Avis CAR1Q08transcript

Note: The following is a verbatim transcription of the Avis Budget Group, Inc. first quarter 2008 earnings conference call. It has been edited from its
original version for transcription errors.

Operator: Good morning, and welcome to the Avis Budget Group first 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.
David Crowther, Vice President of Investor Relations. Please go ahead, sir.

David Crowther: Thank you, Tonya. Good morning, everyone, and thank you all for joining us.
On the call with me are our Chairman and Chief Executive Officer, Ron Nelson; our President and
Chief Operating Officer, Bob Salerno; and our Executive Vice President and Chief Financial
Officer, David Wyshner. If you did not receive a copy of our press release, it is available on our
website at www.avisbudgetgroup.com. Before we discuss our results for the quarter, I would like to
remind everyone that the company will be making statements about its future results which
constitute forward- looking statements within the meaning of the Private Securities Litigation
Reform Act. Statements are based upon current expectations and current economic environment and
are inherently subject to significant economic, competitive and other uncertainties, 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 10-K and earnings release issued last night. Now I would like to touch the call over
to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.

Ron Nelson: Thanks, Dave, and good morning to everyone. I'm sure a number of companies join us
today in our pleasure at being able to formally put the first quarter behind us. It was, to say the least,
an unusual quarter, a period of contradictory demand indicators and a period where the negative
emotions of the market didn't really sync up with what was happening in the business. To
complicate matters, we had an early Easter and a leap year thrown into the first quarter so that the
comparisons could be just as confusing as the underlying demand patterns. And then, of course,
Passover and spring break stayed in the second quarter just so that April could be just as much of a
challenge. We entered the first quarter with declines in pricing as bad as we have seen, but exited
the quarter with competitors feverishly trying to out do the other with price increases. We entered
the quarter with our primary driver, enplanements, trending flat and down. While they generally
remained that way through the quarter, rental day volume was pretty good, especially in January.

Even more confusing was the leisure volume was noticeably stronger than corporate. While there
may not be an agreement as to whether we are in a recession, those that believe we are universally
laid at the doorstep of the consumer, not the corporation. From an earnings standpoint, it was not
our finest hour, but then the first quarter rarely is. I can honestly say that over the last few quarters
we are growing stronger and gaining momentum. Core strategies are working and we continue to be
optimistic that this will be reflected not just over the long term, but this year as well, both in our
results and in our share price. We've had the opportunity to meet with many investors over the past

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eight weeks to discuss the progress we are making executing on our core strategies and to listen to
the questions investors have about our business.

During the call today we are going to try to address many of the recurring themes that came out of
those meetings, pricing and demand, used car market, financing, our strategic initiatives particularly
our cost savings program, the Truck business and how all these impact our results for the quarter
and our outlook. The headline is that in all those areas over which we have some measure of
control, such as performance excellence, we are achieving success. In those areas where we don't
have control, we are competing aggressively and meeting the contingencies as they arise. Before we
get into those topics, I want to spend a minute talking about our first quarter results. In particular,
the $35 million domestic EBITDA decline from last year. Because while on the surface the earnings
decline is never good news, it was in fact entirely consistent with our expectations and does not
affect or forecasted increased revenues and profits for the full year.

First off, let me remind everyone that the first quarter the seasonal low point in profits. Historically,
it would not be unusual for us to operate at close to break-even or even at a small loss in the quarter.
So any shift in pricing year over year, such as what we experienced this year, can have a magnified
affect in earnings. Here are the simple facts. One, as we said in our release, our results actually
tracked slightly ahead of the plan for the quarter, including the market-to-market interest rates
hedge impact. Two, fleet cost increases were moderate at 3% per unit, utilization increased by 45
basis points, used car dispositions were both as expected and consistent with historical experience.
Three, 13 million of the decline was due to mark to market on interest rate hedges. Fallen interest
rates that produced the hedge loss is expected to reduce our interest expense in the coming quarters,
and the Q1 mark-to-market debt will be more than offset by lower interest expense and, therefore,
higher EBITDA the remaining nine months of the year. Four, and finally, the balance of the decline,
about a $20 million number, was a real decline in domestic EBITDA owing almost exclusively to a
2% decline in pricing.

We expected pricing to be soft in Q1 and we weren't disappointed. Drop in 2 points on time and
mileage revenue was nearly a billion dollars, single handidly reduces EBITDA by about 15 million
which rose to 20 million in the face of even modestly increasing fleet costs. It's not much more
complicated than that. I think the most important point is that this was not unforeseen. Our 2008
business plan anticipated these events. When we spoke in February, we cautioned that we expected
the first quarter was going to be down largely because pricing weakness from December had
persisted into January and the early part of February. But as demand strengthened due to seasonal
patterns, pricing improved dramatically. To be specific, pricing was down about 7% year over year
in January, improved to down 1% in February, and was up 2% in March aided a bit by an early
Easter. Commercial pricing was reasonably steady so the swings in Q1 largely reflect the
heightened volatility in leisure pricing that we have expected to see.

