehicles offered to meet their cargo hauling needs.

Building on this strong member reception, we plan to continue to increase the size of the Zipvan fleet in North America, including rolling out the Zipvan service to several of our other markets in the coming months. We expect to exceed 200 vans in North America by year end.

Let me now address our broader vision for how we expect to accelerate adoption going forward. We've been discussing for some time the concept of a more holistic approach to mobility solutions and the need to evolve our business in the direction we believe the consumer is heading. Steps in this direction include our launch of Zipvan and our investment in peer-to-peer car sharing company wheels earlier this year.

Zipcar has always been ahead of the curve, and we intend to maintain our leadership edge through innovation. As we look forward, we see 3 strategic imperatives to evolve our business in the industry.

First, we plan to accelerate adoption by reducing the barriers to trial and enhance retention while preserving the economics of our target business model. Our goal is to make it easier and less expensive to get a prospective member into a car for the first time. We've researched and analyzed alternative membership plans that encourage trial, including the recent monthly membership offers that we're testing in selected markets in North America.

We also conducted a recent survey of nonmembers in several of our key geographies to gauge consumer sentiment on the subject. We found that while both awareness and relevancy are strong among our target audience, we could improve our value proposition for those who might want to try the service out before committing to an annual term.

By offering a membership that encourages trial with a lower upfront cost and a narrower feature set, we believe a considerable number of new incremental members will join. Over time, we'd expect to build on these trial experiences towards higher levels of engagement using frequency and loyalty programs, premium membership offers and other features that are not available today.

Additionally, for those who consider leaving the membership, because they don't have a regular or immediate need to use a car at the time of their annual renewal or perhaps they bought a car or moved out of town, we do not currently have a membership plan that addresses their more limited needs. For example, these members might find themselves in need of a van or they might travel to Zipcar cities where they would have the use for our service. We want to keep them in the fold to those occasions.

We're developing a more holistic set of membership offers that will address a wider variety of member segments. With this new membership plan framework, we believe we have an excellent opportunity to accelerate adoption. And in time, we also believe this revised approach will improve retention, enable us to offer incentives that drive frequency and loyalty and provide an opportunity for us to layer in upsell and cross-sell programs to a greater degree than we have in the past.

We expect the majority of our members will remain under our standard annual fee membership program to take full advantage of the entire set of services and benefits we offer. We expect to implement the first phase of these changes to our membership offers later in the year.

Our second strategic imperative is to expand the breadth of our service offerings. We know that urban consumers today are combining a broad array of new technologically enabled transportation solutions, each of which has its own user interface, branding, underlying technology, account management, billing and payment system, along with disparate operational practices and customer support levels. Over time, we see ourselves at providing our members with easy access to a greater variety of mobility services to satisfy their transportation needs. For example, we recently added Zipvans in North America, which has been a great success as I outlined earlier.

We believe other complementary and adjacent services such as peer-to-peer car sharing, ride sharing and one-way, intra-city driving would also fit well into a cohesive, multifaceted mobility network over time. We're exploring the best way to operation -- excuse me, operationalize a number of these new mobility options across our large existing networks of cites and members.

Our third strategic imperative is to invest further behind our leading technology platform to stay at the forefront with our best-in-class member experience, as well as ensuring we have the technology in place to enable the delivery of an enhanced set of mobility services. As of today, over 90% of our members carry smartphones, and the majority of our reservation activity is done through mobile devices.

Members will begin to see enhancements to our web reservation system and mobile apps first, starting over the next several months. Additionally, our next-generation technology will enable far greater personalization that will leverage usage data to more dynamically target promotions that can drive loyalty while optimizing utilization and increasing revenue per vehicle.

So summing up the 3 strategic imperatives I just outlined, number one, we intend to deliver a more comprehensive set of membership offers that reduce the barriers to trial and improve loyalty and retention. Number two, we'll be expanding our breadth of services to meet a greater number of trip types and used cases. And number three, we'll be evolving our technology to ensure we have the capability to execute our broader mobility services vision that we believe the future urban consumer will demand.

Let me now turn it over to Ed to cover the financials. Ed?

Edward G. Goldfinger

Thanks, Scott, and thanks, everyone, for joining us on the call. I'll go through our second quarter financial performance in greater depth, and then we'll provide guidance around our third quarter and full year 2012 expectations.

Revenue for the second quarter increased by 15% over the same period last year to $70.8 million, solid growth, but as Scott mentioned, constrained by a lower-than-expected intake of new members. For our Established Markets, our revenue growth for the quarter was 16% and for all of North America, revenue growth was 17%.

