Good morning, and welcome to the Avis Budget Group's Second Quarter Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Neal Goldner, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Tonya. Good morning, everyone, and thank you for joining us. On the call with me are Ron Nelson, our Chairman and Chief Executive Officer; and David Wyshner, our Senior Executive Vice President and Chief Financial Officer. Before we discuss our results for the second quarter, I would like to remind everyone that the company will be making statements about its future results and expectations, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and the current economic environment and are inherently subject to economic, competitive and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance. 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.

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…

Thanks, Ron, and good morning, everyone. Today, I'd like to discuss our second quarter results, our fleet, our balance sheet and our outlook. My comments will focus on our results excluding certain items. As Neal mentioned, these results are reconciled to our GAAP numbers in our press release and in the earnings call presentation on our website. In the second quarter, revenue increased more than 30% to $1.9 billion primarily due to the acquisition of Avis Europe. Excluding the acquisition, revenue was up 3% and up 4% on a constant currency basis. Adjusted EBITDA increased nearly 40% to $266 million, a second quarter record. Excluding Avis Europe, adjusted EBITDA increased 15%. We continue to control our cost carefully. Direct operating costs declined 20 basis points as a percentage of revenue and were consistent with last year, excluding the acquisition. SG&A expense increased 50 basis points as a percentage of revenue, but most of the increase was due to the acquisition. Over the last 12 months, we've generated $721 million of adjusted EBITDA, excluding items. Our margin is over 10.5%, our diluted earnings per share are $2.02. For analysts who calculate EBITDA before financing fees and stock-based compensation, our LTM adjusted EBITDA would be $44 million higher or $765 million. Since we acquired Avis Europe in October 2011, all of these figures do not include the results of Avis Europe for the third quarter, which is usually by far the most profitable quarter for these operations. The second quarter North America revenue increased 3%, reflecting a 6% increase in volume, 5% growth in high margin ancillary products and services, partially offset by a 3% decline in pricing. Including currency movements, pricing declined 2%. Leisure volume increased 8% in the quarter, a significant achievement on top of last year's 12% growth. Leisure…

[Operator Instructions] Our first question comes from Afua Ahwoi with Goldman Sachs.

Just 2 quick questions. First, on pricing. I know you indicated that it would still be down year-on-year in North America in 3Q, but I was wondering if you could give us an idea whether it will be sequentially better versus 2Q or sort of in line? And then secondly, on your volume growth and fleet growth in North America as well, I noticed that for the first time in about 4 or 5 quarters, volume actually grew more than fleet, and I know you had indicated a couple quarters ago that you were strategically growing fleet more than volume, so can you maybe elaborate on how you're thinking about those 2 metrics going forward now?

Afua, it's Ron. I think that pricing does get better on an absolute basis, clearly sequentially. On a percentage year-over-year percentage basis, I think it's actually probably going to end up being fairly consistent. My sense is that July is going to be roughly in the same range as the second quarter, and September probably will as well and August will be up a little bit. But when you average it all together, I think it's going to look a lot like second quarter. In terms of fleet growth, I think we're trying to keep fleet right in sync with demand. I believe in the second quarter, we actually improved utilization a little bit. Demand was -- or growth in rental days was higher than the growth in the fleet. And my sense is that going into the third quarter, we're probably going to be right in sync with demand and we actually might get a little bit of a utilization pick up. Of course, a lot of this all depends on how quickly and how effectively the de-fleet in September because that's obviously a big de-fleeting month for -- not only for us, but for the entire industry, so it can have an impact on those utilization numbers.

Our next question, John Healy with Northcoast Research.

Question about financing a bit. David, I know you guys have gone to the bank a number of times over the last 6 months or so. I was hoping you could maybe try to size for us maybe the benefit that you can see in 2013 from some of the different refinancings you guys have done regarding the fleet interest expense for next year?