We don't expect down pricing for the remainder of the year or even for the year as a whole,
including the first quarter. As a result, and this is a critical point, the items that caused the year-
over-year decline in first quarter EBITDA should not be viewed as a harbinger of things to come. In
fact, while we are not counting on a substantial amount of price to make our numbers, we remain
reasonably optimistic about the pricing environment, particularly in light of the last few weeks,
which Bob will provide you a little more color on in a minute. At the same time, demand in both

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commercial and leisure segments remain surprisingly solid throughout the quarter with leisure
rental day volume growth actually outpacing commercial by a factor of almost 2 to 1. Rental days
were up 3% on airport and 13% off airport, or 4% overall, and we benefited from an increase in our
average length of the rental. Keep in mind that off-airport growth and longer LORs tend to have a
dampening effect on the composite T&M per day that we report, so you can conclude that airport
pricing alone was probably somewhat better than the composite number we reported.

When you consider the activity level during the quarter against a back drop of widespread concern
about the macroeconomic environment, and consumer confidence statistics that deteriorated rapidly,
you do get a sense that the travel environment, while not robust, may likely sustain itself through
the all important summer months. That is why, in fact, we feel pretty good about the outlook for all
of 2008. In our last call we talked about 17 reasons why owning our stock is a good idea, and I
could probably add two or three more since then. Since that time, we adapted the 17 reasons into 8
measurable goals dividedbetween cost savings initiatives, revenue growth goals, and free cash flow
targets and linked us into the compensation plan for our senior officers. All of these relate directly
or indirectly to our strategic initiatives. Let me go through where we stand on a few of these.

One of the goals is tied to our performance excellence initiative. We committed to you to deliver
$40 million to the bottom line in 2008 alone and I'm pleased to say we are ahead of that target. In
fact, by the end of the first quarter we had run rate savings of over $25 million or better than half of
our goal. While the actual contribution of P&L in the first quarter was only a few million dollars,
we more than doubled our trained staff dedicated to this initiative during the quarter and expect the
P&L contribution to begin to catch up to the run rate. The replication process, which is key to
reaping the benefits of process improvements across our many rental locations, accelerated
tremendously over the quarter. Replication teams, which we trained at the beginning of the year, are
now out in the field, each averaging two replications per month. In addition, performance
excellence has not been confined to our domestic operations as we launched the process
improvement program on our international and truck operations as well. We are pleased that these
efforts are not only generating cost savings, but are also bringing about other benefits such as
helping us improve customer service, reducing our environmental footprint. Bob will also touch on
the performance excellence initiatives in a little bit.

Another goal is to expand our revenue from partnerships, affiliations and global inbound travel.
There's a very important reason why we place such a high degree emphasis on partnerships and
affiliations. Despite the fact that Avis and Budget are leaders within their segments in customer
loyalty, our overall consumer base is still characterized by a significant percentage of people who
do not have any strong rental car brand preference. Any of these people are making purchase
decisions based on price; however, many of these people do have strong brand loyalties. The
airlines where they aggregate their frequent flyer miles, or to associations that aggregate travel
benefits such as AARP. So when these people view rental car offers within the context of the brands
and affiliations to which they are loyal, it helps create repeat business from people who would
otherwise have no rental car brand preference. As a result, we've set a very high growth goal for the
sales group that manages this area, but they entered the second quarter with the wind at their back.

As of last month, Budget is now a preferred supplier on Expedia, largest online travel agency.
We've already seen a four fold increase in daily transactions booked through Expedia and expect

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this will provide significant incremental volume going forward. We also signed new or expanded
relationships with Hilton hotels, Northwest Airlines, National Association of Realtors, RCI, and for
the off airport segment of the market, Pep Boys. International inbound volumes were up 12% in the
first quarter, and based on the momentum we see should only accelerate as the year moves into the
summer vacation season. Clearly the weakening dollar has caused us to ratchet up efforts in this
space, and we expect a year of record growth.

We also launched this quarter an Avis gift card, the first in our industry. The gift card business has
become a multi billion dollar industry in the last few years with cards taking on the character of a
currency rather than simply representing the traditional gift. While we are still new to the marketing
of this product, we've already distributed several million dollars worth of these cards and are
eagerly anticipating sell through data to learn how, when, where and why they are being used.

Our off airport expansion continues to progress well and represents another of our growth goals.
Although the incentive portion of the plan is tied to insurance replacement revenue, overall, off air
airport revenue was up 14% for the quarter which, in fact, was fueled by insurance replacement
growth of 31%. We continue to add new insurance companies to our roster of relationships and we
also opened 24 new locations this quarter. Ancillary revenue growth is an important growth
objective and the first quarter saw continued robust growth. Revenue increased 13% led by Where2
GPS rentals and the nearly 20% increase in coverage sales in five large test markets where our
employees have received specialized sales training. Our goals in this area include a revenue growth
target from counter up-sells, insurance and GPS rental, and specific take rate target on the GPS.

Our next generation where2 product starts its roll out this month and with the benefits of its MSN
Direct connect capabilities, customers will be able to access airport information, weather reports,
and news and stock updates to mention a few. As an aside, electronic toll collection where we've
been the leader in rolling out new technology, recently added its 3 millionth transaction since the
launch of this product. So I hope you take away from this the observation that our 2008 goals not
only reflect our long-term objectives in the revenue growth, but each one is accompanied by an
increased profit contribution per rental day. Finally, let me spend a minute on truck rental.

