Description
Zipcar Inc. Director, 10% Owner STEPHEN M CASE bought 255,311 shares on 8-28-2012 at $ 7.75
BUSINESS OVERVIEW
Overview
Zipcar operates the world’s leading car sharing network. Founded in 2000, we provide the freedom of “wheels when you want them” to over 673,000 members, whom we refer to as Zipsters. We operate our membership-based business in 17 major metropolitan areas and on more than 250 college campuses in the United States, Canada, the United Kingdom and Spain. We provide Zipsters with self-service vehicles in conveniently located reserved parking spaces in the neighborhoods where they live and work. Our members may reserve cars by the hour or by the day at rates that include gas, insurance and other costs associated with car ownership. Our service is simple and convenient:
• Join . A prospective member joins at zipcar.com and chooses from several subscription plans. The new member will receive his or her Zipcard within days of signing up.
• Reserve . The Zipster selects a specific vehicle in a particular location and reserves it for the desired period of time. The reservation, which can be made online, on a mobile device or over the phone, is sent by a wireless signal to the selected Zipcar.
• Unlock . When the Zipster arrives at the vehicle in its designated parking space, the Zipcar recognizes the member’s unique Zipcard and unlocks the doors.
• Drive . The Zipster drives away. At the end of the trip, the member returns the Zipcar to its designated parking space and, using the Zipcard, locks the doors.
We believe the benefits to our members extend beyond simplicity and convenience. Zipsters have the flexibility to choose the make, model, type and even the color of the Zipcar they want depending on their specific needs and desires for each trip and the available Zipcars in their neighborhoods. Upon returning the Zipcar, the member simply walks away. The flexibility and affordability of our service, as well as broader consumer trends toward responsible and sustainable living, provide a significant platform for future growth.
Our self-service solution is enabled by our proprietary technology platform, which we specifically designed to manage the complex interactions of real-time, location-based activities inherent in a large scale car sharing operation. Our custom-designed technology supports a fully-integrated set of activities across our rapidly growing operations, including new user application and intake, reservations and keyless vehicle access, fleet management and member management. Our technology also enables us to collect and analyze vast amounts of member usage and fleet operations information to enhance the Zipster experience. On the member side, our system provides car sharing iPhone, Android and “Reserve a Zipcar” Facebook applications, as well as our mobile website, which can be used on smartphones, providing members with increased avenues through which they can make, extend or change reservations. We also provide two-way SMS texting, enabling our vehicles to proactively reach out to members during their reservation via their mobile device to manage their reservation, including instant reservation extension. Zipsters made over four million reservations through our system in 2011 alone.
We initially focused our operations in three metropolitan areas: Boston, New York and Washington, D.C. These markets have since developed into active car sharing markets that continue to grow. We then applied our knowledge and experience from operating in these markets to develop and grow additional markets, such as San Francisco, Los Angeles, Chicago, Baltimore, Providence, Toronto, Vancouver and London. We further increased our geographic footprint to include Seattle, Portland, Atlanta, Philadelphia and Pittsburgh through a merger with Flexcar in 2007. In April 2010, we expanded our operations in the United Kingdom through the acquisition of Streetcar. Our presence in London also serves as our European center of operations and management. We completed the integration of our London operations with those of Streetcar in the fourth quarter of 2011. In February 2012, we acquired a majority interest in Barcelona-based Avancar, the largest car sharing service in Spain.
We intend to continue to grow by increasing awareness and adoption in existing markets, extending the car-sharing concept, expanding into new international and domestic markets, broadening our relationships with existing members and continuing to focus on building relationships with businesses, universities and governmental organizations. We believe our 17 major metropolitan areas have significant potential for growth and that we remain early in the adoption cycle in all of our markets. We currently estimate that over 10 million driving age residents, business commuters and university community members live or work within a short walk of a Zipcar and we expect that as we increase our fleet and our geographic footprint, the number of driving age residents living or working within a short walk of a Zipcar is likely to increase. We have identified more than 100 additional global metropolitan areas and hundreds of universities that would be attractive markets for the adoption of car sharing over time.
New mobility models and technologies are emerging, including peer-to-peer, station-less and one-way car sharing, ridesharing and smart parking. We believe these new models are largely complementary to the car sharing services we offer and view the growth of the mobility category as an opportunity for us to expand our addressable market. These new models and technologies may take us into adjacent services that leverage our brand, technology, experience and membership base and hold compelling long-term growth potential in the mobility space. For example, as we believe that peer-to-peer car sharing has the potential to expand the total addressable market for car sharing, in February 2012, we made a strategic equity investment in Wheelz, Inc., a peer-to-peer car sharing company based in Palo Alto, California, which focuses on providing car sharing services at universities and other campus settings.
Transportation Challenges in Cities and University Communities
The current challenges of transportation in cities and university communities are numerous:
• For Urban Residents Who Do Not Own Cars . Many urban residents do not own a car and rely heavily on their city’s public transportation infrastructure. However, public transportation does not effectively address all of their transportation needs. Within a city, the resident’s desired destination may not be located near the predetermined route of a subway or bus. Additionally, the resident’s desired travel time often does not coincide conveniently with the fixed and limited schedules of public transportation, and transfers can be inconvenient and time consuming. Errands involving heavy loads, such as bulk grocery shopping or buying furniture, are not well suited for public transportation. Taxi cabs meet the needs of some trips; however, for longer trips or trips that include multiple stops, taxis are expensive and often impractical. Public transportation is also not well suited for travel outside the city, including for short vacations, trips to the beach, shopping in the suburbs or visits to see friends and family. Traditional car rental companies address some of these challenges, but their cars are often inconveniently located, require rental commitments of a day or longer and often include time consuming pick-up and drop-off procedures.
• For Urban Residents Who Own Cars . Within cities, car owners face numerous challenges. The cost of owning and maintaining a car in urban areas, including parking, gas, taxes, registration, insurance, maintenance and lease payments, is high and continues to increase and a typical car sits idle the vast majority of the time. Many car owners in urban areas have difficulty finding or affording parking garages that are conveniently located near their homes. Some residents park their cars on the street, which frequently requires a permit, subjects the owner to the daily hassles of alternate day street sweeping and the seasonal inconveniences of shoveling snow and snow emergency parking bans. In addition, cars parked on the street are more vulnerable to damage and theft. Lastly, car owners in urban areas may not have the type of vehicle needed for a desired activity, such as a truck for moving furniture.
• For College and University Students, Faculty and Other Community Residents . University communities face unique challenges in accommodating car owners. University communities frequently have a common goal to optimize public space and minimize campus congestion. Many universities discourage students from parking cars on campus and often do not issue parking permits to freshmen. Even when allowed, parking is often inconvenient due to limited space and can be prohibitively expensive. For those who do not own cars, transportation alternatives are often limited.
• For Businesses and Government Agencies Located in Cities . Many businesses and government agencies that are located in cities need to provide their employees with transportation alternatives for trips in and around the city, including, for example, meetings with clients, vendors or constituents. Public transportation can be inconvenient and is often impractical when desired destinations are not on public transit routes. Maintaining a dedicated fleet of company or municipal cars is an expensive way to guarantee transportation alternatives for employees. Furthermore, those with a fleet of cars have the additional burden of finding and paying for parking spaces, cleaning and maintaining the vehicles, administering the scheduling system and paying for insurance, among other costs and inconveniences.
Our Solutions
Individual Membership . We offer a simple, effective and sustainable solution that provides Zipsters the freedom of on-demand access to a fleet of vehicles at any hour of the day or night, in their neighborhood or in any of our Zipcar cities and locations, without the costs or hassles of car ownership. Benefits to Zipsters include:
• Cost-effective alternative to car ownership . Our Zipsters pay only for the time they actually use the vehicle and have no responsibility for the additional costs and hassles associated with car ownership, including parking, gas, taxes, registration, insurance, maintenance and lease payments.
• Convenience and accessibility of our fleet . Zipcars are interspersed throughout local neighborhoods where they are parked in reserved parking spaces and garages within an easy walk of where our members live and work. Zipsters can book a designated vehicle online, by phone or via their mobile device, unlock the selected vehicle using their Zipcard, and drive away. Because each Zipcar has a designated parking space, members are spared the often time-consuming undertaking of finding an available parking spot.
• Freedom and control . Unlike public transportation, which operates on fixed routes and schedules, we provide Zipsters with much of the freedom associated with car ownership. Like car owners, Zipsters can choose when and where they want to drive. They also have the added benefit of being able to choose, based upon the readily available Zipcars in their neighborhoods, the make, model, type and even the color of the vehicle they want to drive based on their specific needs and desires for each trip.
• Responsible and sustainable living . We are committed to providing Zipsters with socially responsible, sustainable alternatives that support the global environment, their communities and city livability. Studies show that car sharing reduces the number of miles driven, the number of vehicles on the road and CO2 emissions.
Zipcar for Universities . We provide college students, faculty, staff and local residents living in or near rural and urban campuses with access to Zipcars. Zipcars are located on over 250 college and university campuses. Our program for universities helps university administrators maximize the use of limited parking space on campus and reduce campus congestion while providing an important amenity for students, faculty, staff and local residents. In some cases, Zipcar is the only automobile transportation available to students, since many traditional rental car services have higher age restrictions.