Sure, John. Clearly, refinancing some of the fleet debt at 2.2% recently and around 3% in our prior transaction and having debt that's replacing maturing vehicle debt at 5%, 6% and sometimes higher -- 5% or 6% and sometimes higher rate is going to have an incremental benefit in 2013. At this point, I think it could easily be another $20 million, $25 million improvement year-over-year in 2013.

Great. And then I have a question for you, Ron. You made some comments about the European market and how some of the independents out there have a little -- may have a problem securing financing longer-term. Can you talk to maybe some of the things that you're hearing on the ground level there? Are you seeing any independents on the ropes would that be an acquisition opportunity? Do you see some of those players going away as well?

Well, John, I think the ones that are going to have trouble are going to be the ones that probably are terribly interesting to us from an M&A standpoint. I think they're the smaller mom-and-pop operations that you see around the southern coast of Spain and more in Italy. What you see is, that they're hanging on to their fleet longer and longer, and eventually, they're going to have to try and re-fleet. And just our sense of the banking situation particularly in Spain is that it's going to be very difficult for smaller operators to get the capital that they need to re-fleet. They might get some capital, but it'll be -- it'll probably be less capital than they would have otherwise gotten at a better market. And I think that Budget is up a couple hundred percent in Spain, and that's -- that isn't new demand coming in the market. That's taking share away from these guys. So I think there are a lot of elements all around that are just going to come together to make it difficult for independents to get capital.

Our next question comes from Adam Jonas with Morgan Stanley.

Ron, David, question on European pricing. How has that developed in July and August compared with the underlying 1% that you saw in 2Q?

Adam, the pricing environment in Europe continues to be pretty competitive. And I think it's always hard to draw conclusions from the second quarter for the summer. Generally speaking, I think the summer is going to be a little bit tougher from a pricing comparison standpoint. And obviously, we have the issue of our mix shifting a little bit more toward Budget. As we look at the environment, we think some of the economic challenges in Europe are expressing themselves in extent in pricing. But we've factored that into our view that any decline in international EBITDA, excluding currency effects, should be limited to less than $10 million this third quarter.

Great. If I can just be allowed one more brief one. Assuming the opportunity presented itself, can you unequivocally rule out participating in further industry consolidation in North America assuming, of course, the price was right and you felt that it fit with your long-term strategy?

Would you like to try another second question, Adam?

No, if you want to ignore the question, I respect that.

I don't think I'm going to answer that question, Adam. I mean, our disclosures on Dollar Thrifty is -- are all out in the market and we've told people where we stand on it, and we're watching what happens very carefully.

Then you've answered my question. You're not unequivocally ruling it out.

No, you answered your question.

Then I answered my question.

Our next question comes from Christopher Agnew with MKM Partners.

I just want to ask a question on your thought process about increasing the risk mix, just when used vehicle prices are moderating. I know you mentioned that the risk vehicles are cheaper at the moment, but is it more to do with your confidence in the factors you outlined for relatively stable used car market, or is it more increased confidence in your various remarketing initiatives? And I just would be interested if you could share some examples of your experience maybe with the direct-to-consumer initiative that you've highlighted today.

I don't -- our goal of increasing the risk percentage, Chris, doesn't have much to do with our ability to access alternative disposition channels. I think we've taken a hard look and actually spent a fair amount of time looking at volatility in the used car market and what the likelihood is of being long on risk can hurt you in terms of getting an imbalance in your fleet. And I think we've been fairly conservative over the years, but I think we feel very comfortable given our outlook for the used car market over at least the next 18 to 24 months. That moving it up another 5 points is not going to -- is only going to benefit us. I think in terms of alternate distribution channels, the direct-to-retail program is still fairly young. I mean, we -- I mean, the number of cars we've sold are not a valid sample to be able to say that this is going to be a meaningful benefit to us. But clearly, the biggest opportunity we have in fleet cost is spread between wholesale and retail, and with our deal with AutoNation, we are capturing this year that spread. So ramping it up and being able to roll more cars out on that will have a beneficial effect, all other things equal, on our fleet cost. I think in our direct-to-dealer and online auctions, in the direct-to-dealer market, I think that the immediate benefit we're seeing is much shorter time-to-market. You can keep the car in service much longer. It’s -- on average, it's probably a 2-week pickup from an auction. So if you think about fleet costs over the course of a month, a 2-week pickup is not inconsequential. I think on the online auctions, it really all depends on what the volatility in the auction market is. I mean, there are times when getting in the auction market, particularly an auction market like we had in the first quarter and early part of the second quarter, it's probably better to be in the auction because the volatility was all on the high side. Now it can go both ways. And so my view is that it's -- the direct-to-dealer program, you pick up some shipping efficiencies and you probably pick up some time-to-market efficiencies, and it doesn't provide some incremental benefits, but it all depends on timing in the auction market because the upside in a volatile auction market can be fairly significant.