In the U.K., revenue growth was 6% in local currency and 2% in U.S. dollars. This slowdown in U.K. growth, which we attribute to very tough economic trends, represents a reversal of the momentum we have begun to build in the first quarter. We expect market conditions there to remain challenging for the balance of the year.

On a consolidated basis, usage revenue per vehicle per day was flat with the prior year at $65 despite lower utilization of our fleet during this past quarter. Total revenue per member declined to $98 in the quarter from $103 last year in part due to an increased mix of more profitable hourly versus daily trips and in part due to the shortfall of new members who, on average, tend to be more active. Fee revenue represented 14.6% of total revenue, up from 13.4% in the prior-year period toward our target model of 17% for fee revenue. Our average monthly member retention rate was essentially flat at 97.7% versus 97.8% in the prior-year period.

Fleet operations costs improved by nearly 400 basis points to 62% of revenue for the quarter versus 65.8% in the prior-year period. The primary reasons for this reduction are lower fleet financing costs due to the shift of vehicles onto our asset-backed loan facility, lower fuel costs and leverage from increased scale and pricing yield. Member services and fulfillment costs improved by 100 basis points to 7.2% of revenue from 8.2% in the same period last year due to volume-based improvements in merchant processing fees and leverage from our member services center.

Selling, general and administrative expenses increased to 27.2% of revenue from 23.9% in the same period last year. The increase was due primarily to higher sales and marketing spend associated with the radio campaign, which drove our cost renewal count for the quarter to $89, up from $70 last year. We expect to see an improvement in the productivity of our marketing campaigns and as a result, we expect the reduction of CPAs during the back half of the year compared to Q2.

The increase in SG&A in the second quarter also relates to the expansion of our Zipcar for Business direct sales force, increased costs related to operating as a public company and investment in our expanded European infrastructure. Interest expense was down significantly in the second quarter to $1 million from $4.5 million last year, resulting principally from the onetime debt pay off cost we incurred in the second quarter last year as part of our IPO.

Our adjusted EBITDA for the quarter, which excludes nonoperating and noncash items, was $3.4 million compared to $2.3 million in the prior-year period. On a U.S. GAAP basis, our net loss for the quarter was $400,000 compared to $5.6 million as a loss in the prior period, which included the onetime debt pay off cost I mentioned. Our loss per share was $0.01 for the second quarter in 2012 compared to a loss per share of $0.17 in the prior-year period. Income tax -- income before tax in our Established Markets was 22% of revenue, unchanged from the prior year.

With respect to the balance sheet, we ended the quarter with $81 million of cash and marketable securities on hand, down from $92 million at the end of the first quarter, principally reflecting our net investment in fleet partially offset by cash from operations. Our vehicle-related debt and capital lease obligations totaled $121 million, up as planned from $80 million at the end of the first quarter based on incremental and replacement vehicles added to our ABS facility during our heaviest in-fleeting season. We expect to see a continued trend of investment in the third quarter followed by a reduction of fleet and debt in the fourth quarter corresponding with an expected increase in cash as we dip [ph] seasonally into the winter months.

I'll now spend a minute on guidance before turning it back to Scott. The nature of our membership-oriented business is that the lower member additions in the second quarter as well as current member trends will have an impact on our performance for the balance of the year. For the full year, we expect revenue to total $272 million to $278 million. We expect adjusted EBITDA between $12 million and $16 million and U.S. GAAP net income of between breakeven and $4 million. For the third quarter, we expect revenues in the range of $74 million to $77 million, adjusted EBITDA of $2.5 million to $5 million and U.S. GAAP net income between a loss of $0.5 million and a profit of $2 million.

A few other modeling points. Stock-based compensation is expected to be approximately $1.5 million for each of the third and fourth quarters. Acquisition and integration costs for the balance of the year, including both our Barcelona operation and the recent Vienna acquisition, will be roughly $1.2 million with approximately $700,000 hitting in the third quarter. We expect to have about $1.2 million of vehicle-related interest expense for each of the third and fourth quarters.

As discussed in our previous guidance, we expect to record other income in the amount of $1.7 million, from an already contracted sales of ZEV credits in the back half of the year. We have assumed for purposes of our guidance that this occurs in the fourth quarter. As a reminder, we did not include the benefits of ZEV credits in adjusted EBITDA.