Zipcar for Business and Zipcar for Government . We offer special programs to businesses, federal agencies and local governments seeking to save money, meet environmental sustainability goals and reduce parking requirements. We offer reduced membership fees and weekday driving rates to employees of companies, federal agencies and local governments that sponsor the use of Zipcars. We have also partnered with residential property managers and developers who provide their commercial and residential tenants with access to Zipcar memberships and Zipcars.
FastFleet . We offer a fleet management solution, known as FastFleet, to organizations that manage their own fleets of vehicles. Through this service, we license our proprietary vehicle-on-demand technology on a software-as-a-service basis to organizations that already manage their own fleets of vehicles. FastFleet enables these organizations to maximize the efficiency and reduce the cost of their own fleets by monitoring and improving per-vehicle utilization levels as well as streamlining the administrative efforts required to manage the vehicle fleet.
Global Trends Supporting Car Sharing
Urbanization . According to the United Nations, the percentage of the world’s population living in cities exceeded 50% in 2010 and is expected to reach 59% by 2030. As population density increases in urban areas, traffic and pollution increase, and public space becomes more difficult to preserve. To address the negative effects of increasing urbanization, local governments are searching for solutions, such as car sharing, to make cities more livable for urban residents.
Affordability. The cost of living in urban areas is high and increasing. We believe urban residents in cities throughout the world are searching for ways to consume goods and services more economically. The costs associated with car ownership make affordable urban living more challenging.
Trends Toward Self-Service and Pay-Per-Use Consumption . Consumers increasingly expect a combination of self-service, on-demand and pay-per-use methods to acquire goods and services. The increased usage of online and mobile services for shopping, banking, travel, entertainment and fashion has heightened consumer interest in accessing goods and services anytime, anywhere and paying only for what they use. We believe that car sharing is a natural extension of this trend in consumer behavior. Many consumers are delaying or foregoing car ownership altogether, viewing it as expensive, inconvenient and inefficient. We believe our leading, first-mover brand position has made us synonymous with pay-per-use mobility and smart consumption.
Focus on Sustainability . We believe an important and growing population of consumers, businesses, universities and governments is motivated to adopt and promote sustainable transportation solutions. Increasing concerns about the lasting negative impacts of increased pollution and the depletion of natural resources underscore the need for transportation solutions that promote sustainable living. Governments are also supporting sustainable living by introducing new regulations for vehicle manufacturers that will reduce greenhouse gas emissions and improve fuel economy.
We believe these global trends will continue for decades and that demand for car sharing services will grow accordingly.
Market Opportunity
We believe that car sharing memberships in our current cities represent a small fraction of the potential global market opportunity, not only because of our ability to increase adoption in existing markets, but also because there are many international and domestic markets with little or no car sharing services. Moreover, while car sharing has existed in many European countries for several years, we believe that the European market in general remains fragmented, with no clear leader. We believe cities with high population densities, strong public transportation infrastructures, significant traffic and parking congestion problems and high costs of car ownership provide the largest opportunities for car sharing solutions. In addition, new mobility models and technologies are emerging, including peer-to-peer, station-less and one-way car sharing, ridesharing and smart parking. We believe these new models are largely complementary to the car sharing services we offer and view the growth of the mobility category as an opportunity for us to expand our addressable market.
Competition
We group our competitors into three classes: car ownership, traditional rental car companies and other providers of car sharing and similar services.
Car Ownership. To compete with car ownership, we must provide a low cost, easy-to-use solution with convenient, around-the-clock vehicle availability. We believe that Zipcars offer the freedom and flexibility of cars on demand without the costs and hassles of car ownership.
Traditional Rental Car Companies. We also compete with traditional rental car companies, which typically have centralized locations near airports and transportation hubs, charge daily rates which exclude the costs of gas and insurance and primarily target business travelers and families on vacation. To offer a competitive alternative to traditional car rental, we intersperse our car locations throughout cities and university campuses within an easy walk of where Zipsters live and work. Our members can reserve Zipcars for as short a period as one hour, and our rates include the costs of gas and insurance.
Other Providers of Car Sharing or Similar Services. In addition to their traditional rental car businesses, Hertz, Enterprise and UHaul have launched separately branded car sharing operations. These companies have long histories operating their core rental car businesses, but none of them has been specifically designed and built as a car sharing network. Therefore, we believe they may have difficulty adapting to a member based service rather than a transaction based service because they do not share many of the key attributes that we believe are essential to succeeding in car sharing, including an integrated and purpose built technology platform, extensive car sharing operating and transactional experience, focus on providing an optimal member experience or brand recognition in the car sharing space.
Our car sharing competitors also include a growing number of for-profit and not-for-profit operators in certain metropolitan areas, such as Chicago, Toronto, Philadelphia, San Francisco, London and other North American and European cities. Most of these competitors operate in only one city, and many lack a critical mass of vehicles to provide a member experience competitive with that of Zipcar. As a result, they do not benefit from the same operational efficiencies and economies of scale and may be less likely to invest in infrastructure to the degree we believe is necessary to remain competitive.
In addition, new mobility models and technologies have emerged more recently in both North America and Europe, such as peer-to-peer, station-less and one-way car sharing, ridesharing and smart parking. While these new models and technologies may be viewed as competitive with our services, we believe they are largely complementary to, rather than competitive with, the car sharing services we provide and represent an expansion of our addressable market.
Our Competitive Differentiators
We believe our current leadership position is based on a number of distinct competitive advantages:
Our First Mover Position, Within and Across Cities. We have over 673,000 members and thousands of Zipcars interspersed throughout the largest car sharing network of cities and vehicle locations in the world. Since our members need different vehicles for different purposes, we provide a broad range of vehicle alternatives to suit their specific needs and desires for each trip. Based upon the readily available Zipcars in their neighborhoods, our members have the flexibility to reserve a hybrid vehicle for fuel efficiency, a pick-up truck or a van to bring new furniture home from the store, a minivan to travel with friends to the beach or a luxury vehicle for a night out on the town. No other car sharing service offers the size and diversity of our Zipcar fleet or operates a network within and across as many cities as we do.
We estimate that most of our members live or work within a five to ten minute walk of a Zipcar. We try to provide convenient access to our fleet of vehicles by interspersing them throughout the cities and university campuses in which we operate. We are able to effectively place our vehicles in our members’ neighborhoods because we have procured thousands of spaces with local parking providers and municipalities. We do not believe any other car sharing or car rental service provides consumers this level of convenient vehicle locations.
In addition to the benefits our members experience from our global car sharing network, we benefit from economies of scale in our cost structure. For example, investments we make in our technology, such as our iPhone and Android applications, can be distributed across our wide membership base and fleet of vehicles.
Low Cost, Word of Mouth Marketing. We have established a broad, diverse and active membership base. For many, becoming a Zipster is about much more than cost-effective transportation solutions; it is about joining an engaged and enthusiastic community that is environmentally aware, socially responsible and committed to sustainable city living and smart consumption. Our membership community actively recruits new members and surveys of our members indicate that a significant percentage of new members learn of Zipcar from existing members. We believe the loyalty and active recruiting among our members creates a network effect and provides us with a powerful competitive advantage.
We believe that most of our members positively and proactively identify with Zipcar because they subscribe to our core values and have incorporated our car sharing services into their everyday lifestyle. We have developed a member relationship approach which attempts to reach people in the early stages of their driving life (i.e., at college or university) and continues to serve them through various life stages thereafter. We believe our members remain with us for an average of close to five years.
A Brand Synonymous with Car Sharing and Smart Consumption. We believe the Zipcar brand embodies our mission of enabling simple and responsible urban living. As with any consumer business, there is an important element of trust and reliability associated with an established brand name. We view our Zipsters as brand ambassadors, and their continued advocacy of our brand is a cornerstone of our success. We have won numerous awards which underscore our powerful brand and reputation. We believe our leading, first-mover brand position has made us synonymous with pay-per-use mobility and smart consumption. We believe our leading position is about enabling new ways people are living their lives. As a leading smart lifestyle brand, Zipcar is at the forefront of enabling people to fulfill their personal mobility needs in smart and efficient ways.
Our Integrated Technology Platform. Our proprietary technology platform was specifically designed for car sharing and has been continually refined and upgraded to optimize the experience of our members. Our technology supports application processing, reservations and keyless vehicle access, fleet management, member management, bill presentment, payment and reporting, which enables us to collect and analyze vast amounts of customer usage and fleet operations data. This technology platform is fully integrated across our web, wireless and mobile interfaces for the benefit of our members, as well as for internal purposes, ensuring a seamless experience across all communication channels. Our systems have been architected modularly and integrated seamlessly to provide a highly flexible, expandable and upgradable infrastructure that can easily scale across global markets.
