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

Thank you, Kimberly. 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 second quarter results, I'd like to remind everyone that the company will be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause actual results to differ materially from the forward-looking information. Important risks, assumptions and other factors that could cause future results to differ materially from those expressed in the forward-looking statements are specified in the company's earnings release and other periodic filings with the SEC, which are available on the Investor Relations section of our Web site at avisbudgetgroup.com. We have provided slides to accompany this morning's conference call, which can be accessed on our Web site as well. Our comments will also focus on our results excluding certain items and other non-GAAP financial measures that are reconciled to our GAAP numbers in our press release and in the earnings call presentation on our Web site. Now I'd like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.

Thank you, Neal, and good morning. Needless to say, we're pleased with our second quarter results; increased pricing and disciplined execution on our strategic initiatives allowed us to grow revenue by 10% and earnings per share by 36%. As you could see in our earnings release, both volume and pricing trends in North America not only maintained the momentum from the first quarter, but actually accelerated throughout the second. We achieved incremental synergies from our EMEA integration efforts, continued exponential growth of the budget brand in Europe, and further expanded the footprint of our Zipcar brand. All of which ultimately resulted in margin expansion of 80 basis points. And all of this was achieved against the background of record levels of recalls in North America that [played havoc] (ph) with fleet and operational logistics. The driving element of our performance, however, was North American pricing. So let me spend a few minutes on that. As we exit the second quarter, I'm probably more enthusiastic about our business than I've ever been. And one of the reasons is the meaningful change in pricing that we've now seen play out over the past six quarters. The strong pricing trends we experienced in the first quarter accelerated into the spring with price increasing 5% year-over-year, excluding Payless and the effects of currency movements. It also represented the second straight quarter of positive pricing in North America, not only across all three of our car rental brands, and in on and off airport locations and in both leisure and commercial segments. As many of you know, we've been quite vocal about our need to drive improved pricing in order to strengthen our return on capital. Pricing hasn’t been the only we've used, we've taken numerous actions to improve the efficiency of our operations and…

Thanks, Ron, and good morning, everyone. Today I’d like to discuss our second quarter results, our fleet costs, our continuing investment in technology, 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 GAPP numbers in our press release in the earnings call presentation on our Web site. Revenue increased 10% in the second quarter and adjusted EBITDA grew 19% to $213 million. Margins expanded by 80 basis points and diluted earnings per share increased 36% to $0.68. Our results represent the second highest second quarter adjusted EBITDA in our history, behind only 2012 when we were still experiencing historically low pre-unit fleet cost. Currency effects were $7 million headwind for us. So our local currency results were even stronger than our 19% EBITDA growth would suggest. Our trailing 12 months adjusted EBITDA now stands at $827 million for those analysts who compare company margins and evaluations based on adjusted EBITDA before deferred financing fees and stock based compensation. Our trailing 12 months adjusted EBITDA would be $874 million. Revenue in our North America segment grew 12% making it our second best quarter revenue growth since 2007 excluding Payless which we acquired last July, revenue increased 9%. Total volume grew 8% in the second quarter while pricing was 3%. And excluding the acquisition of Payless, volume grew 5% and pricing was up 5% in constant currency. Ancillary revenue per day also increased 5% as our in-car SiriusXM satellite radio product continues to expand at growth rates reminiscent of when we launched GPS rentals. Leisure revenues increased 8% in the quarter with volume up 2% and pricing up 6% both excluding Payless. Commercial revenue was also strong. It grew 9% in the quarter including the 7%…

Thank you. (Operator Instructions) Our first question comes from John Healy with Northcoast Research. You may ask your question.

Thank you, and congrats on the great results, guys. I wanted to ask a big-picture question for you, Ron. When I listened to your prepared remarks, three things really jumped out at me -- just your confidence in the business, the description of what seems to be a really good operating environment and the continued focus on returns. And I wanted to ask a couple of follow-ups to that, meaning do you feel like the trends in the business that you are seeing are unique to you? Do you feel like the trends in the industry are widespread? Do you feel like that your competitors are also approaching the business with the same focus on returns? And then how sustainable do you think this period of success is for you guys barring any shakes in the economy?

Well, it’s hard for me to answer what’s in our competitor’s edge, John. But I think part of the reason from my optimism is that we've now had six quarters consistent pricing growth. And as you know I've been loath to say one quarter or two quarters constitutes a trend, but I think six quarters does constitute a trend. We all have similar cost structures, we all have similar business models, we all have similar business mixes and we all have to raise an awful lot of capital to finance our businesses. And so, the focus on maintaining and achieving a strong return on capital, I think has to be consistent for everyone. I think if you look across the industry, the only way you get pricing is if everybody is acting in similar ways, fleets have been tied over the course of the second quarter. They have been tied moving into July and August, and I would say that’s true across everybody in the industry and particularly in North America. So I do think that based on the fundamentals of our business and the metrics that we look at that everybody analyzes what the necessities of the business are in a similar fashion.