Our net income range does not include the impact of any reversal of our deferred tax valuation allowance, which could occur during the year should we begin to meet the accounting thresholds for reversing this allowance. We expect the average number of shares outstanding to be between 39.5 million and 40.5 million shares for the third and fourth quarters. Common stock equivalents under the treasury stock method would add another 1.5 million to 2.5 million shares, which would be included in the average share count to the extent that we report positive U.S. GAAP net income in any given period.

So to wrap it up, revenue for the quarter was softer than we anticipated for the reasons discussed, but we were able to move quickly to generate cost savings to largely offset the impact to our bottom line. We have recast our forward-looking guidance to reflect the impact of the membership trends we have recently seen as well as the U.K. macro environment. As Scott outlined, we're moving ahead on several important strategic initiatives to regain our growth momentum.

And with that, I'll turn it back to Scott.

Scott W. Griffith

Thanks, Ed. We have a lot going on, but we are very clear in our priorities over the next several quarters. While we were disappointed with our recent revenue performance and faced near-term challenges of driving member acquisition, we believe we're taking the steps necessary to improve our growth trajectory and we remain very excited about our long-term prospects.

With the strength of the Zipcar brand along with our technology infrastructure, first-to-scale advantage and market position, we're confident in our ability to introduce and scale a broader array of mobility services to meet consumer expectations. As you can tell from my comments earlier, the Zipcar team is working very hard, and I'd like to thank them all for their dedication and commitment.

I'd like to thank all of you for your interest and support, and now let's open up the call to your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Paul Coster of JPMorgan.

Mark W. Strouse - JP Morgan Chase & Co, Research Division

It's actually Mark Strouse on for Paul. Just want to talk about the member additions being slower than you expected. Is that primarily because of U.K. or is that also North America?

Scott W. Griffith

I think it's a little bit of both. U.K. was probably more exaggerated than what we saw in North America, but it's a mix of both. In the U.K., we, again, believe it was primarily economic headwinds. In the U.S., the productivity of some of our marketing campaigns is not as high as we expected.

Mark W. Strouse - JP Morgan Chase & Co, Research Division

Okay. And then in the U.K., you've hired a new head of marketing. When does he start? And I guess what are some of the initiatives, and when can we expect to see those rolled out, I guess?

Scott W. Griffith

So the start was in kind of late Q1, early Q2. And essentially, what he's doing is trying to take best practices that we've already tested in other markets and roll them out there. There's also some localization of both the brand and some of the offers locally that we think are important. And the messaging, if you can imagine, in a recession, the double-dip recession which is now been reported to be the worst in 50 years in the U.K., the messaging and creative we're using there is going to have some localization to it as well.

Mark W. Strouse - JP Morgan Chase & Co, Research Division

Okay. Got it. And then can we just talk about Spain and Avancar? I mean, just some of the social issues over there, the protests and everything. Is that having any impact on the business over there?

Scott W. Griffith

No impact -- no material impact on the business now. We're looking forward to finishing up integration and pushing all of their activity on to the Zipcar global technology platform. We've been re-platforming our technology for, frankly, most of this year, getting ready for a much bigger international push. And Avancar is a big part of that. So we haven't seen any major impact in that market. Growth isn't all that exciting just yet. It hasn't been for a little while, but we're not seeing anything new there in terms of what the trajectory looks like.

Mark W. Strouse - JP Morgan Chase & Co, Research Division

Okay. And then one more if I can. Just the revenue per vehicle per day was flat year-over-year. I think it's the first time in a while, at least that I can recall anyway, that hasn't increased year-over-year. Is that -- can we expect that to rebound with some of these marketing programs? Or is that kind of peak levels until some of the other initiatives, like Z for B for example, Zipvan kind of were unfold?

Edward G. Goldfinger

Zipvan is a piece of it, and we're launching that. But the bigger reason really is that our in-fleeting was based on a higher level of member additions. So utilization of the vehicles was lower. The good news is that it was flat to last year with that lower utilization. So we have more leverage in the model. It's not as though with the same utilization levels, we wouldn't have hit those higher growth rates that you've seen. It was really a question of utilization this past quarter.

Scott W. Griffith

And one other point that I think I had in my comments, just to replay, it was -- we actually saw nice increases in revenue per vehicle in the U.K. So in spite of slower growth in expectation, that revenue per vehicle number tracked up pretty nicely. And that's reflective of having all of their fleet on our Zipcar dashboard now and being able to see location and vehicle level utilization and yield from the vehicles we have there, and we're doing some performance management in that market as much as anywhere else.