Our Knowledge Base. Our twelve years of operating experience in new and existing markets is a key advantage. None of our competitors has the benefit of having launched and operated car sharing at a scale in as many cities as we have. Our extensive experience has allowed us to become experts in areas such as member acquisition, member support, fleet mix, vehicle location and key metrics management. We have accumulated years of detailed car sharing data representing millions of member interactions, vehicle reservations and related activities. This database, along with our reporting and business information tools, enables extensive and rapid analysis of member and vehicle usage patterns and supports agile decision-making. This operational experience not only serves as a competitive advantage in our existing markets, but also helps us to effectively launch and expand into new markets. No other car sharing service in the United States has been operating as long as we have.
CEO BACKGROUND
Scott W. Griffith has served as our Chief Executive Officer and a member of our board of directors since February 2003 and as Chairman of our board of directors since 2007. For his accomplishments at Zipcar, Mr. Griffith was named one of BusinessWeek’s “Best Leaders of 2006,” was the recipient of Babson College’s 2006 ELiTE Award for entrepreneurship, was selected as a finalist for the Ernst & Young Entrepreneur Of The Year Award in 2007, was honored as a “2009 All-Star of New England’s Innovation Economy” by Mass High Tech and was the winner of Corporate Responsibility Magazine’s “Social Entrepreneur” category in the publication’s 2010 “Responsible CEO of the Year Awards.” In 2011, Root Cause, a nonprofit firm working to advance solutions to social issues, presented its first Business Innovator Award to Mr. Griffith. As a leading authority on transportation and the benefits of car sharing, Mr. Griffith has been interviewed by the world’s top news outlets, including The Wall Street Journal, Newsweek, New York Times, CNN, CNBC, USA Today, Associated Press, CBS-TV, FOX-TV, ABC World News Tonight and Time Magazine. Prior to Zipcar, Mr. Griffith held senior-level positions at The Boeing Company, one of the world’s major aerospace firms, Information America, an Atlanta-based provider of online, public record information, and The Parthenon Group, a boutique, business strategy and investment firm. Mr. Griffith is a member of the board of directors of The Alliance for Business Leadership, a non-partisan alliance of CEOs, executives, entrepreneurs, and investors working to promote long-term economic growth and prosperity for all. He is also Chair of the Leadership Council at Massachusetts General Hospital’s Cancer Center. Mr. Griffith holds a B.S. in Engineering from Carnegie Mellon University and an M.B.A. from the University of Chicago. Mr. Griffith’s leadership, comprehensive knowledge of the car sharing industry, personal passion, strategic vision and inside perspective of the day-to-day operations of Zipcar make him a critical asset to our board.
Stephen M. Case has served as a member of our board of directors since October 2010. Mr. Case co-founded Revolution LLC in April 2005 and has served as its Chairman and Chief Executive Officer since that time. Since August 2011, Mr. Case has served as a Partner of Revolution Growth, a division of Revolution LLC that invests in high-growth consumer companies. Mr. Case served as the Chairman of America Online, Inc., an interactive services company, and its successor, AOL Time Warner from 1995 through January 2003 and continued to serve as a director of AOL Time Warner through December 2005. From 1991 through January 2000, Mr. Case also served as Chief Executive Officer of America Online, which he co-founded in 1985 as Quantum Computing Services. Mr. Case has served on the board of directors of Maui Land & Pineapple Company, a real estate management and development company, since December 2008. Mr. Case is a member of President Obama’s Council on Jobs and Competitiveness, chairman of the Startup America Partnership, co-chair of the National Advisory Council on Innovation and Entrepreneurship and co-chair of The Democracy Project. Mr. Case also serves as Chairman of Exclusive Resorts LLC, a company that operates exclusive vacation homes and resorts, as well as two non-profit organizations—the Case Foundation, a private family foundation, and Accelerate Brain Cancer Cure (ABC2), an entrepreneurial approach to funding brain cancer research. In addition, Mr. Case was a founding organizer of Business Strengthening America and has served as vice chair of the Committee to Encourage Corporate Philanthropy and was also honored with the National Mentoring Partnership Leadership Award. Mr. Case holds a B.A. in political science from Williams College. Mr. Case’s extensive executive leadership experience, many years of service as a director and chairman of a large public company, and his extensive knowledge of our company and industry provide him with a breadth of relevant management, operational and financial qualifications to serve as a member of our board of directors.
Donn Davis has served as a member of our board of directors since October 2007. Mr. Davis co-founded Revolution LLC in April 2005 and served as Revolution LLC’s President from January 2006 to December 2008, Strategic Advisor from January 2009 to December 2009 and again President since January 2010. Since August 2011, Mr. Davis has served as a Partner of Revolution Growth, a division of Revolution LLC that invests in high-growth consumer companies. Mr. Davis served as Chief Executive Officer of Exclusive Resorts LLC, a company that operates exclusive vacation homes and resorts, from July 2004 to August 2007, and as Exclusive Resorts’ Executive Chairman from August 2007 to November 2009. From March 1998 to June 2003, Mr. Davis served as a senior executive in various roles at America Online, Inc., an interactive services company, and its successor company, AOL Time Warner. Mr. Davis holds a B.S. in Finance from Miami University (Ohio) and a J.D. from the University of Michigan Law School. Mr. Davis’s extensive executive leadership experience and business acumen qualify him to serve as a member of our board of directors.
Edward P. Gilligan is a nominee for election as a Class I director. Mr. Gilligan has been Vice Chairman of American Express Company, a global service company, since July 2007 and head of its global consumer, small business and network businesses since October 2009. From July 2007 to October 2009, he was head of the American Express Global Business-to-Business Group. From 2005 to July 2007, he was Group President, American Express International & Global Corporate Services. Mr. Gilligan has served on the board of directors of Concur Technologies, Inc., a leading provider of integrated travel and expense management solutions, since 2008. Mr. Gilligan holds a B.S. in Economics and Management from New York University. We believe Mr. Gilligan’s specific attributes that qualify him to serve as a member of our board of directors include his experience in senior management roles, extensive business leadership and acumen and services as an executive officer of a large public company.
William W. Helman has served as a member of our board of directors since October 2006 and as our lead independent director since July 2010. Since 1988, Mr. Helman has served as a partner of Greylock Partners, a venture capital firm that he joined in 1984. Mr. Helman has served on the board of directors of Ford Motor Company since September 2011 and has served on the board of directors of several privately-held companies. He holds an A.B. from Dartmouth College and an M.B.A. from Harvard Business School. Mr. Helman has over 25 years of experience as a venture capitalist, bringing to our board of directors a keen understanding of the interplay between management and the board.
Robert C. Kagle has served as a member of our board of directors since July 2005. Mr. Kagle has served as a General Partner of Benchmark Capital since its founding in 1995. Mr. Kagle also has served on the board of directors of ZipRealty, Inc., a publicly-traded residential real estate firm, since 1999. Previously, Mr. Kagle served on the boards of directors of Jamba, Inc. and its predecessor from 1996 to 2009, eBay, Inc. from 1997 to 2008 and E-LOAN, Inc. from 1998 to 2005. Mr. Kagle holds a B.S. in electrical and mechanical engineering from the General Motors Institute (renamed Kettering University) and an M.B.A. from Stanford University Graduate School of Business. Mr. Kagle brings to our board of directors more than 25 years of experience as a venture capitalist and director of numerous public and private companies.
John F. Kenny, Jr. has served as a member of our board of directors since February 2010. Mr. Kenny has served as Managing Director of New Day Capital, LLC, a private investment and consulting firm, since April 2010. Previously, he was employed by Iron Mountain Incorporated, a provider of information protection and storage services, where he served as Executive Vice President, Corporate Development from May 2007 to June 2009 and Executive Vice President and Chief Financial Officer from 1997 to 2007. Mr. Kenny also served as a director of Iron Mountain from March 2000 to May 2007. He served as an independent consultant from June 2009 to April 2010. Mr. Kenny holds a B.S. in mechanical engineering from The Massachusetts Institute of Technology and an M.B.A. from Harvard Business School. Mr. Kenny’s many years serving as both a senior executive and director of a large public company provides a breadth of relevant management, operational and financial qualifications to serve as a member of our board of directors.
John J. Mahoney, Jr. has served as a member of our board of directors since October 2010. Mr. Mahoney has served as the Vice Chairman of Staples Inc., the world’s largest office supply chain store, since February 2012. Prior to that, at Staples he served as Vice Chairman and Chief Financial Officer from January 2006 to January 2012, Executive Vice President, Chief Administrative Officer and Chief Financial Officer from October 1997 to January 2006, and Executive Vice President and Chief Financial Officer from September 1996, when he first joined Staples, to October 1997. Before joining Staples, Mr. Mahoney was a partner with the accounting firm of Ernst & Young, where he worked for 20 years, including serving in the firm’s National Office Accounting and Auditing group. He has served on the board of directors of Chico’s FAS, Inc., a public company clothing retailer, since 2007. He also served on the board of directors of Tweeter Home Entertainment Group, a specialty consumer electronics retailer, from April 2004 to May 2007. Mr. Mahoney graduated from the College of the Holy Cross in Worcester, Massachusetts and earned his M.B.A. from Northeastern University. Mr. Mahoney’s extensive retail experience and broad functional skill set give him an appreciation for the business practices that are critical to the success of a growing company such as ours and his breadth of financial and accounting expertise and experience position him well to serve as chairman of our audit committee.
