Q4 2019 Earnings Call

[noise] welcome to Hertz Global Holdings fourth quarter and for year 2019 earnings call.

Currently all lines are in a listen only mode. Following the presentation, we will conduct a question answer session.

I'd like to remind you about today's call is being recorded by the company I.

I'd now like to join the call over to our host wisely Hunsicker. Please go ahead.

Good morning, everyone by now you should have our press release and associated financial information.

We've also provided slides to accompany our conference call that can be accessed on our website <unk>.

I want to remind you that certain statements made on this call contain forward looking information.

Forward looking statements are not guarantees of performance and by their nature are subject to inherent uncertainties.

Actual results may differ materially.

Any forward looking information relayed on this call speaks only as of this date and the company undertakes no obligation to update the information terrific reflect changed circumstances.

Additional information concerning these statements is contained in our earnings press release and in the risk factors and forward looking statements section of our 2019 form 10-K when filed a.

A copy of this filing will be available from the FCC and on the hurts website.

Today, we use certain non-GAAP financial measures all of which are reconciled with GAAP numbers in our press release, which is posted on our website. We believe it or profitability in performance is better demonstrated using these non-GAAP metrics. Our call today focuses on Hertz Global Holdings Inc., a publicly traded company.

Results for the Hertz Corporation are materially the same as Hertz Global holdings.

On the call. This morning, we have Kathy marinello, our CEO engineer Jackson hurt the Chief Financial Officer, now I'll turn the call over to Kathy.

Thank you lastly, and good morning, everyone three years ago, we embarked on a critical journey to reestablish hurt as a market leader create a portfolio of revenue opportunities transform our culture to one based on shared values and transition to mobile and cloud based technologies all to deliver sustained.

No long term earnings growth. It was a tall order and we had a lot of work to do as you know we've invested in our fleet our brands, our people and our systems, while making a unified commitment to productivity and customer service excellence.

As we exited 2019 it was clear we had the REIT strategies in place and that they're working in the fourth quarter, we delivered our 10th consecutive quarter of year over year top line improvement and our ninth consecutive quarter of earnings growth worldwide adjusted corporate EBITDA increased 11% in the latest.

Three month period, and help drive full year EBITDA of 50% higher over 2018, we also reduced our leverage by more than three turns based on earnings growth and effective capital market strategies.

Our success has been validated all along the way just last year. We won the JD Power Award for service Excellence. The Woman's Choice Award for most recommended car rental brand for women were ranked number one by fire talk for the eighth straight year for our best in class loyalty program and were named among the 2020 world's most ethical.

Companies for improving communities building capable and on powered Workforces and fostering corporate culture is focused on ethics and a strong sense of purpose, but that's not all our preferred fleet decided as best in class by our customers. Our brand awareness is climbing as hurt dollar entering the all delay.

Even higher price and volume in the West in 2019, our digital direct channels are growing and our revenue management and customer relationship management systems. Today are examples of leading edge technologies.

For the full year 2019, total consolidated revenue, excluding donilon adjustments in FX increased by more than 5% over 2018, new west rental cars, 7% revenue growth significantly outpaced economic growth as a result of contributions from both incremental volume and strong.

Pricing when it comes to pricing, our revenue management and demand forecasting systems get more effective every quarter as artificial intelligence inside and our data scientists oversight converge seamlessly our revenue management teams with the help of sales and marketing where the model of discipline when it comes to leading price.

Thing last year, and the fourth quarter U.S. RPD was up 4% year over year and up 2% for all of 2019 on a two year stack New MSR PD is 4% higher in addition to the consolidated revenue growth. We improved deal we in SDMA expenses as a percent of sale.

Yes last year and reduced 2019 global fleet depreciation as a result of better buying strategies stronger us market residuals opportunistic selling and the expansion of our high return domestic retail Carl car sales channel. The bottom line is that our hard work is paying off total.

Consolidated adjusted EBITDA margin improved 200 basis points in 2019% to 7% today. We're looking forward. Our strategic plan is focused on innovation adjacent market opportunities and enhancing and leveraging our core capabilities.

