TULSA, Okla. -

While referencing expenses related to a merger that never materialized, Dollar Thrifty Automotive Group saw many of its third-quarter financial measures improve year-over-year, including a record quarterly net income total.

DTAG revealed Tuesday that its third-quarter net income came in at $66.6 million or $2.13 per diluted share. A year earlier, it was $49.2 million or $1.62 per diluted share.

The company pointed out its third-quarter net income included a charge of 1 cent per diluted share related to a decrease in fair value of derivatives, compared to income of 13 cents per diluted share for the third quarter of last year related to an increase in fair value of derivatives.

Officials tabulated that third-quarter non-GAAP rose to $66.9 million or $2.14 per diluted share, up from the year-ago amount of $45.8 million or $1.51 per diluted share. They reiterated non-GAAP net income excludes the increase or decrease in fair value of derivatives and the non-cash charges related to the impairment of long-lived assets, net of related tax impact. 

The company reported corporate adjusted EBITDA for the third quarter of $117.6 million, compared to $81.8 million in the third quarter of last year. 

DTAG noted that its GAAP and non-GAAP earnings as well as its corporate adjusted EBITDA for the third quarter of last year were negatively impacted by $11.9 million of merger-related expenses while the third quarter of this year was not impacted by such expenses.

“We are pleased that the company is reporting the highest quarterly profit in its history,” stated Scott Thompson, DTAG’s president and chief executive officer.

“We remain keenly focused on profitable revenue growth, productivity initiatives, cost control and disciplined fleet management,” Thompson continued.

More Details on 3Q Performance

For the quarter that ended Sept. 30, Dollar Thrifty indicated total revenue was $451.7 million, up from the year-ago total of $443.5 million.

The company said vehicle rental revenue for the quarter was up 2.4 percent, driven by a 4.1-percent increase in rental days, partially offset by a 1.7-percent decrease in revenue per day.

Officials mentioned the average fleet for the quarter was up 4.3 percent, compared to the prior-year period. Vehicle utilization in the third quarter of 2011 was 83.9 percent, compared to 84.0 percent in the third quarter of last year. 

DTAG calculated its fleet cost per vehicle at $186 per month in the third quarter, compared to $262 per month during the third quarter of 2010.

The company’s base depreciation rate continued to benefit from the overall strength of the used-vehicle market and the resulting favorable impact on residual values.

DTAG also noted that gains on sales of risk vehicles, a component of vehicle depreciation, totaled $17.4 million in the third quarter, up from $10.0 million in the third quarter of last year.

The average gain per vehicle sold during the third quarter was $1,125 per unit, compared to $632 per unit a year earlier.

Officials computed that direct vehicle and operating expenses and selling, general and administrative expenses (operating expenses) totaled $262.4 million in the third quarter, slightly lower than a year earlier when the company spent $263.6 million.

“The decrease in operating expenses primarily resulted from a reduction in merger-related expenses of $11.9 million, partially offset by an increase in direct costs attributable to the overall increase in fleet size and increased ancillary revenues,” DTAG explained.

Excluding merger-related expenses, the company stated operating expenses totaled 58.1 percent of revenues for the third quarter, compared to 56.7 percent of revenues for the third quarter of last year.

The company noted that although the operating expense percentage increased, the increase was attributable to direct costs associated with increased sales penetration of certain ancillary products, such as pre-paid fuel and toll road products.

DTAG also pointed out that the increased expense associated with incremental ancillary sales was more than fully recovered through rental revenues.

“We are pleased with the rental day growth achieved this quarter and the strength of our forward bookings,” Thompson said.

“Although the pricing environment was a headwind this quarter, we continue to benefit from a favorable used-vehicle market and our efficient, low-cost operating structure,” he added.

Nine-Month Results

For the nine months that ended Sept. 30, DTAG determined its net income was $125.6 million or $4.03 per diluted share. During the same span a year earlier, net income was $118.7 million or $3.93 per diluted share.