Margaret C. Whitman has served as a member of our board of directors since February 2011. Since September 2011, Ms. Whitman has served as President and Chief Executive Officer of the Hewlett-Packard Company, a multinational information technology corporation. From March 2011 to September 2011, Ms. Whitman served as a part-time strategic advisor to Kleiner, Perkins, Caulfield & Byers, a private equity firm. She served as President and Chief Executive Officer of eBay Inc., the world’s largest online marketplace and payments company, from February 1998 to March 2008, and she served as a member of eBay’s board of directors from February 1998 to January 2009. Prior to eBay, Ms. Whitman served in senior leadership positions at Bain & Co., a global business consulting firm, The Walt Disney Company, an international family entertainment and media enterprise, Stride Rite Corporation, a footwear company, Florists’ Transworld Delivery, a national floral service, and Hasbro, Inc., a toy company. Ms. Whitman also served as a member of the board of directors of Dreamworks Animation SKG from April 2005 to December 2008. Ms. Whitman currently serves on the board of directors of the Hewlett-Packard Company, to which she was elected in January 2011, and the board of directors of The Procter & Gamble Company, on which she served from January 2003 to December 2008, and to which she was re-elected in February 2011. Ms. Whitman holds an A.B. in economics from Princeton University and an M.B.A. from Harvard Business School. Ms. Whitman’s extensive business and leadership experience and broad functional skill set give her an appreciation for the business practices that are critical to the success of a growing company such as ours.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overview
Zipcar operates the world’s leading car sharing network. We operate our membership-based business with approximately 8,900 vehicles in 17 major metropolitan areas and on more than 250 college campuses in the United States, Canada, the United Kingdom and Spain. Our car sharing service provides more than 673,000 members with cars on demand in reserved parking spaces within an easy walk of where they live and work. Our members may reserve cars by the hour or by the day at rates that include gas, insurance and other costs associated with car ownership. We offer our solution to individuals, universities, businesses and government agencies.
On April 19, 2011, we closed our initial public offering, or IPO, of 11,136,726 shares of common stock at an offering price of $18.00 per share, of which 6,666,667 shares were sold by us and 4,470,059 shares were sold by selling stockholders, including 1,452,617 shares pursuant to the underwriters’ option to purchase additional shares, resulting in net proceeds to us of approximately $111.6 million, after deducting underwriting discounts. Upon the closing of the IPO, we used $51.4 million of the proceeds to repay all outstanding balances including interest as of the payment date associated with certain debt balances.
Our revenue has grown to $241.6 million in 2011 from $57.8 million in 2007. From our inception through December 31, 2011, a substantial portion of our revenue was generated in North America. As of December 31, 2011, we had an accumulated deficit of $72.7 million. Our business initially requires fleet, marketing and infrastructure investments in each metropolitan area. As markets develop and membership increases, our business benefits from operational efficiencies and economies of scale. Cash flows from our more mature markets are used to fund new and emerging markets as well as investments in our infrastructure.
Although our principal growth has been organic, we have also grown through acquisitions. In April 2010, we expanded our London operations with the acquisition of Streetcar, a car sharing service in the United Kingdom. Streetcar’s revenue for the year ended December 31, 2009 was $23.1 million. In connection with this acquisition, we issued 4.1 million shares of our common stock and warrants to acquire 0.9 million shares of our common stock along with $7.6 million in cash and $5.0 million in notes payable to acquire all of the outstanding capital stock of Streetcar. Upon the closing of our IPO, we repaid these notes. We commenced and completed the integration of our London operations with those of Streetcar during 2011.
On November 1, 2007, we acquired Flexcar, a national operator of car sharing services, in a tax-free stock-for-stock merger by issuing 14.3 million shares of Series F redeemable convertible preferred stock and warrants to acquire 0.2 million shares of our Series F redeemable convertible preferred stock.
In December 2009, we made an equity investment of approximately $0.3 million for a minority ownership stake in Catalunya Carsharing S.A., known as Avancar, the largest car sharing operator in Spain. In December 2010, we loaned $0.4 million to Avancar. This loan had a one-year maturity and included an option to convert the outstanding loan balance into an equity investment in Avancar. In December 2011, we exercised our option to increase our ownership in Avancar to a majority holding of 60%, which was completed in February 2012. In connection with this investment, we funded $1.8 million and also converted our loan of $0.4 million to equity. During the period from December 2014 through December 2015, the remaining Avancar stockholders have a put option to sell their shares to us and we have a call option to purchase all such shares at an agreed price based on a certain multiple of EBITDA as described in the agreement.
Revenue
We derive revenue primarily from vehicle usage and membership fees. A prospective member applies for membership online. This initial application is accepted following a driving record check and validation of credit card information provided. To cover these costs, we charge a one-time non-refundable application fee in most markets.
Vehicle usage revenue is recognized as chargeable hours are incurred. Annual membership fees are deferred and recognized ratably over the one-year period of membership. Membership application fees are recorded as deferred revenue and recognized ratably as revenue over the average life of the member relationship, which we currently estimate to be five years. In 2008, we began to offer a fleet management solution, known as FastFleet, by licensing our proprietary vehicle-on-demand technology on a software as a service, or SaaS basis to organizations that manage their own fleets of vehicles, including local, state and federal government agencies. Customers are charged a monthly fee, which is recognized ratably. If upfront fees are charged then the upfront fees are recorded as deferred revenue and recognized as revenue over the expected customer relationship period commencing from the day the customer is granted access to the system.
Our revenue is not concentrated within any one customer or business. Substantially all of our members and customers pay their fees and vehicle usage charges with a credit card. Our revenue is currently derived from the United States, Canada and the United Kingdom.
Fleet Operations
Fleet operations consist principally of costs associated with operating our vehicles such as lease expense, depreciation, parking, fuel, insurance, gain or loss on disposal of vehicles, accidents, repairs and maintenance as well as employee-related costs. Our fuel costs fluctuate as gasoline prices increase or decrease. We expect fleet operation costs to increase as we expand the number of vehicles in our fleet to service an expanding membership base and support future revenue growth. Over time, however, we expect these costs to decline as a percentage of revenue as we achieve increased efficiencies in our operations, as a greater percentage of our markets reach critical mass and vehicle usage levels increase and as a greater portion of our vehicles are financed under our variable funding note facility, which is referred to as the ABS facility.
Member Services and Fulfillment
Member services and fulfillment expenses consist of the cost of our outsourced contact center, personnel expenses related to our member support teams and credit card processing fees. Member services and fulfillment costs are expected to increase as our membership base increases.
Research and Development
Research and development expenses consist primarily of labor-related costs incurred in coding, testing, maintaining and modifying our technology platform. We have focused our research and development efforts on both improving ease of use and functionality of our reservation, back-end and in-vehicle systems. Our internal and external costs associated with new and enhanced functionality are capitalized and amortized generally over three years. We expect research and development expenses to increase as we continue to enhance and expand our technological capabilities but to decrease over time as a percentage of revenue as we leverage our technology platform over a larger membership base.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of labor-related expenses for sales and marketing, administrative, human resources, internal information technology support, legal, finance and accounting personnel, online search and advertising, trade shows, marketing agency fees, public relations and other promotional expenses, professional fees, insurance and other corporate expenses. Online search and advertising costs, which are expensed as incurred, include online advertising media such as banner ads and pay-per-click payments to search engines. We expect to continue to invest in sales and marketing activities to increase our membership base and brand awareness. Additionally, we expect that general and administrative expenses will increase as we continue to add personnel to support the growth of our business. We also have incurred and expect to continue to incur additional personnel expenses, professional service fees, including audit and legal, investor relations, costs of compliance with securities laws and regulations, and higher director and officer insurance costs related to operating as a public company. As a result, we expect that our selling, general and administrative expenses will continue to increase in the future but decrease as a percentage of revenue over time as our membership base and related revenue increases.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information about these critical accounting policies, as well as a description of our other significant accounting policies.
Revenue Recognition
We recognize revenue only when the following four criteria are met: price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
We generate revenue primarily from vehicle usage and membership fees from individuals, university students and faculty, businesses and government agencies. Vehicle usage revenues are recognized as chargeable hours are incurred. Annual membership fees are generally nonrefundable and are deferred and recognized ratably over the one-year period of membership. Membership application fees are recorded as deferred revenue and recognized as revenue over the average life of the member relationship, which we currently estimate to be five years. This estimate is based on several assumptions, including historical retention levels. Any changes to these estimates would increase or decrease our recorded revenue. However, if the average life of the member relationship changed by one year, our revenue in 2011 would not have changed by a material amount. Direct and incremental costs associated with the membership application process, consisting of the cost of driving record checks and the cost of providing membership cards, are deferred and recognized as an expense over the estimated life of the member relationship. Our members have the ability to purchase a damage fee waiver to reduce or eliminate insurance deductible costs in the event of an accident. Damage waiver fees are recorded as revenue ratably over the term for which such waiver coverage applies. Members are charged a fee for returning our vehicles late. Such fees are recorded as revenue at the time the fee is charged, which is at the end of the reservation period. Sometimes new members are offered driving credits as an inducement to joining Zipcar. These driving credits generally expire shortly after a new member joins Zipcar and allow the member to operate our vehicles without paying for the usage of the vehicles until the credits are exhausted. These driving credits are treated as a deliverable in the arrangement and represent a separate unit of accounting since the credits have value on a stand-alone basis with reliable evidence of fair value. Accordingly, a portion of the annual fee received is allocated to such credits, based on relative fair values of each deliverable, and recorded as revenue upon usage of such credits or upon expiration, whichever is earlier. We provide driving credits to existing members for various reasons, including referring a new member. The cost related to such driving credits is estimated based on an average cost per hour and applied to the estimated hours of driving a member is eligible for based on the corresponding credit. This amount is recorded in the consolidated statement of operations in Fleet Operations.