For the core business, we're continuing to update to modern cloud based systems and expanding vehicle connectivity to support long time operational efficiencies at the same time effectively utilize in revenue management data elevating brand segmentation and enhancing service excellence will be our revenue priorities for.

The core business in 2020.

On the international front, we've had some might macro and micro challenges. The eurozone economy was relatively flat last year with geopolitical issues impeding some travel demand across our largest regions and the fragmented rental car market heightens, the competitive environment. So brand differentiation is essential against.

Backdrop, we have opportunities to improve the customer experience through a product and service enhancements and marketing and revenue management initiatives.

In the third quarter, we went live with our AI platform for revenue management in Europe and already captured some early benefits in the fourth quarter on the cost side, our global productivity initiative is a priority of our core 2020 international strategy.

Finally, we recently named annual abroad as President of Hurts is International Division Angela brings 25 years of executive experience with Intercontinental Hotels group. Most recently as CEO of its European region, where she led the successful turnaround of that business Angela has a proven track record.

Going to have shaping growth strategy, demonstrating multi brand capabilities developing franchise portfolios and exhibiting innovative thought leadership all of which are central to our continued success.

In addition to leveraging global foundational competencies, we continue to find ways to connect with new customer segments in a rapidly evolving marketplace in the us TNC delivery rentals and car sales are three areas for continued growth.

We're applying the experience and expertise developed in our core business to make an impact in 16 and adjacent markets. The overall opportunity for TSMC is expanding our donlin corporate fleet management business provides maintenance and service maintenance services and telematics connectivity for our TNC vehicles dry.

Having efficiencies and cost savings for delivery rentals, Wham pilots with big box retailers like Walmart to offer convenient rentals to their customers needing a truck or van to transport large item purchases were also growing rapidly with last mile delivery service providers, Donlins telematics and analytics our install.

Across our delivery fleet.

In car sales our focus is on the retail channel, we're optimizing our consumer website to enable online trade appraisals digital documentation and online ancillary products will also be extended expanding our car sales delivery option nationwide. This year and we expect to open new sales lots in markets where used car.

Demand has outpaced our expectations.

At hurts, we're constantly paying attention to the evolving needs of our customers and testing new products technology and service concept to discover how we can better serve existing customers and regional markets.

Our strategy for 2020 is to leverage our fleet management expertise provide outstanding rental experiences rooted in deep customer insights further evolve our value brands and continue to layer in off airport initiatives like delivery rentals, TMC and lease products to accelerate and sustained growth all.

The wall Wood will drive ongoing improvement in our cost structure through vehicle conductivity increased throughput of our digital direct channels and by optimizing operational efficiencies.

As we enter 2020, we do so from a position of strength with an unwavering commitment to our growth plan the accelerated driving it and the incredible people and partners, who keep us focus get agile and open to new innovations and new possibilities.

Our consistently improving operating performance reinforces confidence in our ability to deliver long term sustainable growth and in 20, Tony It will be another positive stepping stone in that journey I'm proud of the work we've done and grateful for our employees commitment as we began a new year with that I'll turn it off.

Hi, good Jimmy or to take you through the fourth quarter details and provide some of the high level financial drivers for this year Jimmy.

Thank you Karen and good morning, everyone. Overall, we had a solid fourth quarter to finish out a strong 2019 in the quarter, we saw year over year improvement in revenue and double digit improvement in adjusted corporate EBITDA.

Once again, we saw revenue strength across all of our brands in the us and investments in our TNC in delivery rental initiatives are producing solid returns.

We continue to drive significant productivity across the businesses direct operating expenses and as DNA grow slower than revenue, providing strong operating leverage and improved profitability as measured by our adjusted EBITDA results. The combination of our expanded product offerings industry, leading customer service brand building marketing and intense focus on productivity.

Position us well as we look to drive growth and margin expansions in 2020.

First let me provide an overview of our total company results slide seven shows our consolidated results on us GAAP basis, and our non-GAAP measures for the quarter.

Total revenue of $2.3 billion was up 1% on a reported basis and up 2% on a constant currency basis, driven by another quarter of strong 6% growth in our us rack segment.