That's great. And if I could ask just one more. The top end of your free cash flow guidance is in the middle of your pretax forecast range, so I'm just wondering what would cause you to come in to the low end of your free cash flow range?

Chris, I think there are 2 issues. We are a taxpayer in certain foreign jurisdictions, and that has the potential to reduce our cash flow a bit compared to pretax. And obviously, we work to offset that elsewhere, such as in working capital, but that's certainly one item that could have an impact. I think the second would primarily be the timing issues.

And then just a quick follow-up. Can you give us an estimation of when you sort of cash -- how you'll become a cash taxpayer over the next several years. I gather it will start to increase?

I think that's right. We're actively working on completing our 2011 tax return right now and that will help shape what our plans are for 2012, '13 and '14 as well. But most likely, at some point in 2013, we'll move into the position of being a partial cash taxpayer, and I consider that to be at a rate that's well below the statutory rate of 35%. But beyond that, I don't think we're ready to go out with more of a forecast than that.

Our next question comes from Brian Johnson with Barclays.

Ron and Dan (sic) [Dave], a lot of my questions have been answered, so I'll ask a more strategic one. You've made this successful foray in the Avis Europe. I think I told Neal I was actually impressed with the integration that I've witnessed when I did an -- what I will call an inbound or outbound when I reserved a car in Europe for next week. Coming the other way though, we see 6 with about 7 or 8 locations in Florida, 1 in Georgia, how do you see now that you've demonstrated the success of a combined model, the impact on the U.S. market from some of the Europeans coming over here?

Well, I think we still have an advantage, Brian, in a sense that we have far of a greater airport penetration than Sixt. And I think when you think about all of the rest of the world, it can come inbound to North America, there really are only 3 brands that have the footprint that can capture that business. And obviously, we have 2 of them. So -- look, I firmly believe that Sixt is going to come into this market and do everything they can to position themselves in those markets that are going to drive inbound business for them, but I think it's probably a fairly long ramp for them. And in the meantime, we're doing everything we can to secure our fair share of that business, and develop the customer experience, and increase customer loyalty and do all the things that will make that business as sticky as we can possibly make it over the next few years while we have that advantage. So I guess that's a long way of saying, I'm not too terribly worried about it, but we obviously do watch it carefully and we're doing all the things that I think we should do to secure our position.

Any evidence that when they show up at the Florida airports, which flights are having some weak pricing over Christmas due to weather, that they're at all disrupting the pricing level or is it so competitive you don't really notice, or are they roughly staying within a niche of the Germans and Dutch flying over and not really affecting the people flying down from the Northeast to Midwest?

I don't know the answer to that question, Brian, but I would tell you that most of the business that comes in -- the majority of the business that comes into the Florida markets comes from Latin America, and I don't know what Sixt footprint is in South America. And what I'm reasonably sure is that between us and Hertz and to a lesser extent, National and Alamo, we get the lion's share of that business in Florida.

Our next question comes from Steve O'Hara with Sidoti & Company. Stephen O'Hara - Sidoti & Company, LLC: I apologize if you already went over this, but I mean, obviously, I know you talked about used car pricing and what the impact might be for Hertz and a couple other companies or commentary in regards to used [indiscernible] loss and pricing. I guess I was wondering, what would the argument be for you not to raise price in the face of rising costs?