We believe that the trajectory in truck rental has turned or at least flattened out. We are projecting a
meaningful increase in truck earnings this year, even though it won't be apparent until later in the
year because of seasonality. The new management team has worked extremely hard to drive
improvements in every aspect of the business, and the results are beginning to show from these
initiatives. The shift to more balance between commercial and consumer rental activity has
provided stability to our utilization rate and growth in rental days, even though much of it is not
apparent because of the pricing declines and consumer rentals, particularly one-way. While we are
always anxious to take price when and where we can, our mid-teens market share means pricing we
achieve is subject to the competitive pricing conditions that exist in the market.

On other truck fronts, our same-store corporate locations had 7% transaction growth, proving our
thesis that well-placed corporate owned locals could better serve the market and our addition of
cargo vans to the fleet have been a home run with these adding nearly $2 million in revenue. Our
new relationship with Public Storage is also starting to pay dividends as we have now repositioned
existing fleets to over 200 public storage locations. Our fleet continues to be relatively young with

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an average age of 2-1/2 years, and our sales efforts are adding and expanding relationships with
commercial accounts such as Proctor & Gamble, Lockheed Martin, and the federal government with
more to come.

While victories abound, it is difficult to deny our principal brand image as a consumer oriented
truck rental company. Until the consumer part of our business, or really the self-moving market
starts to turn around, even though we expect to make great progress in our initiatives, we would not
anticipate a return to the more normalized margins we expect of 12 to 14%. So how is all this going
to play out for the rest of the year? The tale of the tape as always will be the third quarter, and all
indications are that we should see strong pricing over the summer, as the industry constraints fleet
growth due to the risk-program mix shift, and the limited availability of short-term program cars. As
one would expect, pricing improves when demand outpaces supply, which is usually the case during
the summer peak, and this year we suspect that everyone will be cutting the peak a little more than
usual. Recent pricing actions would support that contention.

Mid- April, we instituted an important and promising price increase only to be matched and re-
raised by Hertz a week later. Option rates on both increases are encouraging and consistent with
what we would expect. Despite the difficult pricing in January and February that we fully expected,
we do remain optimistic about our prospects and about how our operations are performing. We are
delivering on the key initiatives that we as a management team control, our Performance Excellence
process improvement program, ancillary revenue growth, off airport growth, and retaining our
customers with world class customer service. Based on everything we see, we continue to forecast
full revenue and earnings growth in 2008 versus 2007. With that, let me turn the call over to Bob.

Bob Salerno: Thanks, Ron. Good morning. Today I'm going to discuss some positive trends for our
company with respect to the used car market as well as our Performance Excellence initiative and,
finally, how we see the second quarter shaping up from a demand and pricing standpoint. There
seems to be a growing interest in how the used car market will affect our business. It's important to
keep in mind that we are not new to this market. Although we've taken advantage of the economics
of program car offerings in recent years, our fleet team is led by people who have spent decades
effectively and efficiently selling cars in the secondary market. We understand the dynamics and we
are innovators. In fact, we believe we were the first company to begin selling online in bulk sales
which has been a growing success.

As Ron mentioned, the prices we realized in the car sales in Q1 were where we expected them to be.
We disposed of over 16,000 risk units in the quarter, principally through auctions, but with 7% of
our sales going through the online direct to dealer wholesale channel we began using last year. The
used car market improved in March and April as it usually does from January and February. It is
important to note that market experts, including Mannheim and Odessa, have stated that the types of
vehicles that we bring to auction for our own account, 1-year-old used cars, are out performing the
used car market as a whole. While new car sales are declining and certain segments of the used car
market are experiencing some softness, our vehicle portfolio is doing fine.

Let me provide you some context on how we're doing. We compared the actual monthly cost per car
on the risk units we sold to what our expectations were for the monthly costs when we originally
purchased the car some 12 to 14 months ago. While we do adjust depreciation rates on the a

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quarterly basis, our actual depreciation costs were within 3% or about $7 per car month less than
our initial assessment. In addition, the auction houses provided an index of how cars are selling
versus all risk rental units sold. Our results for the first quarter were 100.4% of the average. Simply
put, we are doing better than the industry in terms of the amounts we receive at auction. Some of
this could be related to mix but, frankly, we look at these numbers every quarter and we usually are
at or near the top of the industry.

Why are late model cars performing so well? There are a number of reasons. First, as we discussed
before, the supply of these late model cars is decreasing as the rental car industry lengthens its
vehicle hold periods and purchases fewer newer cars. Second, the demand for these cars has
remained reasonably solid. As credit has tightened, some consumers are having a more difficult
time with the more stringent qualifications for new vehicle purchases and others are simply looking
to trim expenditures. The 1-year-old used vehicles, which dealers usually sale as certified pre
owned, typically are priced around 20% less than the same new car model. This is a value on
affordability story that represents a win/win for both dealers and consumers in an otherwise
challenging economic environment. One final note on fleet. 2009 model year negotiations are just
beginning to kick off so we have nothing to report, but we will provide a progress report on our
second quarter call.