Officials explained net income for first nine months of this year included income of 6 cents per diluted share, compared to income of 41 cents per diluted share during the same span of 2010 related to increases in fair value of derivatives. 

Looking at non-GAAP net income, Dollar Thrifty generated $123.7 million or $3.96 per diluted share. Through nine months of 2010, the company produced $106.8 million or $3.53 per diluted share.

Again officials repeated that non-GAAP net income excludes the increase or decrease in fair value of derivatives and the non-cash charges related to the impairment of long-lived assets, net of related tax impact.

The company also noted that both its GAAP and non-GAAP earnings for the nine months ended Sept. 30 this year and last year were negatively impacted by merger-related expenses of $4.6 million and $20.5 million, respectively.

Additionally, the company reported that gains on risk vehicle sales totaled $43.1 million for the nine months ended Sept. 30, down from $63.2 million during the same time period a year earlier because of approximately 18,500 fewer vehicles sold.

In other financial data through nine months, DTAG’s corporate adjusted EBITDA settled at $235.1 million, compared to $205.5 million a year earlier. The company said corporate adjusted EBITDA was negatively impacted by merger-related expenses of $4.6 million this year and $20.5 million last year. 

Liquidity and Capital Resources  

As of Sept. 30, the company had $499 million in cash and cash equivalents, and an additional $201 million in restricted cash and investments primarily available for the purchase of vehicles and/or repayment of vehicle financing obligations.    

During the second quarter of this year, DTAG highlighted that it fully repaid and terminated its Canadian fleet financing facility. Additionally, during the third quarter, the company repaid all of its outstanding corporate debt totaling $143 million.

Officials determined these actions are expected to reduce the company’s interest expense by approximately $9 million annually.

As previously announced, the company completed three fleet financing facilities since July, including the issuance of $500 million of Series 2011-1 medium-term notes, the renewal of its Series 2010-3 variable funding notes in an aggregate principal amount of $600 million and the issuance of $400 million of Series 2011-2 medium-term notes.

DTAG noted it has now effectively pre-funded all of its upcoming debt maturities for 2012, and it has significantly extended its fleet financing maturity profile into 2013 and beyond.

“The cost of funds on the new series of notes is lower than the majority of the company’s fleet financing sources that the new notes will replace, which will be favorable for future years’ interest expense,” company officials highlighted.

“Additionally, the advance rates on the notes increased to 69 percent, compared to 65 percent on the company’s variable funding notes issued in 2010, thereby lowering the overall amount of collateral enhancement required to be provided by the company,” they continued.

Also as of Sept. 30, DTAG calculated its tangible net worth at $647 million and the company had no corporate debt. 

Share Repurchase Program Initiated

As previously announced, DTAG’s board of directors authorized the repurchase of up to $400 million of company stock.

The company explained it will execute a forward stock repurchase agreement for $100 million worth of stock over a three-month period, commencing on or around Nov. 7.

“The timing and amount of future share repurchases will be based on market conditions and other factors, although as previously announced, the company currently expects to repurchase up to $100 million of stock per quarter over the next four quarters,” officials stated.

“The company may also repurchase shares through accelerated stock buyback programs, in privately negotiated transactions, pursuant to derivative instruments or other types of transactions and arrangements. The share repurchase program may be increased, suspended or discontinued at any time,” they went on to say.

2011 Outlook: Fourth Quarter Update

DTAG is expecting a 1 to 2 percent rental revenue growth in the fourth quarter with growth in days offsetting a slight decline in revenue per day.

The company further projected its fleet cost outlook for the full year of 2011 of $215 to $225 per vehicle per month to remain unchanged.

Based on the factors outlined, the company is currently targeting corporate adjusted EBITDA for the full year to be within a range of $270 million to $290 million.

“This estimate excludes the impact of merger-related expenses incurred to date and that may be incurred during the remainder of 2011,” officials concluded.