Our underlying revenue results were much stronger as our total company growth rates were dampened by a change in presentation for certain leases in 2019 and significantly higher capital lease revenue in Q4, 2018, both of which impacted our donlin comparable for the quarter. Excluding these items total company revenue increased more than 5% on a cost.

Currency basis.

GAAP net loss will hold global was $118 million for the quarter compared to a loss of $101 million in the fourth quarter of 2018 and net loss per diluted share was 83 cents compared to a loss per share of one dollar and five cents.

On a non-GAAP basis, adjusted corporate EBITDA improved 11% for $54 million in our adjusted corporate EBITDA margin expanded by 20 basis points.

The improvement in our result was driven by increased pricing higher volume and the impact of our productivity initiatives, which caused our direct operating expenses and SNA to remain flat while growing revenue.

These results were partially offset by higher per unit depreciation in the fourth quarter.

Adjusted net loss for the quarter was $34 million or 24 cents loss per share compared to an adjusted net loss of $46 million or 48 cents loss per share in the prior year quarter.

For the full year total revenues for the company were $9.8 billion up 3% on a reported basis and up 4% on a constant currency basis led by exceptionally strong growth in our us Rex segments, partially offset by a drag in international and lower Donlen revenues.

Excluding the Donlin items I just described consolidated revenues for the year grew more than 5% on a constant currency basis.

Net loss attributable Hertz global was $58 million for the year versus a net loss of $225 million in 2018 and loss per share was 49 cents compared with loss per share of 2035 cents in 2018.

Adjusted corporate EBITDA for 2019 was $649 million up 50% driven by strong revenue growth productivity and lower vehicle depreciation adjusted corporate EBITDA margin expanded by 210 basis points, a solid topline growth combined with productivity and cost reduction efforts in direct operating expenses and ask.

Hey created operating leverage.

Adjusted net income for the full year, 2019 was $168 million or $1.44 cents per share compared to an adjusted net loss of $14 million or 15 cents loss per share in 2018.

Now let me provide some additional color on the fourth quarter, starting with our US rock segments, and let me start with revenue.

Our us RAC revenue grew an exceptionally strong 6% to $1.7 billion versus the fourth quarter of 2018.

Growth was broad based as we saw strong revenue results in the hurts dollar thrifty brands and both on and off airport.

Timer mileage Reagan total RPD were both up 4% driven by strong pricing in both leisure and business and an increase and value added services revenue during the quarter.

Volume was up 2% driven by solid demand from our growth initiatives and TMC and delivery rentals.

Adjusted corporate EBITDA of $48 million was flat versus the fourth quarter of 2018.

These results were driven by strong revenue growth and have combined 270 basis points improvement in operating expenses and SDN as a percentage of revenue, which offset higher depreciation per unit.

The tremendous improvements in our newest rock segment has been driven by solid execution on our growth initiatives disciplined fleet management service Excellence brand building marketing and productivity and we're well positioned heading into 2020.

Now I'll turn the belief monthly vehicle depreciation expense of 283 or four units increased 11% versus the fourth quarter of 2018, largely driven by residual values of certain Macon models. During the peak de fleeting in October and November of 2019.

The company continues to benefit from disciplined fleet acquisition and discipline and dispositions towards retail car sales channel.

Average vehicles were up 4% driven by fiancee fleet growth and the ramp up and cargo vans and trucks to support future demand.

Our core rental fleet remains tight enabling us to drive price and margin expansion.

Vehicle utilization was negatively impacted by a significant number of units on safety recall compared to a year ago and the continued ramp up of trucks and volumes to meet future demand for delivery rentals.

Moving to our fleet sales initiatives overall retail dispositions grew 11% for the quarter and same store sales grew 4% retail dispositions for the full year 2018 were also up 11% the nearly 104000 vehicles.

We have wrong to 89 stores in the us in Canada, and we remain committed to growing the retail car sales operations through additional customer convenience operate options technology advancements and expansion of our retail footprint.