In 2008, we began offering a fleet management solution known as FastFleet by licensing our proprietary vehicle-on-demand technology on a software-as-a-service, or SaaS basis, primarily to local, state and federal government agencies. Customers are generally charged an upfront fee and a monthly fee. Monthly fees are recognized ratably. If upfront fees are charged, then the upfront fees are recorded as deferred revenue and recognized as revenue over the expected customer relationship period commencing from the day the customer is granted access to the system.
Vehicles
Owned vehicles and vehicles held under capital leases are capitalized as part of property and equipment and depreciated over their expected useful lives to estimated residual value. We record the initial cost of the vehicle net of incentives and allowances from manufactures. We must estimate what the residual values of these vehicles will be at the expected time of disposal to determine monthly depreciation rates. The estimation of residual values requires us to make assumptions regarding the age and mileage of the car at the time of disposal, as well as expected used vehicle auction market conditions. We reevaluate estimated residual values periodically and adjust depreciation rates as appropriate. Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of fleet operations at the time of sale. Actual timing of disposal that is either shorter or longer than the life used for depreciation purposes could result in a loss or gain on sale.
Software Development Costs
We capitalize certain costs of computer software developed or obtained for internal use. These costs relate to the development of new or enhanced functionality of the software. The costs incurred in the preliminary stages of development are expensed as incurred. Once a project has reached the application development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Accordingly, we use the release date to determine when capitalization ceases for a particular project. These capitalized costs are amortized over the expected software benefit period of three years.
Income Taxes
Deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the tax rates anticipated to be in effect when such differences reverse. On a periodic basis, we assess the likelihood that we will be able to recover our deferred tax assets and in doing so we consider the quality and trend of earnings, as well as other relevant factors. A valuation allowance is provided if, based on currently available evidence, it is more likely than not that some or all of the deferred tax assets may not be realized. This assessment requires us to make judgments about the likelihood and amounts of future taxable income. To date, we have recorded a full valuation allowance for the entire amount of net deferred tax assets. We will continue to assess the need for a valuation allowance in the future based on the weight of the evidence available. It is reasonably possible we could release some or all of our valuation allowance in the near term. In the quarter in which the valuation allowance is released, it is possible we would record a material tax benefit reflecting the release, which could result in a large favorable impact on our effective tax rate and high earnings per share from net income attributable to Zipcar for such quarter.
We follow the accounting guidance on Accounting for Uncertain Tax Positions and recognize liabilities for uncertain tax positions. We evaluate our tax positions by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit by applicable taxing authorities. If we determine that a tax position will more likely than not be sustained in the event of an audit, then we estimate and measure the tax benefit likely to be realized upon ultimate settlement. Any such estimates are inherently difficult and subjective, as we have to make judgments regarding the probability of various possible outcomes. We had no amounts recorded for any unrecognized tax benefits as of December 31, 2011. Our policy is to record estimated interest and penalties related to the underpayment of income taxes as a component of our income tax provision. As of December 31, 2011, we had not recorded any accrued interest or tax penalties. Our income tax return reporting periods since December 31, 2007 remain open to income tax audit examination by federal and state taxing authorities. In addition, as we have net operating loss carryforwards, the Internal Revenue Service is permitted to audit earlier years and propose adjustments based on the amount of net operating loss generated in those years.
Utilization of net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership changes that have occurred previously or that may occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.
We have performed an analysis under Section 382, as well as similar state provisions, in order to determine whether any limitations might exist on the utilization of net operating losses and research and development credits carryforward due to ownership changes that have occurred previously. Based on this analysis, we have determined that while ownership changes have occurred during our history, a substantial portion of the net operating losses and credits are available for future utilization.
Valuation of Long-Lived and Intangible Assets, Including Goodwill
Long-lived assets are reviewed for impairment whenever events or changes in circumstances or a triggering event, such as service discontinuance or technological obsolescence, indicate that the carrying amount of the long-lived asset may not be recoverable. Determining whether a triggering event has occurred often involves significant judgment from management. When such events occur, we compare the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated and a charge is recorded. The amount of the impairment is determined to be the difference between the carrying amount and the fair value of the asset. If a readily determinable market price does not exist for the asset, fair value is estimated using discounted expected cash flows attributable to the asset. Significant judgment and estimates are involved in any impairment evaluation and our estimates, including estimates used in determining future cash flows.
We test goodwill for impairment at least annually. We review goodwill for impairment on the last day of our fiscal year and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. Our assessment is performed at the reporting unit level. Historically the goodwill evaluation for impairment was performed using a two-step process. The first step was to identify potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. If the fair value of a reporting unit exceeded the book value, goodwill was not considered impaired. If the book value exceeds the fair value, the second step of the process was performed to measure the amount of impairment. In September 2011, the Financial Accounting Standards Board, or FASB, issued ASU 2011-08, “Intangibles-Goodwill and Other: Testing Goodwill for Impairment”, or ASU 2011-08. The objective of ASU 2011-08 is to simplify how entities test for goodwill impairment. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt ASU 2011-08 provided that the entity has not yet issued its financial statements for the period that includes its annual test date. We have chosen to early adopt ASU 2011-08 for year-end December 31, 2011.
We have determined that we have three reporting units: United States of America, United Kingdom and Canada.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Overview
Zipcar operates the world’s leading car sharing network. We operate our membership-based business with over 11,000 vehicles in 19 major metropolitan areas and on more than 250 college campuses in the United States, Canada, the United Kingdom, Spain and Austria. Our car sharing service provides more than 730,000 members with cars on demand in reserved parking spaces within an easy walk of where they live and work. Our members may reserve cars by the hour or by the day at rates that include gas, insurance and other costs associated with car ownership. We offer our solution to individuals, universities, businesses and government agencies.
On April 19, 2011, we closed our initial public offering, or IPO, of 11,136,726 shares of common stock at an offering price of $18.00 per share, of which 6,666,667 shares were sold by us and 4,470,059 shares were sold by selling stockholders, including 1,452,617 shares pursuant to the underwriters’ option to purchase additional shares, resulting in net proceeds to us of approximately $111.6 million, after deducting underwriting discounts. Upon the closing of the IPO, we used $51.4 million of the proceeds to repay all outstanding balances including interest as of the payment date associated with certain debt balances.
Our revenue has grown from $57.8 million in 2007 to $241.6 million in 2011 and $129.9 million for the six months ended June 30, 2012. Since our inception, a substantial portion of our revenue has been generated in North America. As of June 30, 2012, we had an accumulated deficit of $76.1 million. Our business initially requires fleet, marketing and infrastructure investments in each metropolitan area. As markets develop and membership increases, our business benefits from operational efficiencies and economies of scale. Cash flows from our more mature markets are used to fund new and emerging markets as well as investments in our infrastructure.
Although our principal growth has been organic, we have also grown through acquisitions. In November 2007, we acquired Flexcar, a national operator of car sharing services. In December 2009, we made an equity investment for a minority ownership stake in Catalunya Carsharing S.A., known as Avancar, the largest car sharing operator in Spain. In April 2010, we expanded our London operations with the acquisition of Streetcar Limited, or Streetcar, a car sharing service in the United Kingdom. In February 2012, we increased our ownership in Avancar to a majority holding of 60% and made an equity investment of $8.7 million for a minority ownership interest in Wheelz, Inc., a peer-to-peer car sharing company targeting university and other campus communities. In July 2012, we continued to grow our car sharing network globally, expanding our geographical footprint further into Europe with our acquisition of Denzel Mobility CarSharing GmbH, a leading car sharing service in Austria, operating under the name CarSharing.at.
Revenue
We derive revenue primarily from vehicle usage and membership fees. A prospective member applies for membership online. This initial application is accepted following a driving record check and validation of credit card information provided. To cover these costs, we charge a one-time non-refundable application fee in most markets.