Turning to our Performance Excellent initiative, I continue to be amazed at the opportunities for
process improvement and cost savings that we've identified. I have been even more impressed by
the enthusiasm that our employees worldwide have shown in the efforts to make our company even
more cost efficient. Since the beginning of this year, we have taken steps to improve the processing
of payables to our outsource provider which saved us over $200,000. We streamlined our title
processing, saving a quarter of a million dollars this year. We invested in a process developed in our
Canadian operations that will allows us to reduce the amount of time and money it takes us to get
cars from check-in to the ready line for rental, which is worth over $350,000. We’ve identified ways
to speed up our turn-back of program cars which saved another million. We also reduced the
amount of printed material we automatically put in our vehicles by 100 tons per year, saving us
nearly $4 million annually, not to mention 1500 trees which is an added benefit that makes a
significant contribution to reducing our environmental footprint.

We've begun the implementation of our new fleet management software package, and we've also
moved our PEX initiative, as Ron mentioned, into Australia, New Zealand, Puerto Rico, and into
Budget Truck. We have already implemented improvements that will save us $25 million this year,
thus we're over halfway to our goal of $40 million in savings for the year. Given our initial results,
we are highly confident in our ability to achieve at least $100 to $150 million of annual P&L
savings within two years, and at the same time improve our service offerings to our customers.
We're looking for improvement in virtually every area of the company from field operations to
support functions to our relationships with service providers and we are intensely focused on
replicating best practices across our operations, particularly among our largest rental locations.

Last topic I would like to touch on is what we are seeing for Q2. On the fleet side, industry fleet
levels were fairly tight compared to demand in late February and throughout March. This trend
continued in April in certain areas of the country. Looking forward, we suspect that fleet levels will
loosen up during May and early June as the industry grows its fleet for the summer. Despite this, we

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do expect that overall fleet levels will remain fairly tight for the summer peak. While the absence of
Easter in the first week of April provided tough pricing comparisons, pricing did improve each
week of the month. We believe that pricing in Q2 will be better than it was in Q1, to be slightly
positive year over year despite the Easter issue. Consistent with our stated intention to move prices
up where and when possible, we have been activity taking steps to improve our metrics in this area.

Ron mentioned on April 14 we initiated a price increase of $5 a day and $20 a week in nearly all
markets with an effective day of May 19. To date, this price increase has been followed in a
majority of locations by our three largest competitors. On April 21, Hertz raised most prices another
$5 a day and $20 a week between which we, in turn, matched where ever we saw the increase
occurring in all channels. April volume was decent although the absence of Easter affected year
over year comps. At this point, advanced reservations which are mainly for our airport locations, are
flat for the May/June period with increases already registering for the summer months of July and
August. Pricing in all four months showing nice increases. Given these trends and our belief about
the fleet situation for the summer peak, we are comfortable in surrendering some volume in favor of
price for now. With that, let me turn the call over to David.

David Wyshner: Thanks, Bob, and good morning, everyone. I'd like to discuss our recent results,
our strong financial position, and our largely unchanged outlook for 2008. In the first quarter,
revenue increased 6% to $1.44 billion, EBITDA was $31 million, and pretax income was a loss of
$18 million. EBITDA declined from the $62 million we reported in first quarter 2007 due to
domestic results that were impacted by mark-to-market hedge losses and weak pricing. As Ron
discussed earlier, the fall in interest rates that produced the hedge loss is expected to reduce our
interest expense and benefit our EBITDA in the coming quarters. In our domestic car rental
operations, first quarter revenue increased 5%, reflecting a 4% increase in rental days, 2% decrease
in time and mileage revenue per day, and a 13% increase in ancillary revenues. Rental volumes
increased despite flat enplanements largely due to our off airport growth. Domestic EBITDA
declined for the quarter as the revenue growth, increased utilization, and cost savings were offset by
lower time and mileage rates per day, higher gasoline expense, and increased fleet costs.

We believe the 2% decline in time and mileage rates caused by weak leisure pricing reflects typical
seasonal dynamics. With the industry having more cars and less flexibility to shrink the fleet one
month and then grow it the next to accommodate travel patterns, our business plan anticipated some
softer pricing periods, like most of Q1, would be softer than in the past, and that is what we saw.
Also impacting the reported time and mileage per day rate was our 13% growth in off airport rental
days and an increase in length of rental as both of these otherwise very positive trends had a modest
negative effect on our average rate per day. Fleet costs increased 3% on a per unit basis as our risk
cars continue to perform well, as Bob discussed. Our direct operating expenses increased by 150
basis points year over year due to higher gasoline expenses and a decline in time and mileage rates
partially offset by cost savings.

Rising gas prices actually had two negative effects on our margins. The first is a real effect. Our net
gas expense, cost less gas revenue, increased by several million dollars year over year, including $4
million due to hedge gains in first quarter 2007. We are taking steps to try to increase our gas
related revenues to mitigate this issue. The second effect is just math. The extent the gas expense
increases and gas revenues rise to offset the higher costs, the numerator and denominator of our

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margin calculation are both grossed up. There's not necessarily an impact on profits, but there is an
effect on operating costs as a percentage of revenue, an effect of 60 basis points in the case of Q1.
To recap this, as well as the issues that Ron discussed, our domestic EBITDA decline of $35 million
was due to the mark-to-market interest rate hedge loss of $13 million, $15 million impact from
lower T&M pricing, $9 million increase in per unit fleet costs, and a $7 million increase in net
gasoline expense. We were able to offset about $10 million of these items primarily through
increased ancillary revenues. The important point is that we expect the benefits of higher ancillary
revenues to continue and cost savings to accelerate, but the negatives associated with hedge losses
and pricing that is down year over year should be largely contained to the first quarter.