Moving to our international rack segments total revenues for the fourth quarter were $474 million down 3% for were flat on a constant currency basis.

Total RPD was up 1% driven by improved pricing in Asia Pac Europe, offset by a volume decline of 1% due to continued softness in Europe.

The International Rack segment reported adjusted EBITDA of negative $10 million versus positive 8 million for the prior year, driven by lower revenue and higher per unit depreciation versus the fourth quarter of 2018.

We are implementing revenue in fleet management capabilities and investing in growth and service initiatives to improve top and bottom line results in the segments.

We remain confident in our ability to execute and deliver results internationally as we've achieved in the U.S market.

Now, let me provide an update on our financing activities corporate liquidity and free cash flow.

In November we issued $900 million of 6% senior notes due 2028 and used the proceeds to repay $900 million of our second lien notes due in 2022.

We ended the fourth quarter with no drawings under our corporate senior revolving credit facility and $1.4 billion in corporate liquidity.

Net corporate leverage as measured by adjusted corporate EBITDA net corporate debt improved by more than three turns from 7.7 times at the end of 2018 to 4.5 times at the end of 2019.

We have no significant maturities on our corporate debt until June 2021.

Now turning to cash flow on our last call I said, we expect that free cash flow to be positive based on seasonal de fleeting improved operating cash flow and favorable ABS fair market value marks that were consistent with a strong residual market, we have experienced through the third quarter.

Despite significant improvement in operating cash flow, we ended 2019 with negative adjusted free cash flow.

This was attributable to the shift in timing of de fleeting I'd, we held cars longer from safety recall activity MGM strike and unfavorable ABS fair market value marks at the end of the year.

Moving to 2020 dynamics, while we're not providing detailed guidance for 2020, let me provide a little color on a few key metrics that helped shape our expectations for 2020.

On revenue, we expect us market to grow low to mid single digits in 2020, and we expect to capture our fair share. This growth we have tailwinds from our improvements in revenue management marketing customer service and our growth initiatives and TMC and delivery that give us confidence in our ability to grow both volume and price again in 2020.

Our results earlier in the first quarter indicate that we're off to a strong start.

We expect international markets to be flat to up slightly in we expect the grow in line with the overall market.

On depreciation we are conservatively planning for a low single digit decline and residual values that will impact vehicle carrying costs on the flip side, we expect our improved operating results and stronger balance sheet will enable us to continue to improve our vehicle interest rates relative to our recent history.

We will manage cost to ensure the DNS DNA grow at a slower pace in revenue, which will enable us to expand our EBITDA margins.

We're running the productivity play with intensity inside the company and we have a robust pipeline of initiatives that will enable us to deliver on our margin expansion objectives.

And finally free cash flow should be positively impacted from reduced interest expense on our corporate debt and improved cash flow from operating activities.

So to wrap up I'm proud of the efforts of our team to create a faster growing higher margin business. We still have work to do however, the tremendous progress we've made and reigniting topline growth and driving margin expansion through productivity improvements give me confidence in our future the growth initiatives are delivering and we are winning in the marketplace.

And as we move forward into 2020, our focus areas remain unchanged and four key areas.

Number one growing the top line with investments in our brand fleet products and services.

Number two driving margin expansion through productivity initiatives.

Number three disciplined fleet manage mid to drive asset utilization and for innovation that will enable growth expansion into new markets and further improvements and cost and productivity.

These focus areas will enable us to improve shareholder returns in 2020 and beyond.

Look forward to updating you on our progress as we move through the year with that I'll now turn it back over to the operator for questions operator.

Ladies and gentlemen, if you wish to ask your question. Please press one and then zero on your telephone keypad you may withdraw your question anytime by repeating the one zero command.

You are using your speakerphone, please pick up the handset before pricing the numbers.

Once again, if you have a question. Please press one and then zero at this time and one moment for our first question.

And first we'll go to the line of Brian Johnson with Barclays. Please go ahead.

Yes, two questions some housekeeping on fleet cost on an update on just your IP transformation.

On the fleet costs, so 11% in Fourq you increase.