Vehicle usage revenue is recognized as chargeable hours are incurred. Annual membership fees are deferred and recognized ratably over the one-year period of membership. Membership application fees are recorded as deferred revenue and recognized ratably as revenue over the average life of the member relationship, which we currently estimate to be five years. In 2008, we began to offer a fleet management solution, known as FastFleet, by licensing our proprietary vehicle-on-demand technology on a software as a service, or SaaS basis to organizations that manage their own fleets of vehicles, including local, state and federal government agencies. Customers are charged a monthly fee, which is recognized ratably. If upfront fees are charged then the upfront fees are recorded as deferred revenue and recognized as revenue over the expected customer relationship period commencing from the day the customer is granted access to the system.
Our revenue is not concentrated within any one customer or business. Substantially all of our members and customers pay their fees and vehicle usage charges via credit card and other forms of electronic payment. Our revenue is currently derived from the United States, the United Kingdom, Canada, Spain and Austria.
Fleet Operations
Fleet operations consist principally of costs associated with operating our vehicles such as lease expense, depreciation, parking, fuel, insurance, gain or loss on disposal of vehicles, accidents, repairs and maintenance as well as employee-related costs. Our fuel costs fluctuate as gasoline prices increase or decrease. We expect fleet operation costs to increase as we expand the number of vehicles in our fleet to service an expanding membership base and support future revenue growth. Over time, however, we expect these costs to decline as a percentage of revenue as we achieve increased efficiencies in our operations, a greater percentage of our markets reach critical mass and vehicle usage levels increase and a greater portion of our vehicles are financed under our asset backed loan facility, which we refer to as the ABS facility.
Member Services and Fulfillment
Member services and fulfillment expenses consist of the cost of our outsourced contact center, personnel expenses related to our member support teams and credit card processing fees. Member services and fulfillment costs are expected to increase as our membership base increases.
Research and Development
Research and development expenses consist primarily of labor-related costs incurred in coding, testing, maintaining and modifying our technology platform. We have focused our research and development efforts on both improving ease of use and functionality of our reservation, back-end and in-vehicle systems. Our internal and external costs associated with new and enhanced functionality are capitalized and amortized generally over three years. We expect research and development expenses to increase as we continue to enhance and expand our technological capabilities but to decrease over time as a percentage of revenue as we leverage our technology platform over a larger membership base.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of labor-related expenses for sales and marketing, administrative, human resources, internal information technology support, legal, finance and accounting personnel, online search and advertising, trade shows, marketing agency fees, public relations and other promotional expenses, professional fees, insurance and other corporate expenses including certain acquisition related costs. Online search and advertising costs, which are expensed as incurred, include online advertising media such as banner ads and pay-per-click payments to search engines. We expect to continue to invest in sales and marketing activities to increase our membership base and brand awareness. Additionally, we expect that general and administrative expenses will increase as we continue to add personnel to support the growth of our business. We also have incurred and expect to continue to incur additional personnel expenses, professional service fees, including audit and legal, investor relations, costs of compliance with securities laws and regulations, and higher director and officer insurance costs related to operating as a public company. As a result, we expect that our selling, general and administrative expenses will continue to increase in the future but decrease as a percentage of revenue over time as our membership base and related revenue increases.
Segments
We have identified two reportable segments: North America and Europe. In both segments, we derive revenue primarily from self-service vehicle use by our members.
Our North America segment, which includes the United States and Canada, represented substantially all of our revenue until our acquisition of Streetcar in 2010. Revenue increased from $50.4 million for the three months ended June 30, 2011 to $58.8 million for the three months ended June 30, 2012 in our North America segment, and the segment income before income taxes, which excludes corporate expenses and certain other costs, improved from $9.2 million to $11.2 million during this period. Revenue increased from $90.5 million for the six months ended June 30, 2011 to $108.0 million for the six months ended June 30, 2012 in our North America segment, and the segment income before income taxes, which excludes corporate expenses and certain other costs, improved from $14.9 million to $19.5 million during this period. These improvements are principally the results of growth in membership for the major metropolitan areas and universities in this segment and achieving higher margins based on operational and scale-based efficiencies.
Our Europe segment includes the operations of the United Kingdom for the entire reported periods and the operations of Spain since February 2012, the month in which we acquired a majority ownership in Avancar. Revenue increased from $11.2 million for the three months ended June 30, 2011 to $12.0 million for the three months ended June 30, 2012 in our Europe segment. During this period, the segment loss before income taxes, which excludes corporate expenses and certain other costs, decreased from a loss of $0.9 million to a loss of $0.3 million. Revenue increased from $20.2 million for the six months ended June 30, 2011 to $21.9 million for the six months ended June 30, 2012 in our Europe segment. During this period, the segment loss before income taxes, which excludes corporate expenses and certain other costs, decreased from $3.0 million to $1.8 million. This change is primarily due to improvements in our London operations, particularly in fleet utilization and revenue per vehicle, following the integration of the former Streetcar business in the fourth quarter of 2011. Refer to Note 11 to the consolidated financial statements for additional segment information.
Fleet Operations: Fleet operations expenses increased 8.4% for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and 10.8% for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. Fleet operations expenses increased as a result of an increase in the number of vehicles in our fleet. The average number of vehicles in our fleet increased by 1,357 to 10,512 for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and by 1,123 to 9,762 for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. In addition, cost per vehicle decreased 5.3% in the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and decreased marginally in the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 primarily due to improved cost leverage associated with increased average fleet size. Fleet operations expenses as a percentage of revenue decreased to 62.0% for the three months ended June 30, 2012 from 65.8% for the three months ended June 30, 2011 and 64.4% for the six months ended June 30, 2012 from 68.2% for the six months ended June 30, 2011 due to improved cost leverage, lower fuel costs and lower fleet financing costs due to the shift of vehicles onto our ABS facility.
Member Services and Fulfillment: Member services and fulfillment costs were flat for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and increased 1.3% for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. Member services and fulfillment costs increased primarily due to an increase in average membership of approximately 128,000 to 724,000 for the three months ended June 30, 2012 from 596,000 for the three months ended June 30, 2011 and by approximately 129,000 to 710,000 for the six months ended June 30, 2012 from 581,000 for the six months ended June 30, 2011. Member services and fulfillment as a percentage of revenue decreased to 7.2% for the three months ended June 30, 2012 from 8.2% for the three months ended June 30, 2011 and decreased to 7.1% for the six months ended June 30, 2012 from 8.3% for the six months ended June 30, 2011 due to volume-based improvements in merchant processing fees and leverage from our member service center.
Research and Development: Research and development expenses increased 4.8% for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and 1.0% for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. Research and development expenses as a percentage of revenue decreased to 1.5% from 1.6% for the three months ended June 30, 2012 and 2011, respectively, and to 1.5% from 1.8% for the six months ended June 30, 2012 and 2011, respectively. The changes are attributable to costs associated with additional headcount partially offset by an increase in internal capitalized cost for the continued development of our online reservation and fleet management system.
Selling, General and Administrative: Selling, general and administrative expenses increased 30.9% for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and 27.0% for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. The increase in selling, general and administrative expenses for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 was primarily due to: an increase in marketing programs and advertising costs of $2.1 million principally associated with our broadcast media campaign; labor and labor-related expenses of $1.8 million, including stock compensation expense and the expansion of our Zipcar for Business direct salesforce; and other general and administrative related expenses of $0.5 million associated with operating as a public company and investment in our expanded European infrastructure. The increase in selling, general and administrative expenses for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 was primarily due to: an increase in marketing programs and advertising costs of $3.5 million principally associated with our broadcast media campaign; labor and labor-related expenses of $3.0 million, including stock compensation expense and the expansion of our Zipcar for Business direct salesforce; and other general and administrative related expenses of $0.9 million associated with operating as a public company and investment in our expanded European infrastructure. Selling, general and administrative expenses as a percentage of revenue increased to 27.2% for the three months ended June 30, 2012 from 23.9% for the three months ended June 30, 2011 and to 26.8% for the six months ended June 30, 2012 from 24.8% for the six months ended June 30, 2011.
Amortization of Acquired Intangible Assets: Acquired intangible assets associated with the Streetcar, Flexcar and Avancar acquisitions include member relationships, parking spaces, non-compete agreements, tradenames and reservation systems in existence at the time of the acquisition, and are amortized over their estimated useful lives of up to five years based on the pattern in which the economic benefits of the intangible assets are consumed. Amortization of acquired intangible assets decreased slightly to $0.8 million from $1.0 million for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and to $1.6 million from $2.1 for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 due to full amortization of certain intangible assets.
Interest Income: Interest income remained unchanged for the three and six months ended June 30, 2012 as compared to the three and six months ended June 30, 2011.
Interest Expense: Interest expense decreased by $3.5 million to $1.0 million for the three months ended June 30, 2012 from $4.5 million for the three months ended June 30, 2011 and by $5.0 million to $2.0 million for the six months ended June 30, 2012 from $7.0 million for the six months ended June 30, 2011. This decrease resulted from the retirement of high-cost corporate debt with our IPO proceeds in the second quarter of 2011.