Turning to international car rental operations, revenue increased 20% in Q1 driven by a 4% increase
in rental days, 13% increase in time and mileage rates per day which was all due to foreign
exchange, and increased ancillary revenues. EBITDA increased 25% driven by moderating fleet
costs which were flat on a per unit base, excluding the impact of exchange rates, increased ancillary
revenues, lower shuttling expenses, and increased employee productivity.

In our truck rental segment, revenue declined of 6% in the quarter due to 10% decline in time and
mileage revenue per day, offset by 2% increase in rental days, lower fleet costs, and operating cost
savings. The decline in T&M per day reflected lower pricing across all channels magnified by a
decline in the proportion of one-way rentals, which typically carry the highest daily rates. Corporate
and other had a $4 million EBITDA loss in the first quarter. This principally represents unallocated
corporate overhead associated with being a public company to be fairly steady at this rate over the
course of the year. We continue to invest in our brands and our infrastructure. Capital spending
totaled $23 million in the first quarter, primarily for rental site renovations and information
technology assets. Our non-infrastructure spending has been prioritized based on anticipated ROI.
We've demonstrated over the years that we can turn technology innovation into incremental revenue
and profit. That is the context in which our IT CapEx should be viewed.

Our free cash flow for the quarter was $81 million, reflecting both our efforts to focus on cash
generation, and a typical assortment of timing issues which were net favorable in the quarter. We
continue to believe that over time our free cash flow should approach our pretax income. In 2008
we expect to pay cash taxes of $20 to $25 million. Our capital spending will be a bit higher than our
depreciation and amortization expense. We will pursue opportunities in working capital
management and the structure of our vehicle program to try to have free cash flow exceed 85% of
pretax income. Based on our projection for earnings growth in 2008, our free cash flow target
translates into a free cash flow yield on our equity in the mid teens. With respect to taxes, we do not
expect to be a regular federal cash tax payer for every years, but we could become a partial cash tax
payer in 2010 or 2011 under the AMT. Our GAAP tax rate for 2008 is expected to be right around
40%.

Turning to our financing strategy, we continue to be well positioned in what is an unusually difficult
credit environment. We completed a new $800 million vehicle-backed financing in February at an
attractive rate. Our ability to do so speaks volumes about our lenders understanding of our ABS
structures, the significant amount of over collateralization we provide in those structures, our strong
bank relationships, and the stability of our business model. We further expanded our borrowing
capacity in April by arranging for a new lease facility through which we can finance up to $300

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million of program vehicles. As a result, our existing funding commitments will fully satisfy our
fleet financing requirements in 2008. In fact, as of March 31, we have $1.9 billion of available
capacity under various vehicle backed financing structures. We continue to have no borrowings
under our $1.5 billion corporate revolving credit facility.

In short, while we continue to watch developments in the credit markets very carefully, we will seek
out opportunities to further expand our liquidity. We have successfully taken the steps needed to
make the financing of our business and our fleet an issue in which we as management and investors
can take considerable comfort. With respect to our outlook, we continue to track in line with the
assumptions we discussed last quarter which include modest economic growth with no major travel
interruptions, positive domestic enplanement growth for the year. We expect that our on airport
rental day growth will approximate enplanement growth and benefit from Budget’s increased
presence on Expedia. We expect off airport volumes to continue to grow rapidly, bringing our
overall increase in domestic car rental days to 3 to 5% year over year.

Domestic price assumptions call for modest increase in daily time and mileage rates. While leisure
pricing has been challenging, we have achieved price increases on commercial account renewals in
2007 and thus far in 2008 that will benefit us throughout the year. At the same time, our growth off
airport where length of longer, the daily rate is typically lower, will drag the average price down a
bit. On the ancillary revenue front, our revenues from GPS rentals increased $9 million year over
year with pretax margins north of 70% in the first quarter. We look for continued growth. We are
also focused on growing other high margin ancillary revenue streams, such as from electronic toll
collection, gas, and insurance products. We piloted new front line up sell training in five markets in
the first quarter and the results were tremendously favorable, indicating that we, indeed, have a
substantial opportunity to increase revenues and profits from customers that have already booked
with us. Our domestic fleet cost for the quarter increased 3% on per unit basis, slightly below our
full-year range of a 4 to 6% per unit increase due in part to the timing of less expensive risk car
additions versus program car additions. We continue to forecast our full year per unit cost increase
will be between 4 and 6% with per unit costs in the second quarter that will be higher than this
range.

We also expect growth in our international and truck rental segments. Truck rental in particular, we
expect increased commercial rentals, a relationship with Public Storage, lower fleet costs, and
revenue generation and cost reduction actions we've taken over the last year will all provide benefit
so that truck rental EBITDA will improve in 2008. Based on these assumptions, we expect to grow
our revenues, EBITDA, and pretax income in 2008 despite a softer macroeconomic environment in
the first half of the year. We also expect to have the benefit of low interest rate environment in Q2
and Q3 with a forward curve suggesting that LIBOR will average around 3% over that period.