Operator

Our next question comes from the line of Steve Kent of Goldman Sachs.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

I've got a couple of questions. First off, I guess when I look at some of the things, it sounds like you're discussing like monthly membership up from fees, a more limited membership, peer-to-peer, intra-city, one-way. All of those things are things that sound pretty dire, frankly. And I'm just trying to figure out what happened this quarter that would make you switch course so quickly to some of these things that in the past you've said were just not something that's really part of the Zipcar model. And then the -- I don't think you've talked about it, but the cost per acquisition was $89, up 27%. It's the highest level, I think, it's ever been. Was that due to the added initiatives? Or where does that number go on an absolute basis and year-over-year trajectory over the next few quarters?

Edward G. Goldfinger

Steve, the single biggest reason for the CPAs going up was the radio initiative. As we said, it was a trial, and we found that we just weren't getting the return on that program in terms of conversion. It was expensive broadcast media. It's expensive. By turning that off, we have already seen CPAs drop significantly, and we expect that they will be lower as we go forward into Q3 and Q4. I'm not going to give a specific number, but there'll certainly be coming down from those numbers. In terms of your first question, I'll let Scott go ahead.

Scott W. Griffith

Yes, so I wouldn't in any way characterize what we're doing as dire by any means. I think what we're really doing is saying, look, if you step back and look at the market, we've really offered one flavor of membership primarily for an awfully long time, $60 a year is the basic offer. And we think there is a more sophisticated, frankly, and more robust framework of offers that we should be making. What we find is that when somebody gets in a car the first time and they start experiencing the service, they love it and they keep using it, what we want to do is try to get more people to use the cars the first time. So driving a smarter trial program, if you will, and monthly membership could be a part of that, we're not announcing any new programs today. We're explaining that you should be aware that we plan to launch a broader framework, a broader array of offers for membership. Likewise, on the back end, when someone gets their annual renewal for $60, although it's not that much, if they haven't used the car for a while, through surveys and talking to them in the call center, if they don't feel like they're going to be using the car any time real soon, they may not renew. And we don't think that's the smartest outcome for our company or the member, frankly. We probably have to find a way to keep them in the fold, so that when they do need a car, they have to reapply again and start over. And we want to make sure that we have appropriate programs on the back end as well. What we're really saying is, look, we've got the largest network on the planet in car sharing now. We've got the most well-known brand. Lots of surveys tell us that, and we're going to market with really one offer. And the more we've tested and surveyed, we found there's tremendous interest in the service and often the tripping point at the beginning is getting them in the car the first time and we're going to be a lot smarter by how we do that going forward.

Edward G. Goldfinger

Just one point to add, you mentioned quite a few initiatives and we had mentioned them. These are not new in terms of our road map. If you look back all throughout the year, we've -- and even before, we've always talked about expanding the array of services that we offer. The peer-to-peer investment we made was early in the year. Zipvan was part 2 of the expansion of services, and our view has always been that the best way of leveraging the network of members we have is to expand our offers to them. So we're not saying these things will all happen in the next quarter. We're giving a view of how we see things developing over time.

Scott W. Griffith

Just to finish the last thought, Steve, the goal here is to both extend the market but also retain members and drive the -- to the same economic -- overall economic business model that we've spoken to for quite a while. I can tell you what we're not going to do is start offering a whole bunch of free memberships that have all the features that we currently have. We know when we've gone into other markets years ago and tried that, you can blow the member numbers up very quickly and we've seen others doing this in the market but they never get in the car. So what good is that? You take on a whole bunch of expense on the front end because you have to do background check to insure the driver. You've got to send cards out. You probably incurred a dozen -- a couple dozen dollars of cost on the front end, and it makes you feel great when you have lots of members but they never get in the car. So we do not want to deliver those kind of programs. We want to be smart and thoughtful and use data and survey and trial or test platforms that we've been doing to do this in the right way coming out of the blocks. So you'll see a more robust framework, but it will happen over time. It's not like we're going to announce all this and start it all in the same day.

Operator

[Operator Instructions] Our next question comes from the line of Adam Jonas of Morgan Stanley.

Adam Jonas - Morgan Stanley, Research Division

Question on the U.K. business on the quarter and maybe even looking ahead of the third quarter. Any way to quantify how much the Olympics might have helped or hurt the U.K. business?

