DOLLAR THRIFTY AUTOMOTIVE GROUP
REPORTS FIRST QUARTER PROFIT
Company Increases Previously Announced 2011 Guidance
Tulsa, Oklahoma, May 5, 2011: Dollar Thrifty Automotive Group, Inc. (NYSE: DTG) today reported results for the first quarter ended March 31, 2011. Net income for the 2011 first quarter was $16.5 million, or $0.53 per diluted share, compared to net income of $27.3 million, or $0.91 per diluted share, for the first quarter of 2010. The Company noted that the decline in net income was anticipated and resulted primarily from the decision to reduce vehicle dispositions during the quarter, which reduced gains on sales of vehicles compared to the prior year period. Net income for the first quarter of 2011 and 2010 included net favorable impacts on income of $0.07 and $0.14 per diluted share, respectively, related to changes in fair value of derivatives.
Non-GAAP net income for the 2011 first quarter was $14.5 million, or $0.47 per diluted share, compared to non-GAAP net income of $23.0 million, or $0.76 per diluted share, for the 2010 first quarter. Non-GAAP net income excludes the (increase) decrease in fair value of derivatives, net of related tax impact. The Company noted that both its GAAP and non-GAAP earnings were negatively impacted by merger-related expenses of $3.5 million and $1.7 million incurred during the first quarter of 2011 and 2010, respectively. Additionally, the Company noted that on a comparative basis, gains on risk vehicle sales declined $17.8 million in the first quarter of 2011, down from $25.7 million in 2010 to $7.9 million in 2011, as the Company held vehicles to mitigate the potential risk of supply disruptions and support increased rental day demand.
The Company reported Corporate Adjusted EBITDA for the first quarter of 2011 of $36.3 million, compared to $49.4 million in the first quarter of 2010. On a comparative basis, Corporate Adjusted EBITDA in the first quarter of 2011 was negatively impacted by an increase in merger-related expenses of $1.8 million, and a reduction in gains on risk vehicle sales of $17.8 million both of which are discussed above.
“Our results for the quarter exceeded our previously announced expectations as business strengthened during the latter part of the quarter, with March revenues coming in very strong. We are particularly pleased with our performance this quarter considering the operating environment caused by the severe winter storms in January and February. The Company generated a Corporate Adjusted EBITDA margin of 10.4 percent during a seasonally weak quarter for the industry,” said Scott L. Thompson, President and Chief Executive Officer.
For the quarter ended March 31, 2011, the Company’s total revenue was $348.3 million, consistent with the comparable 2010 period. Vehicle rental revenues for the quarter were also in line with prior year levels as a 2.7 percent increase in rental days was offset by a 2.7 percent decrease in revenue per day. The average fleet for the quarter was up 3.5 percent compared to the prior year period.
“As previously disclosed, first quarter rental revenues were adversely impacted by the significant winter storms in January and February, with a loss of rental days and a weakened pricing environment following the storms. We are pleased with the subsequent recovery in revenues, and believe the industry is now well positioned headed into the summer peak season,” said Thompson.
Fleet cost per vehicle was $251 per month in the first quarter of 2011, compared to $206 per month in the first quarter of 2010. The increase in fleet cost per vehicle resulted primarily from a decrease in gains on disposition of risk vehicles of $17.8 million compared to the prior year period. This decrease was attributable to approximately 7,600 fewer vehicles disposed of on a year-over-year basis. Vehicle utilization for the first quarter of 2011 was 79.7 percent, down from 80.3 percent during last year’s first quarter.
Direct vehicle and operating expenses and selling, general and administrative expenses (operating expenses) for the first quarter of 2011 declined on a year-over-year basis, in spite of a $1.8 million increase in merger-related expenses incurred compared to the prior year period. Additionally, these operating expenses declined to 65.3 percent of revenues for the first quarter of 2011, compared to 65.5 percent of revenues in the first quarter of 2010. The decrease in operating expenses was primarily a result of the ongoing benefits of company-wide cost control and productivity initiatives.
Liquidity and Capital Resources
As of March 31, 2011, the Company had $519 million in cash and cash equivalents, and an additional $160 million in restricted cash and investments primarily available for the purchase of vehicles and/or repayment of vehicle financing obligations. The Company noted that it has made seasonal fleet investments of approximately $340 million since December 31, 2010. Those investments were funded by a blend of unrestricted cash, restricted cash and vehicle debt, resulting in an increase in vehicle debt of approximately $157 million, and declines in both unrestricted and restricted cash from year-end levels.
