Avis Budget Group (CAR) Q2 2012 Earnings Call August 02, 2012 8:30 am ET Executives Neal Goldner Ronald L. Nelson - Chairman, Chief Executive Officer, President, Chief Operating Officer and Chairman of Executive Committee David B. Wyshner - Global Chief Financial Officer and Senior Executive Vice President Analysts Afua Ahwoi - Goldman Sachs Group Inc., Research Division John M. Healy - Northcoast Research Adam Jonas - Morgan Stanley, Research Division Christopher Agnew - MKM Partners LLC, Research Division Brian Arthur Johnson - Barclays Capital, Research Division Stephen O'Hara - Sidoti & Company, LLC Yilma Abebe - JP Morgan Chase & Co, Research Division Presentation Operator
Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release, which was issued last night, our Form 10-K, our most recent Form 10-Q and other SEC filings. If you did not receive a copy of our press release, it is available on our website at ir.avisbudgetgroup.com. We've also provided slides to accompany this morning's conference call, which can be accessed on our website as well. Also, certain non-GAAP financial measures will be discussed on this call, and these measures are reconciled to the GAAP numbers in our press release.Now, I'd like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson. Ronald L. Nelson Thanks, Neal. Good morning, and thanks to all of you for joining us. I want to spend just a few minutes discussing some of the highlights of our quarter, our current outlook and then perhaps anticipating some of the issues that are foremost on your mind, a bit about vehicle residual values, pricing and trends in Europe. Starting with the quarter, volume was positive across all of our regions, generally driven by strong leisure demand across both brands. We grew our margins in the quarter, in large part due to lower per-unit fleet costs in North America, our integration and cost savings efforts in Europe and benefits derived from the numerous strategic initiatives we discussed during our Investor Day in May. As a result, we reported our highest-ever second quarter adjusted EBITDA. In North America, we saw a volume growth that was again several points stronger than airline passenger volumes, and our strategic focus on the fastest-growing and most profitable channels continues to drive our results. In fact, for this quarter, small business volume increased 7%, well above overall corporate demand; our inbound volume grew 9%, including more than 10% growth from our Latin America and Asia-Pacific regions. Importantly, inbound volume growth from Europe increased 20% for Budget. This is important for 2 reasons: One, it attests to the visibility of the brand in the European market, which further strengthens our resolve to expand Budget in Europe; and two, it is clearly a meaningful contributor to our initiative to increase our share of this business.
In our local market operations, we increased the number of co-branded stores to nearly 550 this quarter, more than a 15% increase from the end of the year, and we grew our off-airport rental volumes 6% in the quarter. Our local market RPD averaged over $42 during the quarter, including ancillaries, and was generally flat on a year-over-year basis, pending better than the overall market. As a reminder, this was a 3/4 of $1 billion dollars business that 4 years ago contributed 0 to our P&L. Today, it's a solid contributor to our North American profitability.During the quarter, we launched the Avis Preferred Select & Go, a new vehicle choice service, which we unveiled at our Investor Day. We fully expect vehicle choice will boost customer loyalty and provide incremental upgrade opportunities, most notably with all of our counter by-pass customers. With Select & Go, preferred customers have the option to keep their preassigned vehicle, select a different vehicle at no additional cost, or upgrade to a different vehicle for an additional fee, all without having to visit the rental counter. We currently launched Select & Go in 25 airports and expect to have it in 50 of the largest airports by the end of the year. We also continue to expand our use of alternate channels for vehicle dispositions. We sold approximately 40% of our risk vehicles through alternate channels in Q2 before they launched the direct-to-consumer fleet disposition program that leverages the retail experience and infrastructure of AutoNation, a leading national auto retailer. Not only does this channel require no incremental investment from us but allows us to keep a car in service much longer than the other channels, thereby minimizing the cost of time-to-market. Read the rest of this transcript for free on seekingalpha.com