While we are not going to provide specific projections at this time, similar to our approach in 2007,
I want to reiterate the first quarter decline in domestic EBITDA is not reflective of how we expect
our full year results to unfold. In particular, we believe that our leading market positions, fleet
management strategies, and process improvement work will allow us to grow revenues and earnings
in 2008. As a management team, we remain focused on executing against those opportunities we
can control. We are eager to take advantage of the many growth opportunities that we are
identifying. With that, Ron, Bob, and I would be pleased to take your questions.

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Question & Answer Session

Operator: (OPERATOR INSTRUCTIONS) First question comes from Chris Agnew with
Goldman Sachs.

Chris Agnew: Thank you, good morning, gentlemen. First question, can you comment on what
specifically caused the weakness in pricing in January? And to reiterate why you’re confident we're
unlikely to see a repeat of that through the rest of the year?

Bob Salerno: Hi, Chris. Bob. My opinion is that as this industry shifts to more and more risk units
and less and less fleet flexibility that your going to begin to see these troughs and as the industry
changes the comps are changing and are a little different. I think that's really what it was. As you
came into the season, winter seasonal places, you can see that our pricing began to go up. What is
most impressive is that as we came out of that we took pricing increases, people matched us, and
others increased them again, so I think there's a lot of desire in the industry to move the pricing up,
but I do think there will be the seasonal troughs, in my opinion, caused by the amount of risk fleet
that's around.

Ron Nelson: Chris, I would add to that (inaudible -- audio cut out) then Hertz followed again in late
April. All of them have had pretty good adoption rates, well beyond what you would expect given
three price increases in a two-month period (audio cut out). I think that combined with tightness in
fleet that we see over the summer gives us some encouragement. January was, as Bob explained,
pricing is going to tighten up (inaudible -- audio cut out).

Chris Agnew: Thanks. Sorry, Ron, I think you might be cutting out a little bit on the phone. And
next question is just on leisure, I guess thinking about volumes, you had relatively strong volume
growth, I guess, versus what data points we are seeing elsewhere in the economy. Is there any, I
know you can break the leisure business up into many different segments and even geographies, is
there anything in particular that surprised you in terms of why you were seeing stronger volume
growth than maybe you would have thought just if you are looking at the broader economy, and that
also as we look forward into the summer makes you confident in your advanced reservations?
Thanks.

Ron Nelson: I think, well, you put your finger on it, it was surprising, and I think what was more
surprising in fact about the leisure was that a lot of it came from longer length of rental and not just,
there was transaction growth, but there was a fair amount of length of rental growth that added to
the number. It is surprising that that number generally does not move around all that much. It's
tempting to say that our volume growth was promulgated by price, but if you look at the airport
market share statistics, we and Hertz gave up share over the course of December, January, February
and March. And so I don't think that you can point to the numbers and say that it was just simply
out and out a share grab, but again I would say that what gives us encouragement about leisure
pricing turning around is simply the fact that everybody, all these price increases by the way are
leisure market increases. They don't have anything to do with commercial pricing, so I think the fact
that that's been good adoption rates in leisure pricing, to turn around and strengthen over the course
of the second and third quarter.

10 of 15


Chris Agnew: Great, and one final question just on commercial. Why was pricing weaker in the
first quarter? Are you getting any, when you are going in for contract renewals, what are your
customers saying to you in terms of how they're thinking about the travel budgets? Thanks.

Bob Salerno: On the second part first, we haven't heard nor really seen any major cutbacks.
Obviously there's been some trimming here and there on the commercial travel. As far as pricing,
it's been a challenging environment in the first quarter. There are people out there looking to garner
commercial business and making it challenging to increase prices. Having said that, we continue to
get increases in our renewal rate, while not as robust as it's been in the 2 to 3 range, it is just right
around the 2% range, and also as our leisure pricing was lower in January you get a lot of
commercial people who book on the leisure rate versus their commercial rate. We call it flipping.
That obviously has a negative effect on it. As we look forward and think about pricing renewals, we
continue to renew our contracts above the 98% rate that we've been telling you about, and we
continue to think we can get some lift in the pricing overall as we go forward.

Chris Agnew: Great, thank you very much.

Operator: Our next question from Manav Patnaik with Lehman Brothers. You may request your
question.

Manav Patnaik: I have a big picture question maybe for Bob. Given your last industry experience
with the car rental business, how would you gauge the economic environment of the specific car
rental today compared to the tougher times that you've been through in the past? I guess with
respect, obviously you mentioned to some extent pricing, the used car market, just generally
speaking, how would you maybe rate this or characterize this with respect to how much harder or
how much of the same it is?

Bob Salerno: I will tell you when I look back at the times that we've been through over the last
several decades, I would not say this is the toughest in economic times. I would say that from a
competitive standpoint, it is a very different time in that there are, there's recombinations in the
industry, there are new competitors with different strategies and plans, so it's very highly
competitive. As far as the economic end of it, we've seen it before. We do have the ability to
manage a lot of our costs up and down and that's what we've been, we've been doing. We're not in
crisis mode at all. People are still traveling, our numbers say so, so I think economically we are
okay. Just a challenging competitive time.