It was kind of very different from what we saw in the overall residuals as well as from your competitor could you take the most important question is kind of what's the right level going forward and as for Q, an aberration or is this a.

Dollar per unit per month that would you extrapolate going forward.

Yes, so on fleet costs, a couple of dynamics happening in a quarter as we said, we we saw some recall activities.

Across the fleet that impacted.

For the timing with which we would we normally to fleet and so in the October and November timeframe, we did see.

A little bit of dip and residuals, that's sort of impacted our results.

The second dynamic I'll remind you of is that we have pretty favorable depreciation on our model year eighteens.

And as we work our way through disposing of those.

Model that model year eighteens some of the benefits that were associated with those model year eighteens you wouldn't expect the carry forward as we move into the future.

Overall on.

Depreciation I would say that we expect residuals to decline those low single digits next year that should inform how you think about depreciation in the fleet, but all the things that we've been doing to maximize our outcomes on depreciation.

Being disciplined on our fleet acquisitions.

Moving of significant chunk of our dispositions through the retail sales channel.

Work that we've done on fleet management, all those things are helping us to maximize our outcomes on on depreciation. So we did have some some.

Some mix issues in the quarter, but overall the things that we've been working our way through to maximize the outcomes. Those things are still capabilities that we have inside the portfolio and additionally, the productivity initiatives that we have continued to bring down our DNS DNA as a percent of revenue, which again is one way to manage.

So any kind of increase in expenses.

Brian you had a second question.

Okay.

Your line is now open.

Yes. Thank you my follow up question Kathy is around the IP transformation program can you update us on the pace of spend I know some of it and would you borrow on seven is excluded out of adjusted but just kind of the overall spend what's in the adjusted fee now what is and how that ramps down I think the original.

And was in 2020, and then when do we see to your point about deal. We asked Junaid coming down a couple hundred basis points further impact either on expenses or revenue generation.

Well we.

And when say we've had a lot of success in certain areas like our financial systems upgrades as well as our CFO CRM systems upgrades and that has had an impact on both productivity as well as our topline.

Were continuing to progress through the other facets of our transformation.

And we do expect that the development spending is starting to ramp down.

And we are starting to appreciate and recognize some of the benefits from an operating efficiency perspective.

I'll, let Jim Youre going to little bit more detail on expectations of one that would actually ramp off.

Yes, so as Kathy mentioned I mean, we're going to continue to invest in a disciplined way in 2020.

And the way to shape the years, given that the financial systems and cm CRM work are largely complete we expect investments to be less.

But but by how much will dependent on the rollout timing and timing for the us and use and international.

Our productivity efforts are offsetting the opex impact right now in a non enable us to.

Grow DNS DNA at a slower pace in revenue and then as I think about investments specifically in technology, we've been very disciplined about.

The way that we rolled out the tech plans.

We've made sure that we have productivity.

To offset those impacts in our DNS DNA and as we get a critical mass of the new systems up and running and reservation and rental systems and fleet management the benefits of that productivity will roll through the numbers will decommission some of the old systems.

And we expect our are forward looking DNS DNA to have some pretty significant improvements associated with it but our paces measure we're disciplined.

And we are using productivity.

The to build payer for the impacts that we see an opex.

Thank you and look forward to the line of Kim.

Sorry with Jefferies. Please go ahead.

Hi, This is merial corelogic filling in for Hamzah.

Maybe I missed as earlier on the call, but did you size up the TNC fleet and what that currently is.

And then maybe you can refer to the economics of the business I think we get a lot of questions on.

The margin that business and what that looks like longer term and maybe you could I'll just give us an idea of how big that business can get overtime.

So as things have gotten a little bit more competitive in this space and we look at all the different segments that were managing.

I'm hesitant to continue to reporting to report actual numbers, we have in the past I guess, what I would say is we continue to grow that business.

We continue to see solid returns on it as well.

We have been involved in that business for about four years, and we continue to grow with the partners.

That we started off with and we are leveraging a lot of the fleet management capabilities, we have in our corporate fleece business as well as leveraging our rental car business to deliver.

Kind of activity deliver great maintenance support.