Great, I appreciate that. And a follow-up question, it's pretty clear that the recall is impacting the cost structure. Is there any thoughts to what that might have cost you in the second quarter and what that may cost you in the third and fourth quarter?

Well, we are just pulling the number together now because it’s a constantly evolving issue and some cars have been grounded for literally months because of inability to get parts and in some cars we can fix overnight because it’s just a flash to the car computer. But I'd say at least through the first -- at least through July, let’s put it at that. It’s an eight digit number.

Great, thank you.

Our next question comes from Chris Agnew with MKM Partners. You may ask your question.

Thanks very much. Good morning. As a follow-up to the previous question, I just wonder, if you exclude the vehicle recalls, would your fleet cost guidance for the full year be lower this year?

Good morning, Chris. Certainly the cost would be lower. Probably the clear impacts that recalls are having on fleet cost. One doesn’t impact per unit cost, but its utilization. And that will show up on the fleet cost line in terms of increased cost as a result of holding the cars. The second impact is still playing out and that is that we have to adjust our fleet claims because of the recalls. Holding on to cars in April, May and June and even July and not selling some of the cars we plan to and are typically stronger months for selling cars. And so there is a sub optimization associated with holding on to those cars until late summer or fall to meet the summer peak, and there were cost associated with that. At this point, we are still comfortable with the range we started the year with at $300 to $310 per month. But clearly the recalls are having and impact that we are looking to mitigate in other ways including the use of alternative disposition channels and other activities we’ve been undertaking.

Thanks. And then, if I switch to local market, you had another good quarter of growth. Can I ask are you taking share in the local market or is the local market off-airport generally growing faster than on-airport and if so, what is driving that trend and how sustainable do you think it is? Thanks.

Yes. I think historically local market has grown faster than the airport market at least going back to 2006 when we started collecting this data. Whether or not we are taking share I don’t know -- I think because we’ve shifted our emphasis and are de-emphasizing insurance replacement, our percentage growth in general market is actually higher than it would otherwise been in a normal state. But if you look at the first half of this year volume in local market was up five, pricing was up four, so it wasn’t too far out of sync with what we saw at the airport. I don’t know that we're taking a lot of share, but I'm sure we are certainly giving up share in the insurance replacement business.

Great, thank you.

And our next question comes from Brian Johnson. Your line is open. You may ask your question.

This is Dan. (Technical difficulty) a question for you; just trying to get a sense, first of all, in 2Q, what the impact of the Easter holiday was on volume and pricing? Also, whether you think that the fact that you had the GM recall, and you had a bunch of fleet grounded weather, the extent to which that positively impact the pricing by withholding supply?

I think our sense is that Easter probably added two points to April volume and maybe a point to pricing. It wasn’t affected very much by the GM recalls, because the big recall was the Cruze, and that actually didn’t occur until after the Easter session. I think one of the things that we did see from Easter break this year is that it actually extended the Easter season. Usually Easter is about a week and out, but for this year we were still getting check-ins into early May. And so, I think it actually did help propel some of the May pricing and May volume that we saw.

Got you. And just a follow-up, if we look at your 2014 price guidance, you were pacing up 3% ex-Payless in the first half and you're up 4% in July. So it just seems like unless you have a deceleration in the pace of pricing, it seems like your guidance of 2% maybe conservative. So, is it possible that there is upside to that number or is it possible that -- are you looking for a deceleration of pricing in later months of the year. And also, just to confirm, your 2014 guidance assumes price of plus 2%, correct?

That's correct. There is one thing I've learned in the time that I've been involved in this business is never get out over your skis on pricing guidance. So we always tend to air on the conservative side. Do I think there is an opportunity for upside? Sure, but you got to remember that we're moving into our seasonally lowest quarter. There is a lot of deflating that goes in the September-October-November period. And so it's just -- it's always an uncertain environment over how quickly people can deflate and how much impact that can have on pricing. So, I think we feel comfortable with our guidance of 2%. If I had to take the over and under, I'll probably take the over, but again, you really don’t know until you see how the deflating goes in the fourth quarter.

Okay, thank you very much.

And our next question comes from Chris Woronka with Deutsche Bank. You may ask your question.

Hey, good morning, guys and nice quarter. I don't know if you gave out this data point, but with the pricing tower accelerating, are you guys reducing your reliance on some of the opaque discount channels?

Well, we've been reducing our reliance on opaque for probably the last 18 months. I think sequentially every quarter since fourth quarter of '12, our opaque volume has been down, and I think we're satisfied with the level at which we participate in that channel.