Manav Patnaik: I guess what I was trying to get to, I know you guys are not going to give a
specific, I guess, guidance. I was just curious as to, do you guys have obviously your own internal
numbers that you are meeting to, and what does it take to provide like ranges in the guidance to the
investment community? Is it just because the visibility is just not there for the rest of the year and,
therefore, you are just being prudent and holding back on giving our numbers, because just the
better fiscal year 2008 or 2007 sort of leaves the range open for a varied range. I just want to see if
there was any way to narrow that down.

11 of 15


David Wyshner: Manav, it's David. We really tried to get out of and stay out of the guidance
business, at least with respect to specific numbers, and we, we're going to continue to try to do that.
With that being said, I think we've tried to be clear about what assumptions we're making for the
year, and that's the 3 to 5% rental day growth in the domestic business, the modest improvement
only in pricing in that business, some significant growth in truck rental EBITDA and growth in the
international segment as well. So I think we are trying to point, to give people our views and make
sure that they are directionally right, but we think the advantage of doing that and only that is that
we can spend time on calls like this and investor meetings focused on what's going on in the
business in comparison to year over year rather than spending a lot of time talking about changes
versus our initial expectations which is obviously the risk or the pit fall associated with earnings
guidance.

Manav Patnaik: Fair enough. And finally, could you just give us a quick update on the Carey limo
and what progress you guys are making with them?

David Wyshner: Absolutely, the business continues to be performing generally in line with our
expectations. We are seeing some economic issues in the March and April numbers there, but
nothing out of line with, with broader trends in the marketplace. The real issue is that strategically
the investment continues to be very attractive. The assumptions that we had going in that there
could be significant cross selling opportunities available to us is, is, it's absolutely coming to bear
and we are moving forward on delivering on that promise as we continue to work more and more
closely with the Carey folks and our sales force working more closely with theirs. So we are excited
about the prospects, and with that being said, our expectations for this year has been and continues
to be that it won't have a meaningful impact on our results given the amount of leverage that exists
on their business.

Manav Patnaik: Great, thank a lot, guys.

Operator: Our next question, William Truelove with UBS. You may ask your question.

William Truelove: I want to confirm something that you said on the call just to be sure, you said
that the unit costs were going to be above your annual projections of the 4 to 6% in the second
quarter at the same time you are starting to see price increases. Is that correct?

David Wyshner: Yes. The issue on second quarter fleet costs increases is we faced a difficult comp
in the second quarter combined with the seasonality of when different types of vehicles, particularly
program versus risk vehicles, roll into our fleet.

William Truelove: Okay. And second question is about the ability to flex the fleet and now
everyone is using more at risk vehicles. Is it possible that we could see a lot of program cars just in
the peak seasons that could reduce pricing in the third quarter? That just seems to be a risk that I
keep thinking about since everything depends on the peak season.

Bob Salerno: I really don't think so, unless something very, very strange happens, which we don't
foresee. The ability to get seasonal cars is really moving past us, and the manufacturers just are not
making them available. Especially if you think about it, very short- term cars at that time of model

12 of 15


year is, pricing they would have to charge, even if they were to do it would be enormous. So no, I
don't think that's going to happen at all and that's why you see troughs now where people are
holding on to cars and kind of growing in anticipation of the summer, and it's also why I think you
won't see large summer fleets.

William Truelove: Okay. Great, thank you

Operator: Our next question, Christina Woo, with Morgan Stanley. You may ask your question.

Christina Woo: Great, thanks. First question has to do with the interest rate hedge. You reported
$31 million of EBITDA which, if adjusted for the hedge, cost would have been $44 million. With
your EBITDA guidance, should we look at that 31 million for the first quarter or the 44 million?

David Wyshner: We, we were talking about that last night. When you are looking at year-over-
year comparisons, how is first quarter '08 versus first quarter '07, we think adding it back makes
sense, but when you are looking at building out the quarters for 2008 and how we think about our
guidance, the negative impact in the first quarter reverses in other quarters so it probably, the right
way to get the quarters to add up for the year is going to be to include the $13 million impact in the
first quarter numbers so that --

Christina Woo: You get all the benefit later on.

David Wyshner: In future quarters gets you to the right total. Does that make sense?

Christina Woo: It does, I wanted to clarify that. So thank you. Second set of questions has to do
with enplanements. I'm wondering what gives you the confidence that enplanements will actually be
up year over year, and if there are any leading indicators that you track?

David Wyshner: We look at the same sorts of ATA and BTS statistics that come out as well as
what some of the airlines are saying. We saw a flat first quarter amid a significant amount of
concerns about the macroeconomic environment and I think what we are looking at is the fact that it
was flat, that enplanements were flat in what was thought to be a relatively weak time, and in that
context that's why we are hopeful that enplanements will turn out to be up modestly this year
because the economy is expected to improve over the course of the year. On top of that, we also
have the advantage of increased inbound travel, the weak dollars making it very attractive for folks
to come to the U.S. and we expect that business, which is now part of the domestic enplanement
figures, to provide a boost as well.