As of March 31, 2011, the Company’s tangible net worth was $536 million, and the Company had no net corporate debt. The Company had a gross leverage ratio of approximately 0.65 to 1 based on trailing twelve months Corporate Adjusted EBITDA as of March 31, 2011.
FTC Update
As previously reported, the Company submitted its certification of substantial compliance with the Federal Trade Commission’s (“FTC”) Second Request in late February. The Company is currently continuing to cooperate with Avis Budget with respect to FTC issues. The Company and Avis Budget currently have no agreement, written or verbal, regarding merger terms, including price.
2011 Outlook Update
The Company is also providing updated guidance for both Corporate Adjusted EBITDA and fleet cost expectations for the full year of 2011. The Company noted that its full year rental revenue guidance remains unchanged, with expectations for rental revenue growth of 2 to 4 percent, driven primarily by transaction growth.
The Company noted that the used vehicle market has continued to strengthen since its previous guidance update in March. Based on current supply and demand factors, the Company expects current used vehicle pricing trends to continue at least through the end of the second quarter, and accordingly, the Company is lowering its fleet cost outlook for the full year. The Company now expects fleet costs for the full year to range from $230 - $240 per vehicle per month. In the event current conditions in the used vehicle market continue beyond the second quarter, fleet costs for the full year of 2011 could decline further. The Company expects to realize significant benefit from sales of risk vehicles during the second quarter, resulting in a fleet cost of approximately $200 - $210 per vehicle per month in the second quarter.
Based on the favorable financial results of the first quarter, continued cost control efforts and the reduction in fleet cost outlined above, the Company is now targeting Corporate Adjusted EBITDA for the full year of 2011 to be within a range of $260 million to $285 million. This estimate excludes the potential impact of any merger-related expenses that may be incurred in 2011.
“Armed with two well-established value brands, a sturdy balance sheet and very competitive operating and financing costs, we are excited about the future for the Company. We expect that revenue growth, combined with cost controls and an excellent used vehicle market will result in another outstanding year for the Company,” said Thompson.
Web cast and conference call information
The Dollar Thrifty Automotive Group, Inc. first quarter 2011 earnings conference call will be held on Thursday, May 5th, at 8:00 a.m. (CDT). Those interested in listening to the conference call live may access the call via webcast at the corporate website, www.dtag.com, or by dialing 888-946-7608 (domestic) or 630-395-0278 (international) using the pass code “Dollar Thrifty.” An audio replay of the conference call will be available through May 19, 2011, by calling 888-566-0499 (domestic) or 203-369-3057 (international). The replay will also be available via the corporate website for one year.
About Dollar Thrifty Automotive Group, Inc.
Through its Dollar Rent A Car and Thrifty Car Rental brands, the Company has been serving value-conscious leisure and business travelers since 1950. The Company maintains a strong presence in domestic leisure travel in virtually all of the top U.S. and Canadian airport markets, and also derives a significant portion of its revenue from international travelers to the U.S. under contracts with various international tour operators. Dollar and Thrifty have approximately 300 corporate locations in the United States and Canada, with approximately 6,000 employees located mainly in North America. In addition to its corporate operations, the Company maintains global service capabilities through an expansive franchise network of approximately 1,275 franchises in 82 countries. For additional information, visit www.dtag.com or the brand sites at www.dollar.com and www.thrifty.com.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains “forward-looking statements” about our expectations, plans and performance. These statements use such words as “may,” “will,” “expect,” “believe,” “intend,” “should,” “could,” “anticipate,” “estimate,” “forecast,” “project,” “plan” and similar expressions. These statements do not guarantee future performance and Dollar Thrifty Automotive Group, Inc. assumes no obligation to update them. Risks and uncertainties relating to our business that could materially affect our future results include:
| | · | the impact of persistent pricing and demand pressures on our results and our low cost structure, particularly in light of the continuing volatility in the global financial and credit markets, and concerns about global economic prospects and the speed and strength of a recovery, and whether consumer confidence and spending levels will continue to improve; |
| | · | the duration and effectiveness of ongoing governmental and regulatory initiatives in the United States and elsewhere to stimulate economic growth and the impact of developments outside the United States, such as the sovereign credit issues in certain countries in the European Union, which could affect the relative volatility of global credit markets generally, and the continuing significant political unrest in certain oil-producing countries, which has caused prices for petroleum products, including gasoline, to rise and adversely affect both broader economic conditions and consumer discretionary spending patterns; |