Okay, very good. And then on the stock repurchase, you did $75 million both quarters and obviously, a few less shares this past quarter with the higher price. How do you guys approach in terms of price sensitivity on the stock buybacks? Is it more about you want to return a certain level of capital to shareholders and the price of the stock is not everything and then there are other factors or is there some price sensitivity in terms of the timing of the repurchase?

This is David. I think it really is at this point primarily about returning capital to shareholders and in doing so, in a relatively consistent fashion over time. We certainly think about the stock price and are aware that it's moved up, but I think among a number of different metrics including our cash earnings per share, it's still quite attractive to us. And as a result, I don’t see our plans over the intermediate term being impacted a lot by the stock price; really it's about consistently returning capital to shareholders as we said when we announced the program.

Okay, very good. Thanks, guys.

And our final question comes from Afua Ahwoi with Goldman Sachs. Your line is open. You may ask your question.

Thank you, good morning. So two questions from me; first, on the international segment, the sequential volume deceleration we've been seeing. I know in the top points you called out Australia and you mentioned some other markets are uneven. Is Australia the only market that is seeing the sequential deceleration because of the economy, or are there any other markets you would highlight? And if that's it, maybe -- are you seeing any signs of a turnaround or how should we think about volume trends there? And then, I guess just going back to the question that has been asked in a different form, just on the fleet costs, I guess given that your guidance is unchanged from what you said at the beginning of the year, is it fair to say either your expectations coming into the year were conservative or has the used-car market or fleet cost sort of surprised to the upside and barring the recalls, you'd have been better than expected? Thanks.

Hi, Afua. With respect to your first question, I think the only other market we'd probably call out is Germany. The irony is that it's the strongest economy I think across European continent. Volumes were down in the first quarter. They were down modestly in the second quarter. We actually think that they'll pick up moving into July and August. But it is a little surprising that market, which is economically doing okay, is the one where the volume reductions are most pronounced. The other volume that we're seeing trending down, Switzerland, I mean the exchange rate between anything in the Swiss dollars has got pretty pricy and so, well, it's not a big market. We’re seeing some erosion in volume there. Now I'd say the other market is probably the U.K., and a lot of the U.K. volume declines that we've experienced in the first half of this year have been self-inflicted. There is a practice of deliver and collect that is prevalent in the U.K. and it makes for a lot of unprofitable business. And so, we've been pulling back from the insurance replacement market where we had to do deliver and collect in order to secure the business. But I think the slowdown in mining in Australia and whatever is the retrenching that's going on with German consumers are probably the only two that are meaningful to standout.

And let me try to clarify little bit; with respect to fleet cost, holding on to cars, having more cars in our fleet doesn’t really change our per unit cost, but it does increase fleet cost as a percentage of revenue. And so, the principle issue we've seen so far this year needing to have more cars in our overall fleet, because some are unavailable due to recalls, really isn't -- doesn’t show up in the per unit number, but does show up in our fleet cost. With respect to the issue of sub-optimizing some of our dispositions that will show up in fleet cost, and I think we're in a situation where it's probably pushing our per unit cost up more likely to the upper half of the range rather than potentially having been in the lower half of the range. I don’t think we were particularly conservative or aggressive when we set up our expectations for the year. We're really managing this and working it as much as we possibly can to keep it in the 300 to 310 range. And I think what you're seeing as a result of everything that's been going on is more likely ending up in the upper half of the range rather than in the lower half.

Okay, great. Thank you.

And we have time for one additional question, and that question comes from Kevin Milota with JPMorgan Chase. You may ask your question.

Hey, good morning, guys. Obviously, you have been very much the price leader for the industry. I was hoping you could talk about follow-through rates by the different brands, so at the Avis level and then Budget and Payless, to see what the follow-through has been with your price increases by the competition.

Well, the last price increase that we put in that was followed almost universally was back in January. I think there have been periodic price increases over the course of the ensuing five or six months. I think it's been erratic as to who follows. What I'd say is that there has been fairly consistent pricing amongst the premium brands, particularly over the course of the last couple of three months. On-airport premium pricing is actually held pretty good. Budget has done very well pricing against Alamo and its other counterparts. And I think we've been fairly successful at trying to drive our pricing at Payless. I don’t know if that answers your question, Kevin, but I guess the answer is that -- I'd say in the last couple of months, it's more based on fleet tightness that we've gotten in incremental pricing, then, it's been on our throwing out price increases and having people follow.

Okay. Thanks a lot, guys.

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

Thank you. So, before we close today, I just think it's important to reiterate what I believe were the key points from today's call. We had an excellent first half of the year driven by strong volume and pricing in North America, which has continued into the summer months. We're achieving incremental synergies from our acquisition of Avis Europe, Zipcar and Payless. And we're continuing to return cash to shareholders through our share repurchases. We have a very full investor calendar this quarter, and I hope to see many of you during our travels. And with that, I want to thank you for your time and interest in our company.

And this concludes today's conference call. You may disconnect at this time.