And we have found this to be one of the contributed to our growth. However at the same time.

We won't over leverage that for from a future perspective, but we think there will continue to be more than enough demand to go around and we're going to take advantage of that demand on the to segment we like.

We will grow it in a metered way and we will continue to leverage our capabilities in that regard.

And in terms of the profitability as I've said.

Often times before on the call. We're pleased with the profitability of our TNC business, It's a strong contributor to growth and profitability of our us rack business.

Our operating cost continue to improve and we're benefiting from the lower cost of cars.

As you think about the personnel dynamics the maintenance costs are higher but EBITDA is accretive when you factor in the benefits of linked the keep and lower vehicle costs.

And the continued operational efficiencies that we are driving allow us to grow faster on both the top end the bottom line and for example, we're leveraging our donlin fleet maintenance expertise and telematics technology, which help us drive lower costs. So.

We still believe there's growth available from ride hailing based on the underlying demand in the marketplace to Kathee talked about.

And we're well positioned relative to our competition in the space just based on our scale fleet management capabilities in our experience over the past few years and as I think about things from a competitive standpoint, you started to see some of the smaller competitors start the wobble in this space and that bodes well for our businesses were having an opportunity to pick up some share.

Great and just one more and I'll turn it over.

So.

I just wanted to know what isn't we're focused on it in 2020 is it more volume is it more pricing.

Competitor of yours and focus more on this longer length of rental which is getting them higher volumes and the willing to sacrifice some on price.

And junior Q4 title looks you the opposite of that which is kind of a shift from what you guys saw earlier in the year. So just wanted to get my view of what that competitive dynamic looks like going into next year more focus on volume or pricing and how you expect to manage that.

While we are I would say.

Walking around the house, we absolutely talk about both price and volume, but I do you know at this point.

One other things this industry has struggled with all of the years is getting price and cars have become more expensive people salaries have become more expensive and as an industry.

I think one of the most important things we need to start focusing on is getting price for the value that we provide we get people cars, where they need on whenever they need them across the world and that is a tough tough challenge.

If you look at what our businesses it is.

Signing tens of millions of contracts every year with tens of millions of consumers to create 10 billion dollars' worth of business. So to that regard first and foremost it's getting price for the value.

And not to Sacco, we won't sacrifice price to get the volume I'll put it that way.

But I think given what we've done from a branding prospective particularly in our value brands.

We got both volume increases and price in all of our brands last year and frankly, we've really just started investing in the dollar into thrifty brands and we see a very strong promise of growth and price in those brands as well.

We think we're going to win across both the volume and the price.

Range, but if there is no single digit low single digit increases in depreciation we have to make sure we get price to cover those costs.

And as we look at our our 2020 plans from in where we're pretty confident theres volume and price opportunities in the marketplace. Today, we're laser focused on driving prices you've seen in our results this year and use our results in the fourth quarter.

And the reason that we're focused there obviously for the obvious reasons, we get more margin calories when we get.

Another bulk of RPD relative to another day of of transactions.

But the though the work that we've done inside the company to make sure that we have the right fleet in the right place.

At the right time for our for our customers is yielding positive results for us and we're we're doing both were winning with by growing our volume, we're winning by growing our our price and we continue to be focus on driving prices we move forward.

Thank you and next we'll go to wider Chris for Rocco with Deutsche Bank. Please go ahead.

Hi, good morning, everyone.

Wanted to ask in terms of what you saw on the on the residual values in the fourth quarter, which sounds like maybe it was a little bit different than what you thought heading into the quarter does that change any of your fleet plans for 2020 in terms of.

Maker model or mix or anything like that.

No I would say that you know.

We were focused on driving the right fundamentals as it relates.

Through sort of the cycles as it relates to residual values.

We did see some softness.

October in the early part of November but quite frankly.

In November from a residual value standpoint, and a little bit of a snap back and we're seeing pretty good results in January and February so.

No change in terms of our our strategy moving forward our strategy around fleet acquisition starts by.