Edward G. Goldfinger

Well, the first weekend of the Olympics involved a bicycling event that shut down 2 major parts of the London Greater Area, so that certainly didn't help. And what we generally found with the Olympics is that they don't help largely, because there's a lot of warnings from everyone not to drive and that there's a lot of congestion and so on. So if anything, its a slight negative and hopefully, it might be a boon to the economy, which we may be we'll see later in the year, but we're not counting on it at this point.

Adam Jonas - Morgan Stanley, Research Division

Okay. And can you elaborate on the recent competitive efforts from Hertz and Enterprise, particularly in the New York area for what Hertz has done? Any way to quantify or qualify the incremental encroachment?

Scott W. Griffith

Yes, I mean, as I've sort of hit on in my comments, there's been a lot of activity. Hertz's activity has been primarily in New York. Of course, we track it as best we can. It's often not in the very short term we could even measure or see evidence. We don't really -- we wouldn't rule out the competition could have some kind of impact on the margin. I certainly don't think that's in any way a primary driver of the performance we saw in Q2 of this year. I think -- we went back and look and we continue to look at how many new cars are being added from the rental car companies, for example. In total, in all of our competitive markets versus a year ago, those players are only up a few hundred cars in total across all markets. So if you look at that and you see there really isn't much of a change in our membership retention rates that we report quarter-on-quarter, and the slowdown that we saw that we've reported today in revenue and in membership was not limited to competitive markets. So all that says to me, if it's having an impact, it's kind of on the margin at this point, and we're tracking it and we'll keep talking about it.

Adam Jonas - Morgan Stanley, Research Division

Okay. So if I were to ask you then why you take -- why you took the full year guidance for revenue down materially, if I were to divide that into 3 pies, competition, economy and just the market, your SKU guides kind of maybe wrong stepping it on the marketing strategy or at least what you thought, particularly in the radio element. It seems like competition is something near 0, which would then leave how much between the economy and the marketing strategy? Again, I'm just asking qualitatively speaking. Is it an even split? Or would you kind of attribute it more to -- you just expected more on the strategy?

Edward G. Goldfinger

Well, I certainly wouldn't try to apportion them exactly. I mean I think there's some interrelation. And we're looking hard, obviously, at the thing that we can control the best, which is our marketing efforts and getting a return on the marketing that we've seen in the past. The U.K. economy, we know, is in top shape, and we didn't see the double dip as we exited the first quarter. In fact, we saw positive momentum there. So that's a pretty big piece of it. And then finally, the U.S. economy is struggling a bit too. So I don't think I could put a percentage on each one. I think they all play a role. And I think by the way, as Scott mentioned, we're not ruling out that there's some competitive impact. We just don't think it's the primary driver for the reasons Scott mentioned.

Adam Jonas - Morgan Stanley, Research Division

Why? Because I mean, just if we were to compare your results and your outlook in particular to that of the traditional rental car companies that have all reported in the last few days, a theme of lower transaction days where volume, however they measure it, it was not one of the themes. That was not something that seems to resonate as a reason for incremental negativity. I mean, it wasn't great, but it wasn't a material step down. I would've thought that given your kind of more frugal low-cost business model proposition, that maybe that would have been more resilient, but perhaps it's not. Just an observation. Did you guys -- can you guys quantify the impact of falling gas prices?

Edward G. Goldfinger

We don't have that quantifier. But I mean, in terms of the rental car business, we see that as a different business. [indiscernible] to understand that is if you look back in '08 when the rental car companies really took a huge hit, we increased in 2009. So I don't think we necessarily move with the rental car content. I think we're in a good business.

Scott W. Griffith

The other thing that Ed did mention is, and I'm with him, I think the economic headwinds in the U.K. would be a bigger factor in the back half of the year than probably anything in marketing. And I would say probably in North America, it's probably more in our control in the marketing side than economic headwinds, I'd say on balance. But I think the key thing to keep in mind, Ed sort of hit on this in his comments, if we don't hit our expectations for members in one of the earlier quarters of the year, there's a compounding effect of the subscription-type service we're in and that's, frankly, that's the biggest part of what you're seeing in the back half of the year.

Operator

Our next question comes from the line of Jason Helfstein of Oppenheimer & Co.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Just digging a little further. I mean, I think the theme coming out of last call was, look, we have a pretty strong ROI model where we can cover the costs from acquisitions in really 1 year and you know the life time per customer. So hence, while we've done a great job kind of managing EBITDA and actually exceeding expectations over the past, call it, 2 years, we want to accelerate member growth. When we think about kind of that message and now this message is, are you believing we need to figure out how to use marketing to accelerate usage? Just talk about the -- I mean really, how much of that can be the same marketing versus it's really 2 separate initiatives, one is driving member growth and the other is driving usage from existing members? And can you just talk about in a little more detail, because that does seem like 2 separate indicates marketing initiatives.