Hopefully, none, other than competitive. I think that when you look back over periods of rising fleet costs, there's clearly a trend of rising prices. And it is -- it's such a big cost element in your P&L and it's one that you actually have the least amount of control over. I mean, you can always cut jobs and cut marketing and improve your productivity, but fleet cost what it costs. And if it goes up, your quickest remedy is to raise prices, so I think that's why you see that relationship. But this is, as I said, this is a very competitive market and if your competitors are not raising prices in the face of fleet costs, it's harder for one company to raise their prices to capture it. But history would suggest that isn't what happens. I mean, history would suggest that people do raise prices in the face of rising fleet cost. Stephen O'Hara - Sidoti & Company, LLC: Is it fair to say that -- I mean, nobody's getting a significant enough discount on fleet between one company or another to justify not raising prices and that's fair, right?

I don't know what other's fleet deals are, but I think you can at least look around at the other public companies and look at their fleet costs and fleet purchases. And you need to look at them over time because a lot of it depends on when you sell cars and when you adjust your depreciation. But I think over time, fleet costs vary amongst the public companies more based on mix between risk and program than they do on getting better deals.

[indiscernible] we're all buying our cars from essentially the same group of manufacturers. And in some ways, I think even the mix among manufacturers tends to be more similar than different. So I would agree with the view that no one is in a substantially different position that would cause them to look at rising fleet costs in a significantly differently from someone else in the industry.

Our next question comes from Yilma Abebe with JPMC. Yilma Abebe - JP Morgan Chase & Co, Research Division: I apologize if you give this, but what was the gains on un-disposed cars in the quarter?

Yilma, the gain in Q2 was about $59 million in total, most of that was in North America, and obviously, that was down considerably from the prior year second quarter. Yilma Abebe - JP Morgan Chase & Co, Research Division: Great. And my second question is, if my math is right, based on the midpoint of your guidance, on a year-over-year basis, in the second half of '12 versus the second half of '11, it looks like it's implying revenue and EBITDA growth in the 1% to 2% area, is there -- are you being overly conservative here? If so, where is the caution coming from given first half performance?

Sure. I think the key issue is that clearly, our fleet costs were down considerably in the first half of the year, and but our view for the year as a whole is that they're going to be down 3% to 8%. And in the math associated with that is that the decline in fleet costs that we've had in the first half of the year won't be quite the same. And as I mentioned earlier, we're actually looking at an increase in fleet cost of 4% to 6% in the third quarter while pricing is continued to be pretty competitive, and I think it's a combination of those 2 factors that drive the math that you're looking at.

For closing remarks, the call is being turned back over to Mr. Ronald Nelson. Please go ahead, sir.

So before we close, I want to reiterate a few thoughts. We tend to wrap a lot of words around a number of important issues, all well intended in the pursuit of providing color and transparency to our business. But just in case our intentions clouded the facts, let me share with you what we feel the important takeaways from today: First results were strong, consistent with our expeditions and we are reiterating our $825 million to $875 million EBITDA guidance. Two, the used car market is healthy and should remain so for the foreseeable future. So while our fleet costs have been artificially low for the first half of this year due to depreciation adjustments, our back half cost in the 2013 will start to normalize, but the upward slope should be gradual. The weak European economy appears manageable thus far, and we are currently offsetting much of the weakness with successful launch of the Budget brand, new global account relationships and accelerating synergies. Four, the strategic initiatives we discussed on Investor Day are bearing fruit and position us for growth in revenue and earnings beyond demand growth. And finally, we continue to use our available cash to reduce debt and have repurchased $200 million of our converts through June 30, eliminating 12 million shares or 10% of potential dilution. So with that, I thank you for your time and we look forward to seeing you in the near future.

This concludes today's conference call. You may disconnect.