Where the consumer demand is so we're putting cars in the fleet the consumers want to drive we think about the long term impact from a residual value standpoint, and how we're going to perform when we dispose of those cars and we also have an eye towards what cars makes sense for us to then layer into our TNC fleet.

And we've been very disciplined as it relates to making sure that we operate.

With those fundamentals in mind really through the cycles and as you saw our results over the course of the year were were down year over year.

And we're pretty pleased with the capabilities that we have inside the company and as you well no.

You go through pockets or windows, where residual values may move on you in a very short period of time, but if you maintain the fundamentals around discipline and fleet acquisition and discipline and how we manage the please.

We'll be fine and specifically as you look forward, we've seen some some movement and issue. These for example.

And particularly some of the movies that were in model year 18 timeframe.

Our results were impacted by that and in the fourth quarter, but as we look long term, we feel pretty good about the portfolio that we haven't we feel good about our execution in the marketplace and the best thing that we can do is is to control.

How we buy cars and how we dispose of them men and pricing in between and were constantly improving all aspects of.

That that challenge.

And we have I think world class acquisition strategy is here.

Pretty good at opportunistic selling.

You know were constantly looking at the makeup of the fleet and adjusting it based on where we see residual values as well as consumer demand and then we've been expanding our retail car sales business and improving those capabilities. So overall I think we have world class, you know acquisition and disposition.

And capabilities and managing the fleet and continued focus on price. If there's any changes is the best way to really managed through any kind of increase or decrease around residual values.

Okay. That's very helpful. And then just kind of a follow up question on the.

On the package delivery is there any way to maybe calibrate the size of the opportunity that you all are looking at versus TNC. When you first started looking at that and then.

Secondarily as we think about how the profitability steps up.

There is it is it more of a step function or is this going to be just kind of a constant source of steady growth for you.

Hi, Thank we have just really started expanding into delivery.

And I think we the approach we talk with TSMC has worked very effectively so were looking at how do we leverage our large corporate fleet business and donlin and our rental capabilities.

You know to best service customers like Walmart.

So we're focusing in on some really big players who are the best in the industry and looking at how can we help them meet the demands of last mile delivery and provide that type of capability and improvement for their consumers and create a win for them a win for us and.

And for their customers. So we are focused on it.

We think we'll have a very similar success that we've had with TSMC with last mile delivery.

Clearly, it's a just a monster opportunity.

It's a huge problem for many retailers and we look to be providing solutions in that area.

You know the brand we have a great brand that stand for mobility and as recognizable on.

You view you may have already seeing haaretz van CNO out they are delivering.

Goods and services in this space and we continue that we will continue to expand it.

Thank you and next fall to the line of Adam Jonas with Morgan Stanley. Please go ahead.

Sure everybody Hi, Kathy So you have about seven or 800000 vehicles in your global fleet I think in the markets you participate roughly one out of a thousand vehicles.

The road or hurts vehicle on on our calculations about one of the 300 miles as a hertz rental car.

Ill, so you're not really unique position to kind of make a big change make a big progress impacts.

Reducing carbon footprint, so I'd be curious I.

I know this doesn't come up yet and conference calls, but I think you might agree given all the focus from investors SG. This is going to keep coming up so.

How do you think what's your strategy for her to reduce their CEO to footprint of the vehicles in your fleet I haven't seen a sustainability report since the or this corporate responsibility for since 2017, correct me if I'm wrong, maybe you have one coming out but you mentioned a few thousand hybrid I think its establish that nobody has any reason the fleet of.

Any significant volumes to be curious for just anything you could kind of help enlighten the audience here as SG is becoming a real existential issue for all companies not just rental car companies and you certainly have an opportunity to do something great about it.

But in Europe.

This is an area that Europe is much more advanced.

Then then we are in the U.S.

The challenge, we haven't the us as the infrastructure to support charging of vehicles.

And.

Until the government steps up in that area.

Particularly when it comes to consumers renting cars.

We struggle with people, taking electric vehicles for fear of where will they charge had.

When they're traveling to a place that they don't have familiarity with versus around homes, where they could plug it in the local areas that they live event.