Scott W. Griffith

They are, and Ed should follow my comments but -- and that's what I was attempting to outline in my comments. There's a whole set of initiatives that were sort of early in my comments around driving member acquisition and new tools like referral and more social media and refining the way we track and attribute our display campaigns and online media, that's very much acquisition-focused as are some of the membership offers that we're thinking about. But there's a whole upsell, cross-sell strategy across the membership that is very different in that set of initiatives. That started back when we really launched waivers and by the way, those continues to grow nicely and adoption of the waiver program continues to grow nicely. But we think we can do better than we are now and continue to push on that front as well. At the end of the day, we want to make sure we're balancing the economic growth of the business from both new members and loyalty, if you will, of the current membership base. So we've got programs in place to do both of those things.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

And just do you mean -- do you feel like you have the right marketing team? Do we expect some further additions to the team, changes to the team? Just because that's candidly one of the most important ways you grow your business.

Scott W. Griffith

Yes, that's a great question. So we're in the market right now for a new vice president of acquisition. We had acquisition-ed -- we split acquisition from a role that has a broader focus earlier in the quarter, and we're in the market now for a new VP. And so I think that focused effort will help organizationally as well. And keep in mind, I think we announced late last year we added to the marketing team around commerce and community, and that whole function is being built out now. And so a lot of the cross-sell, upsell and loyalty kinds of programs that we're working on now have been in development in that team now for most of this calendar year and getting further along.

Operator

Our next question comes from the line of John Healy of Northcoast Research.

John M. Healy - Northcoast Research

I had a quick question about membership growth. I wasn't able to -- I might have missed it. But can you guys quantify what the membership growth was in Established Markets and maybe some color on what membership growth may have been in the U.K. market this quarter?

Edward G. Goldfinger

Well, we have disclosed it for the Established Markets. We don't do it for the U.K., but you can actually find it in our press release. And I believe it's 17%, but I wanted to check it to be sure.

John M. Healy - Northcoast Research

I'm not sure if I made it in there, I went through a few times, but I might have missed it.

Edward G. Goldfinger

It's a few percentage points higher than the growth. The growth was 16%. I believe it was 17% or 18%.

John M. Healy - Northcoast Research

Okay. Great. And then I wanted to ask a question about the capabilities you guys have for one-way car sharing in the local market. You kind of talked to kind of the strategy in how you put that together, how meaningful that could be and kind of your appetite for doing that over maybe the next 12 to 18 months.

Scott W. Griffith

So that's a pretty broad question. Your first part was technology. A lot of what we do now could plug-and-play into that kind of a model. So it would require some new technology development. We've sort of wondered whether or not we should start to make that investment around, whether that business model can make money. And that's really where we are now is, exploring can that business model make money as an adjacent business to Zipcar. And we think the adjacent part is really important. How you make money in that business as a standalone, maybe it's more challenging. So we're studying that right now. Did I get the rest of the question? Ed, anything else to add to that? I mean, I guess the way we're also looking at it is, how does it leverage marketing, if at all, of the current go-to market strategy that we have and can we find those leverage points, again, to see higher return on investment from that as we get into it. That's something we can talk about later on in the year.

Operator

Our next question comes from Kevin Kopelman of Cowen and Company.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Could you talk about what you're seeing in membership growth quarter to date? And what your revenue -- or what your guidance implies as far as membership numbers for Q3 and Q4? And if you could break that out between established and nonestablished markets.

Edward G. Goldfinger

So we don't give guidance specifically on what membership growth is expected to be, but what I can say is that the trend that we saw in Q2 continued into Q3, and the guidance we've given is on the basis of that continued trend.

John M. Healy - Northcoast Research

Can you help us out with a chart and all? Did you had a bump up in Q3 last year? What do you expect that to look like?

Edward G. Goldfinger

So I can just look at it this quarter and last quarter which were approximately even with last year, and there's no reason for me to believe that it will be any higher or lower. It is a seasonal metric. So you have to look year-on-year, and Q3 tends to be higher than Q2 or Q1. So I think consistent with prior year, if I had to guess, but that's been where it has been.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Okay. And could you just give us any more color on sort of what you saw from the radio campaigns? And also, I think if you've already been trialing the monthly membership. What are you seeing there?