Other Income (expense), net: Other income (expense), net was flat for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 and decreased to a loss of $0.4 million for the six months ended June 30, 2012 from income of $0.7 million for the six months ended June 30, 2011. This decrease is primarily attributable to the sale of Zero Emission Vehicle, or ZEV, credits of $0.9 million during the first quarter of 2011. Under certain state government regulations, vehicle manufacturers are required to ensure that a portion of the vehicles sold in that state are classified as “zero emission vehicles”. These laws provide for the purchase and sale of excess credits earned. Because we utilize energy efficient vehicles in our business, we were able to earn ZEV credits under state regulations, and recorded the proceeds from the sale of these credits as other income. In addition, for the six months ended June 30, 2012, we recorded a loss of $0.3 million related to our equity investment in Wheelz.
Key financial and operating metrics, Non-GAAP financial measures and supplemental disclosure
In connection with the ongoing operation of our business, our management regularly reviews key financial and operating metrics, including total revenue per member, usage revenue per vehicle per day, cost per new account, member retention, ending members and ending vehicles. Management considers these financial and operating metrics critical to understanding our business, reviewing our historical performance, measuring and identifying current and future trends and for planning purposes.
In addition to the key metrics described above, we also use Adjusted EBITDA, a non-GAAP financial measure, to assess our performance. We define Adjusted EBITDA as earnings before non-vehicle depreciation, non-vehicle interest, interest income, amortization, preferred stock warrant liability adjustment, stock compensation expenses, acquisition and integration costs, taxes and other income related to ZEV credits and income or loss from investments accounted for under the equity method. We believe that Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of changes in our capital structure, income tax status and method of vehicle financing, and other items of a non-operational nature that affect comparability. We include vehicle-related depreciation and interest in our definition of Adjusted EBITDA because vehicles represent core operating assets used in the delivery of our service that require periodic replacement. In addition, the exclusion of these costs would result in a lack of comparability in the treatment of vehicles that are owned or leased under capital leases and those leased under operating leases.
We believe that various forms of the Adjusted EBITDA metric are often used by analysts, investors and other interested parties to evaluate companies such as ours for the reasons discussed above. Adjusted EBITDA is also used for planning purposes and in presentations to our board of directors as well as in our annual incentive compensation program for senior management. Non-GAAP information should not be construed as an alternative to GAAP information, as the items excluded from the non-GAAP measures often have a material impact on our financial results. Management uses, and investors should use, non-GAAP measures in conjunction with our GAAP results.
CONF CALL
Jonathan Schaffer - Managing Director
Thank you, operator. I'd like to welcome everyone this afternoon's call to discuss Zipcar's 2012 Second Quarter Financial Results. On today's call from management are Scott Griffith, Chairman and Chief Executive Officer; and Ed Goldfinger, Chief Financial Officer. After management's prepared remarks, we'll open the call up to questions.
Before we begin, I would like to remind everyone that during the course of this conference call, management may make forward-looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations. A detailed discussion of such risks and uncertainties is contained in our filings with the Securities and Exchange Commission, which are available on the SEC's website.
Forward-looking statements made during this conference call speak only as of today's date, and the company undertakes no obligation to update them to reflect subsequent events or circumstances. Also, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures in talking about the company's performance. We refer to adjusted EBITDA as a key bottom line measure of our performance.
There is a full reconciliation of the U.S. GAAP net loss to adjusted EBITDA on our press release, which can be found on the Investor Relations section of our website. Unless noted otherwise, all comparisons are versus the prior-year period. This conference call is also being broadcast on the internet and is available through the Investor Relations section of Zipcar's website.
So with these formalities out of the way, I'd now like to turn the call over to Scott Griffith. Scott, you may begin.
Scott W. Griffith - Chairman and Chief Executive Officer
Thanks, Jonathan. Good afternoon, and thanks to everyone for joining us on today's call. Throughout the second quarter, we continued to expand our market leadership position within the car sharing category in the broader mobility services sector. We posted a solid double-digit increase in revenue while expanding our margins and growing into new geographies.
Driving these gains is a compelling value proposition that continues to resonate with our more than 730,000 members globally. Zipcar represents a convenient and affordable alternative to car ownership in dense urban areas where costs are high and personal cars sit idle more than 90% of the time. We also provide effective mobility solutions for small and medium-sized businesses, government agencies and university communities, all of which are rapidly increasing their adoption of the car sharing model to meet their transportation needs with sensible, cost efficient alternatives.
With a clear leadership position, a loyal membership base and continued technology and services innovation, we remain energized and excited to stay at the forefront of car sharing and mobility services. In a few minutes, I'll outline how we envision leveraging our brand, technology and network advantages in the future.
First, turning to highlights for the quarter. Total membership grew 21% from the prior year to 731,000. Revenue increased 15% year-on-year to $70.8 million. Adjusted EBITDA grew 47% versus last year to $3.4 million, and our net loss was $422,000, an improvement from a loss of $5.6 million in the second quarter of last year.
Our adjusted EBITDA and U.S. GAAP net loss for the quarter were both within the range of the guidance we gave. However, while we reported solid double-digit gains in our top line performance, revenue growth was below our expectations due primarily to lower-than-expected new member additions during the quarter. We also saw slower-than-anticipated growth in the U.K., which is our second largest market.
Lower-than-anticipated new member additions in the period reflected softer returns on our marketing programs, most notably, around our first test of broadcast media launched in March. The campaign, which included both streaming and terrestrial radio, did not meet the objectives we established. For the remainder of 2012, we've eliminated radio from our marketing mix. We expect this change to drive down CPAs from the levels we incurred in the second quarter. We're also taking aggressive steps to reignite growth in new members for the coming quarters, and we have a number of new member acquisition initiatives in place.
First, we're amping up our referral program by making it easier for our newest numbers to refer Zipcar to their personal network. Second, we're opening up new partnership channels. Third, we're enhancing our social media efforts. Fourth, we're implementing enhanced online media tracking and attribution technology. And fifth, we're working to improve our process as related to performance management of our online display media campaigns.
In addition to steps to improve returns on our marketing dollars, we're also evaluating ways to broaden our appeal by reducing barriers to trial and making initial access easier and more affordable. I'll touch on this initiative additionally in a few minutes.
Turning to the U.K., after seeing promising momentum in the first quarter, we experienced a slowdown in growth during the latter part of the second quarter. For the period, year-on-year revenue growth in the U.K. was 6% in local currency. We believe that the tough economy was the most significant reason for the slowdown.
To best position the brand and our offerings in this challenging economic environment, we have a new head of U.K. marketing who's in the process of localizing our approach and applying our best practices to help move the needle going forward. While growth in the U.K. was below our expectations, we continue to make progress operationally in this market with revenue per vehicle up approximately 10% over the prior year.
Just touching on the competitive landscape for both North America and the U.K., it's clear that the car sharing category has gained substantial validation demonstrated by the greater interest from car rental companies and auto manufacturers in the launch of new ability models. Competitive and adjacent activity has increased, and we'll continue to monitor and report on notable competitive activity in the future.
Ed will spend more time shortly discussing our financial performance in Q2 and implications for the balance of the year. Before I turn it over to him, I'd like to cover a number of the recent positive developments in the business and then turn to our broader mission for Zipcar as we look ahead.
Just after the close of the quarter, we met our 2012 objective of adding a second major European market in the year with the acquisition of CarSharing.at, a leading car sharing service in Austria with a presence in Vienna and other cities across the country. The company currently offers approximately 200 vehicles and serves approximately 10,000 members. We believe Vienna will ultimately be a top 10 car sharing market in Europe with significant growth potential and strong government support. CarSharing.at means a partnership -- maintains a partnership with the Austrian Federal Railways, the national railway operator, which represents a strong marketing channel for the service.
Additionally, we see opportunities for greater on-street presence in Vienna, which will help raise awareness among consumers in this market. The acquisition of CarSharing.at has been completed, and we look forward to working with the management team on plans for integration of these operations on to the Zipcar brand and technology platform in the first half of 2013.
We're also well along in the integration of the Barcelona-based Avancar operations in which we increased our stake to a majority ownership position earlier this year. We expect to complete this integration as the year progresses, including the conversion of members and vehicles to our new global technology platform. For the remainder of this year, our focus in Europe will be on the integration of acquired operations and improving performance in the U.K.
On the domestic front, we launched in the city of Austin, Texas, during the quarter, turning what was a university presence into a city-wide network of approximately 40 vehicles. We look forward to building out this market over time as we have done with other Tier 2 cities such as Baltimore and Providence.
With respect to our objective this year of engaging our member with new services and offerings, we made strong progress in Q2 with the rollout of our Zipvan program to Chicago and Toronto with new Ford E-150 full size cargo vans in each of these markets. Chicago and Toronto joined San Francisco, Boston and Washington, D.C. for a total of 165 Zipvans now available in North America in addition to more than 200 Zipvans in the U.K. Since the original North American launch of Zipvan in San Francisco in November of 2011, nearly 10,000 unique Zipcar members have driven a Zipvan, taking advantage of the additional capacity these vehicles offered to meet their cargo hauling needs.
Building on this strong member reception, we plan to continue to increase the size of the Zipvan fleet in North America, including rolling out the Zipvan service to several of our other markets in the coming months. We expect to exceed 200 vans in North America by year end.