| | · | the impact of pricing and other actions by competitors, particularly as they increase fleet sizes in anticipation of seasonal activity; |
| | · | the impact of supply and production disruptions in the automotive industry as a result of events in Japan that have resulted in production shutdowns and delays at the affected equipment manufacturers, which could affect our ability to source vehicles for our rental fleet during the peak period and in future periods, as well as our planned fleet size and holding period for our vehicles; |
| | · | our ability to manage our fleet mix to match demand and meet our target for vehicle depreciation costs, particularly in light of the significant increase in the level of risk vehicles (i.e., those vehicles not acquired through a guaranteed residual value program) in our fleet and our exposure to the used vehicle market; |
| | · | the cost and other terms of acquiring and disposing of automobiles and the impact of conditions in the used vehicle market on our vehicle cost, including the impact on vehicle depreciation costs in 2011 based on recent pricing volatility in the used vehicle market, and our ability to reduce our fleet capacity as and when projected by our plans; |
| | · | the strength of the recovery in the U.S. automotive industry, particularly in light of our dependence on vehicle supply from U.S. automotive manufacturers, and whether the recovery is sustained; |
| | · | airline travel patterns, including disruptions or reductions in air travel resulting from capacity reductions, pricing actions, severe weather conditions, industry consolidation or other events, particularly given our dependence on leisure travel; |
| | · | access to reservation distribution channels, particularly as the role of the Internet increases in the marketing and sale of travel-related services; |
| | · | our ability to obtain cost-effective financing as needed (including replacement of asset-backed notes and other indebtedness as it comes due) without unduly restricting our operational flexibility; |
| | · | our ability to manage the consequences under our financing agreements of an event of bankruptcy with respect to Financial Guaranty Insurance Company, the monoline insurer that provides credit support for one of our asset-backed financing structures; |
| | · | our ability to comply with financial covenants, including the new financial covenants included in our amended senior secured credit facilities, and the impact of those covenants on our operating and financial flexibility; |
| | · | whether our preliminary expectations about our federal income tax position, after giving effect to the impact of the Tax Relief Act, are affected by changes in our expected fleet size or operations or further legislative initiatives relating to taxes in the United States or elsewhere; |
| | · | the cost of regulatory compliance, costs and other effects of potential future initiatives, including those directed at climate change and its effects, and the costs and outcome of pending litigation; |
| | · | disruptions in the operation or development of information and communication systems that we rely on, including those relating to methods of payment; |
| | · | local market conditions where we and our franchisees do business, including whether franchisees will continue to have access to capital as needed; |
| | · | the effectiveness of actions we take to manage costs and liquidity; and |
| | · | the impact of other events that can disrupt consumer travel, such as natural and man-made catastrophes, pandemics, social unrest and actual and perceived threats or acts of terrorism. |
We are also subject to risks relating to a potential business combination transaction, including the following:
| | · | whether Avis Budget Group, Inc. (“Avis Budget”) would obtain regulatory approval to engage in a business combination transaction with us and, if so, the conditions upon which such approval would be granted (including potential divestitures of assets or businesses of either company), whether we and Avis Budget would reach agreement on the terms of such a transaction, whether our stockholders would approve the transaction and whether other conditions to consummation of the transaction would be satisfied or waived; |
| | · | the impact on our results and liquidity if we become obligated to pay a termination fee to Hertz Global Holdings, Inc. (“Hertz”) upon our entry into a definitive agreement for, or our completion or recommendation of, a qualifying business combination transaction within 12 months of the October 1, 2010 termination date of our merger agreement with Hertz, and whether and the extent to which the relevant third party would bear all or any portion of that fee; |
| | · | the risks to our business and prospects pending any future business combination transaction, diversion of management’s attention from day-to-day operations, a loss of key personnel, disruption of our operations, and the impact of pending or future litigation relating to any business combination transaction; and |
| | · | the risks to our business and growth prospects as a stand-alone company, in light of our dependence on future growth of the economy as a whole to achieve meaningful revenue growth in the key airport and local markets we serve, high barriers to entry in the insurance replacement market, and capital and other constraints on expanding company-owned stores internationally. |
Forward-looking statements should be considered in light of information in this press release and other filings we make with the Securities and Exchange Commission.
H. Clifford Buster III
Chief Financial Officer