Edward G. Goldfinger

Well on the radio campaign, as I said, it was an expensive trial. To do that trial right, we felt it was important to really hit enough of the GRPs to make it worthwhile. And what we found was that we just weren't getting the conversion to new membership that we expected to see. We did see a lift in awareness, we measured it before and after, but that didn't convert into membership. And so towards the end of the second quarter, we decided to eliminate that program. So it's something we could potentially see in the future. But right now, our view is that we didn't get the returns we were hoping for.

Scott W. Griffith

Yes, I mean, the biggest challenge for any one, not just Zipcar, with radio, first of all, terrestrials are really hard to track. You can track a little better on streaming. Even at that, getting attribution directly to radio is hard, and I think this had been reported in the press that even the streaming radio, companies are having trouble with that. And so we face that same issue. We thought, hey, it's great to see a lift in awareness, and we were doing surveys to see how that was working. But we didn't feel the conversions that we were seeing were -- we weren't getting enough juice from the squeeze, if you will, so we stopped it. Doesn't mean, as Ed said, it doesn't mean we wouldn't go back to it someday, but we wouldn't do it the same way and we want a better way to attribute the results to more directly to where radio came in.

Operator

Our next question comes from Kerry Rice of Needham & Company.

Kerry K. Rice - Needham & Company, LLC, Research Division

Just kind of, I guess, more clarification on a couple of matters. So talking about kind of the new -- maybe new membership programs, talked about maybe less features, lower upfront costs, I mean, is it fair to kind of assume that across-the-board, these new programs would generally be a lower upfront cost? And then maybe if you can highlight kind of what do you mean by less features. And then the second question is on lifetime value. I'm assuming just by calculation-wise that with the higher customer or cost per renewal account that, that lifetime value comes down. Or is that not the way to think about the lifetime value of each member?

Scott W. Griffith

So I think let's cover the first part first. We're not announcing today anything specific. So I'd rather hold off until we are ready to do that on exactly how plans are going to work. There's 2 different things we're trying to do with these -- well, there's 2 or 3 different things with these -- the new plan framework. One is to drive trial and get more people on a car the first time because awareness is higher and we can get conversions and then do upsell. And the upsell and cross-sell is an important part of that. And then -- so that's the second piece, trial and then upsell, cross-sell. The third piece is we believe there are premium programs, which we've also surveyed current members, where we think we can drive pricing in the up direction. And we think there are features that the consumer will pay for that we're not delivering today that would be margin enhancers. So again, I think what we're saying is we're going to be more holistic about how we think about membership framework in the long term. These will not all launch together, and we think the first thing you'll probably see is some trial-related programs, but we're absolutely not stopping there. We're thinking much more broadly in. If you look at other subscription models, particularly ones that are delivered through online media and online service like Zipcar, it's not any consistent with what others are doing or are planning to do as well. So we're taking that same approach. As we go more into the mainstream, the mainstream consumer, it's very rare to see a subscription model we're you're only offering one flavor of subscription, and we're kind of -- we're headed down that same path.

Kerry K. Rice - Needham & Company, LLC, Research Division

Second part, the lifetime value?

Scott W. Griffith

[indiscernible] lifetime value [indiscernible].

Edward G. Goldfinger

Well, CPAs could come down with having a lower upfront cost. There's less needed maybe to bring people over the line. It's true that -- it's possible that, that might mean less active members. But also, it is likely that they could be up-sold over time into the standard membership once they have a chance to try it. The other thing is on the back end of a membership. Instead of members leaving the system because they don't want to pay a $60 annual fee, they may want to be members on this limited basis and may stay with us longer, probably will and spend more in terms of driving revenue over time for the reasons Scott mentioned. If they have gotten a car, they might be in a city that they use a car, one of Zipcars, they may need a specialty vehicle. There's no reason to hurry them out of the membership if they were otherwise going to leave because of the $60 fee, why not retain them if they don't mind being on a limited service basis.

Scott W. Griffith

And just last point on this is just keep in mind that during my comments, I talked about 2 other big initiatives, strategic imperatives, we call them. One was making sure our technology was up to the task of a broader array of mobility services, and the other was looking at other mobility services. And Zipvan for us has been a real eye-opener. Our ability to drop -- to literally drop 150 vans over the course of about 8 or 9 months now into the existing membership base and extensively create another profit and revenue stream out of the current membership base is we think a really strong leading indicator of why and how we should enhance the mobility options that we're offering. And so the idea also around some of these membership plans is to have something more basic in the front end. So that as we expand the kinds of mobility options that the consumer may be able to consume through Zipcar, that we have that kind of a program up front. So that's consistent with our longer term strategy of looking at other mobility options as part of the Zipcar offering.