Christina Woo: Okay. Somewhat related to that - -

Ron Nelson: I would add to that, look, I think there's one thing we do worry about it's going to be
the enplanements giving what is going on with fuel prices. But I think you have to consider it's just,
it's simply not that easy for airlines to take inventory out of their cycle and probably not going to
take it out of their fleet over the course of the summer months. And we have the advantage of being
downstream from the, their more challenged ability to take inventory out because what they will
typically do is start to discount pricing to fill up the seats notwithstanding whatever the fuel costs

13 of 15


are. That tends to have an ameliorating impact on the enplanements. But as David said, I think we
will probably would have thought going into March enplanements for the quarter were going to be
down, and actually they were. They were actually flat for the quarter. And you couldn't get any
worse consumer confidence numbers than we had in the first quarter. I think we're watching it, and
we're concerned about it but, as I said, I think -- that combined with the shot in the arm from the
rebate checks, we think might well hold up travel over the summer.

Christina Woo: Okay. Somewhat related to that, I'm wondering if you could talk about your
flexibility in your fleet purchasing? I understand you have flexible to de-fleet and go to market, but
if enplanements were to be flat or down, what sort of flexibility do you have in fleet purchasing?
What lead times do you have to put your purchase orders in?

Bob Salerno: Christina, fleet management as I told you last time I talked is half art, and while I
don't think the way we will go at it, if volume is softening, clearly we will take down future
purchases, but at the beginning of a model year you want to buy as much as you can because they
are the cheapest cars of the model year. The way we would manage the fleet is with deletions, and
our fleet plans are built for that contingency.

Christina Woo: Okay.

Ron Nelson: The other thing, Christina, if you go back actually even to the early 80s and look at the
FAA statistics and enplanements. When enplanements are down during periods of weak economic
activity, you are talking about 4 or 5%. You are not talking about 10, 15, or 20% on enplanements,
and flexing the fleet 4 to 5% for us, while it's a number, it's not a gigantic out of ballpark number.

Christina Woo: Right. Okay.

David Wyshner: That's right, Ron, because even if we don't change our purchases at all, 4%
change in our fleet size translates to half a month change in our average life, average hold period.

Christina Woo: Okay. Great. One last question on the share buy backs. You've done a bit of the
share buy back authorization during the first quarter. Might we expect greater than $50 million
authorization or are there certain limits as to how much a buy back your board can authorize?
Thanks.

Ron Nelson: I think we are always going to balance the buy back in the context of our ratings,
particularly in this environment where credit is up in the air. Our board's authorized $50 million at
this juncture. We haven't expended the full amount of the $50 million yet. We will probably address
that issue when we do exhaust the authorization.

Christina Woo: Okay. Thanks.

Operator: We only have time -- we only have time for one more question. Frank Jarman Goldman
Sachs. You may ask your question.

14 of 15


Frank Jarman: Couple questions on the ABS front. You talked about the $1.9 billion of
availability you have today. As I think about more specific items, I think you have a $600 million
deal wrapped by [FGIC] and you have the $1.5 billion season conduit rolling in October, which I
believe is currently utilized by some of your '08 term maturities. Can you just provide me a little
more color on how you guys see these two events unfolding over the course of this year?

David Wyshner: Sure. With respect to the conduit that rolls in October we, our plan and
expectation is that we would roll the conduit at that point in time. Based on the discussions we have
had with, with the conduit lenders, we do expect the costs in terms of spread to LIBOR that we pay
will increase upon the renewal there, but we don't anticipate any issues there with respect to the
renewal and continuation of that funding other than the increase in cost to reflect the current pricing
of risk. With respect to the, with respect to [FGIC] wrapped and other mono line wrapped paper, we
continue to look at that and are actively exploring opportunities that we have to mitigate any risks
that we see associated with that. Just not in a position to talk more about the details at that point.

Frank Jarman: Okay. And then on the $300 million lease deal, can you give me a sense for what
the pricing looked like on that particular deal?

David Wyshner: Sure. We expect the all-in pricing on that to be less than 6%.

Frank Jarman: Okay. That's all I had. Thanks.

Operator: For closing remarks, the call is being turned over to Mr. Ron Nelson. Please go ahead,
sir.

Ron Nelson: Thank you. I want to thank you all for joining us today. If you've gotten a sense of
cautious optimism from our discussion today, it is because we are satisfied with our current results
and prospects, but only in the context of the environment that we're operating in. In absolute sense,
we still have a way to go. A longer term margin target of 9% remains intact as does our long-term
growth rate range of 8 to 12% annually. Our core strategies are all aimed at these targets and remain
very much on track. We think we are achieving success in creating new sources of revenue,
optimizing our two strong brands and capitalizing on profit opportunities. Performance Excellence
process improvement initiative is delivering both cost savings and consumer benefits, we are
continuing to grow high margin GPS and ancillary revenues. We're getting growth in our affinity
relationships. All of this combined with our ability to generate free cash flow will contribute
meaningfully in 2008. In addition, our deep and experienced management team has a track record
having grown this business through all types of economic environments. Thanks for joining today,
and I look forward to talking to all of you during the quarter or on our next call.

Operator: This concludes today's conference. You may disconnect.

15 of 15

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