Right now if we look at where we think the greatest growth is going to be an advancement is going to be it's going to be in Europe and so we are working with some of the cities for example, Paris.

You know to potentially provide.

Location charging stations.

We will be buying and meeting all of the the fleet standards that.

The European countries are demanding.

When looking at at least a thousand electric vehicles and our fleet over in Europe to start.

And so our prologis.

To work and notice municipalities in areas, where the golf our men and the infrastructure will support it.

But we need to see the airport stepping up in that regard consumer preference that they will actually grant these cars that when we put them into the fleet.

And then from an OEM perspective, Dave eliminated the incentives well day.

Start putting back end these incentives so people actually by these cars, we do have partnerships with the Oems and we have been in discussions with them, particularly in the delivery area. You know how can we work with them to provide electric vehicles for delivery.

To be charging locations for these vehicles, along with any kind of maintenance now the good news and electric vehicles, they have lower maintenance requirements.

Now so that that's an upside.

So we from electrification perspective, it is part of our strategic plan, we have a focus on it.

We will grow and develop our first and foremost in Europe, where the governments in the infrastructure are supportive.

And then work with low Oems and the government here to make some progress as well.

But the good news is as we turn our cars every 18 months and so as the infrastructure advances here.

Now I'll, hopefully, we'll be able to put more electric cars in the fleet and may be consumers will start wanting to rent them.

That's great color. Thanks Kathy.

Thanks, Adam.

Thank you and next we'll go to the line of Michael Millman with Millman Research Associates. Please go ahead. Thank you.

A few.

Ron as Avis when they recorded.

And.

So to quote.

Thats the best markets, you asked pricing market, they've seen 30 years.

Seems to be continuing.

Yes.

Good luck.

To get your take on that.

Secondly, you mentioned.

Okay pricings.

Moving up.

Does that include launch costs break.

As well.

In terms of.

Hi, saying.

Well I guess I'm going to turn it over to Jimmy are but I think it if you read most of the industry reports last year, we were consistently leading price up.

And as I stated earlier, we provide value to consumers and that value has increased and expense both in labor as well as in the cost the cars and we are going to continue to lead the charge and driving pricing.

And that is our priority we won't we're not having to sacrifice volume we grow every single quarter in volume last year in the us. So we continue to manage both to good volume but.

We will put price always over volume in that regard, but no jumeirah. If you want to take it yes. So a couple of things from a pricing standpoint.

December was a pretty strong month for us as well and the whole quarter really if you look at our us business or for US business was up 4% in RPD, that's indicative of the kind of pricing environment that we saw and as I said earlier, we're off to a strong start in the first quarter.

As I look at sort of business. If you will we are being rewarded for the investments that we've made in our fleet in our brands in our products in our services.

And we're seeing volume growth.

And pricing growth in business and so.

The work that we've done.

Improve our fleet. The fact that we won JD power number one from a customer service standpoint, those are all things that.

Bob stored in the sales team have an opportunity to going into either win or renew a contract.

Those are things that give us a competitive advantage in the marketplace and so we like our performance. There as you know corporate is very very competitive probably one of the most competitive segments. If you will have the marketplace.

But we.

Improved our operating performance improved our service capabilities, we put numbers on the scoreboard in terms of JD power number one and those are things that are helping us.

Drug price and volume in that environment.

And.

In terms of your sort of catch up over the last several years.

Can you quantify how much is additional wash additional cost last year, what additional cost you expect this year from a catch up.

Yes, so I would say overall, we've invested in our business in a disciplined way and you've seen us invest in our technology.

And this invest in our service capabilities.

You heard us talk about the things that we needed to do to sort of point the business in the right direction, but what you saw in 2019 is that we were able to grow.

Direct operating expenses and asked DNA.

At a slower rate than revenue and that is our focus going forward to help us drive margin expansion. So it is a journey that we will continue as I mentioned on the call. We're running the productivity play with intensity inside the company.

And every area of our because business whether it's in the direct operating expenses are assessed DNA.

Have a productivity target the.

We need to deliver upon and this is going to help us create both the faster growing and a higher margin business going forward.

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