Kerry K. Rice - Needham & Company, LLC, Research Division

And I guess a follow-up to that, you may have said this and maybe I missed it, but Zipcar for Business and kind of Zipcar for the government, how is that growing? Is that still growing faster kind of than the core business? Or can you give any insight on this 2 business's growth, their percentage of revenue?

Scott W. Griffith

Yes. Both -- I don't know if I have any specifics off of, right off the cup, but I can tell you, growth continues to track nicely above the overall business trends both in government and in Zipcar for Business, which has positive economic results to the bottom line because they're using cars during weekdays that are otherwise probably less utilized. And so that's a positive. And in part, that's because we continue to add sales force and techniques to close and drive adoption within business accounts and government accounts as well. So we continue to extend our efforts on the sales side as opposed to the marketing to the consumer side. But it certainly appear to be continuing to be productive for us, something we're going to keep putting some wood behind as long as the trend continues.

Operator

Our final question of the day comes from the line of Christopher Agnew of MKM.

Christopher Agnew - MKM Partners LLC, Research Division

I'm not sure I understand why the value proposition of car sharing is not resonating more in London where you have a tougher economy. So I was just wondering what you're learning from maybe customer behavior, feedback, survey customers or just the usage patterns that's sort of impacting business in London.

Edward G. Goldfinger

So I think we're still working on that, and the new head of marketing that Scott mentioned, that's one of his primary objectives is to understand the best we can. I do think there are some differences in London. And right now, based on everything I read, almost everything is behind where -- on the retail side where it's been. So I don't think ultimately it should be all that different. The one thing we do see, and this is similar to New York, is that a lot more of the driving is for weekends and longer trips. And a tough economy can hit that segment harder than the daily or the weekday or hourly trips, and I think that's probably the biggest piece.

Christopher Agnew - MKM Partners LLC, Research Division

That actually makes sense. And then a follow on maybe to that. Given that a lot of Europe is actually facing tougher economic conditions than London, is this causing you to revise your potential rollout of into European markets? And can you maybe just touch on what you're seeing in terms of competition and what other companies doing in car sharing in Europe?

Scott W. Griffith

So let's take about the first one first. I think certainly for this year, we pursued the strategy we said, which was including Barcelona and another major market launch and the acquisition in Austria sort of checks that box. So for this year, and I'd say at least early 2013, our focus is going to be on improving operations in the U.K., integrating Spain and starting to drive operations there and then planning for an early 2013 integration in Austria. And we'll continue to monitor as we do our 2013 planning, whether we believe now is the time to either through M&A or greenfield launch more markets in Europe at this point. I don't think anybody -- I mean, all of the economic forecasts I saw in the first half of this year projected better trends in the second half for most of Europe and the U.K. Those have all been revised now. So we're, of course, following those trends and watching and to see what we believe 2013 will look like. So I'd say the answer to your question is really a 2013 question, not something that we're going to consider more in 2012. We will not be launching into additional markets in 2012, that we're going to plan to focus on execution in the markets we're in. Your second part of your question was more around competition. We really haven't seen the major car rental companies do a whole lot more there. New York is probably the biggest and most -- the biggest fleet increase we've seen. But again, across all of our competitive markets including Europe, we've only seen a few hundred new cars go in. So by far, we're still the very large market share player in every market we're in and feel like we're growing at least as fast as the market is in those operations. I'd say the difference in Europe is some of the new models we're seeing like Daimler's car2go model. BMW is testing something which they also just launched in San Francisco. I think it's too early to tell is that fully complementary or just partially complementary. We do not think it's fully competitive at all because if you just look at the type of vehicle they're using, car2go, for example, it's a 2-seater -- or excuse me, 2-door smart car. The used case for that is at a very short trip, always within town. It's not a used case we really target now. We have very few 1-hour, even 2-hour trips, and so we think that business is largely complementary to what we're doing. We're going to watch it, because they're starting to launch into some additional markets the Zipcar is currently operating in. So we'll kind of keep watching it. Other than that, we haven't seen any other competitive activity in Europe.

Operator

There are no further questions at this time. I would like to turn the floor back over to management for any closing remarks.

Scott W. Griffith

Just like to thank you all for joining us on today's call. We look forward to updating you on our progress when we report the third quarter results in the fall. Back to you, operator.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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