Let me now address our broader vision for how we expect to accelerate adoption going forward. We've been discussing for some time the concept of a more holistic approach to mobility solutions and the need to evolve our business in the direction we believe the consumer is heading. Steps in this direction include our launch of Zipvan and our investment in peer-to-peer car sharing company wheels earlier this year.
Zipcar has always been ahead of the curve, and we intend to maintain our leadership edge through innovation. As we look forward, we see 3 strategic imperatives to evolve our business in the industry.
First, we plan to accelerate adoption by reducing the barriers to trial and enhance retention while preserving the economics of our target business model. Our goal is to make it easier and less expensive to get a prospective member into a car for the first time. We've researched and analyzed alternative membership plans that encourage trial, including the recent monthly membership offers that we're testing in selected markets in North America.
We also conducted a recent survey of nonmembers in several of our key geographies to gauge consumer sentiment on the subject. We found that while both awareness and relevancy are strong among our target audience, we could improve our value proposition for those who might want to try the service out before committing to an annual term.
By offering a membership that encourages trial with a lower upfront cost and a narrower feature set, we believe a considerable number of new incremental members will join. Over time, we'd expect to build on these trial experiences towards higher levels of engagement using frequency and loyalty programs, premium membership offers and other features that are not available today.
Additionally, for those who consider leaving the membership, because they don't have a regular or immediate need to use a car at the time of their annual renewal or perhaps they bought a car or moved out of town, we do not currently have a membership plan that addresses their more limited needs. For example, these members might find themselves in need of a van or they might travel to Zipcar cities where they would have the use for our service. We want to keep them in the fold to those occasions.
We're developing a more holistic set of membership offers that will address a wider variety of member segments. With this new membership plan framework, we believe we have an excellent opportunity to accelerate adoption. And in time, we also believe this revised approach will improve retention, enable us to offer incentives that drive frequency and loyalty and provide an opportunity for us to layer in upsell and cross-sell programs to a greater degree than we have in the past.
We expect the majority of our members will remain under our standard annual fee membership program to take full advantage of the entire set of services and benefits we offer. We expect to implement the first phase of these changes to our membership offers later in the year.
Our second strategic imperative is to expand the breadth of our service offerings. We know that urban consumers today are combining a broad array of new technologically enabled transportation solutions, each of which has its own user interface, branding, underlying technology, account management, billing and payment system, along with disparate operational practices and customer support levels. Over time, we see ourselves at providing our members with easy access to a greater variety of mobility services to satisfy their transportation needs. For example, we recently added Zipvans in North America, which has been a great success as I outlined earlier.
We believe other complementary and adjacent services such as peer-to-peer car sharing, ride sharing and one-way, intra-city driving would also fit well into a cohesive, multifaceted mobility network over time. We're exploring the best way to operation -- excuse me, operationalize a number of these new mobility options across our large existing networks of cites and members.
Our third strategic imperative is to invest further behind our leading technology platform to stay at the forefront with our best-in-class member experience, as well as ensuring we have the technology in place to enable the delivery of an enhanced set of mobility services. As of today, over 90% of our members carry smartphones, and the majority of our reservation activity is done through mobile devices.
Members will begin to see enhancements to our web reservation system and mobile apps first, starting over the next several months. Additionally, our next-generation technology will enable far greater personalization that will leverage usage data to more dynamically target promotions that can drive loyalty while optimizing utilization and increasing revenue per vehicle.
So summing up the 3 strategic imperatives I just outlined, number one, we intend to deliver a more comprehensive set of membership offers that reduce the barriers to trial and improve loyalty and retention. Number two, we'll be expanding our breadth of services to meet a greater number of trip types and used cases. And number three, we'll be evolving our technology to ensure we have the capability to execute our broader mobility services vision that we believe the future urban consumer will demand.
Let me now turn it over to Ed to cover the financials. Ed?
Edward G. Goldfinger - Chief Financial Officer, Principal Accounting Officer, Vice President, Assistant Secretary and Treasurer
Thanks, Scott, and thanks, everyone, for joining us on the call. I'll go through our second quarter financial performance in greater depth, and then we'll provide guidance around our third quarter and full year 2012 expectations.
Revenue for the second quarter increased by 15% over the same period last year to $70.8 million, solid growth, but as Scott mentioned, constrained by a lower-than-expected intake of new members. For our Established Markets, our revenue growth for the quarter was 16% and for all of North America, revenue growth was 17%.
In the U.K., revenue growth was 6% in local currency and 2% in U.S. dollars. This slowdown in U.K. growth, which we attribute to very tough economic trends, represents a reversal of the momentum we have begun to build in the first quarter. We expect market conditions there to remain challenging for the balance of the year.
On a consolidated basis, usage revenue per vehicle per day was flat with the prior year at $65 despite lower utilization of our fleet during this past quarter. Total revenue per member declined to $98 in the quarter from $103 last year in part due to an increased mix of more profitable hourly versus daily trips and in part due to the shortfall of new members who, on average, tend to be more active. Fee revenue represented 14.6% of total revenue, up from 13.4% in the prior-year period toward our target model of 17% for fee revenue. Our average monthly member retention rate was essentially flat at 97.7% versus 97.8% in the prior-year period.
Fleet operations costs improved by nearly 400 basis points to 62% of revenue for the quarter versus 65.8% in the prior-year period. The primary reasons for this reduction are lower fleet financing costs due to the shift of vehicles onto our asset-backed loan facility, lower fuel costs and leverage from increased scale and pricing yield. Member services and fulfillment costs improved by 100 basis points to 7.2% of revenue from 8.2% in the same period last year due to volume-based improvements in merchant processing fees and leverage from our member services center.
Selling, general and administrative expenses increased to 27.2% of revenue from 23.9% in the same period last year. The increase was due primarily to higher sales and marketing spend associated with the radio campaign, which drove our cost renewal count for the quarter to $89, up from $70 last year. We expect to see an improvement in the productivity of our marketing campaigns and as a result, we expect the reduction of CPAs during the back half of the year compared to Q2.
The increase in SG&A in the second quarter also relates to the expansion of our Zipcar for Business direct sales force, increased costs related to operating as a public company and investment in our expanded European infrastructure. Interest expense was down significantly in the second quarter to $1 million from $4.5 million last year, resulting principally from the onetime debt pay off cost we incurred in the second quarter last year as part of our IPO.
Our adjusted EBITDA for the quarter, which excludes nonoperating and noncash items, was $3.4 million compared to $2.3 million in the prior-year period. On a U.S. GAAP basis, our net loss for the quarter was $400,000 compared to $5.6 million as a loss in the prior period, which included the onetime debt pay off cost I mentioned. Our loss per share was $0.01 for the second quarter in 2012 compared to a loss per share of $0.17 in the prior-year period. Income tax -- income before tax in our Established Markets was 22% of revenue, unchanged from the prior year.
With respect to the balance sheet, we ended the quarter with $81 million of cash and marketable securities on hand, down from $92 million at the end of the first quarter, principally reflecting our net investment in fleet partially offset by cash from operations. Our vehicle-related debt and capital lease obligations totaled $121 million, up as planned from $80 million at the end of the first quarter based on incremental and replacement vehicles added to our ABS facility during our heaviest in-fleeting season. We expect to see a continued trend of investment in the third quarter followed by a reduction of fleet and debt in the fourth quarter corresponding with an expected increase in cash as we dip [ph] seasonally into the winter months.
I'll now spend a minute on guidance before turning it back to Scott. The nature of our membership-oriented business is that the lower member additions in the second quarter as well as current member trends will have an impact on our performance for the balance of the year. For the full year, we expect revenue to total $272 million to $278 million. We expect adjusted EBITDA between $12 million and $16 million and U.S. GAAP net income of between breakeven and $4 million. For the third quarter, we expect revenues in the range of $74 million to $77 million, adjusted EBITDA of $2.5 million to $5 million and U.S. GAAP net income between a loss of $0.5 million and a profit of $2 million.
A few other modeling points. Stock-based compensation is expected to be approximately $1.5 million for each of the third and fourth quarters. Acquisition and integration costs for the balance of the year, including both our Barcelona operation and the recent Vienna acquisition, will be roughly $1.2 million with approximately $700,000 hitting in the third quarter. We expect to have about $1.2 million of vehicle-related interest expense for each of the third and fourth quarters.
As discussed in our previous guidance, we expect to record other income in the amount of $1.7 million, from an already contracted sales of ZEV credits in the back half of the year. We have assumed for purposes of our guidance that this occurs in the fourth quarter. As a reminder, we did not include the benefits of ZEV credits in adjusted EBITDA.
Our net income range does not include the impact of any reversal of our deferred tax valuation allowance, which could occur during the year should we begin to meet the accounting thresholds for reversing this allowance. We expect the average number of shares outstanding to be between 39.5 million and 40.5 million shares for the third and fourth quarters. Common stock equivalents under the treasury stock method would add another 1.5 million to 2.5 million shares, which would be included in the average share count to the extent that we report positive U.S. GAAP net income in any given period.
So to wrap it up, revenue for the quarter was softer than we anticipated for the reasons discussed, but we were able to move quickly to generate cost savings to largely offset the impact to our bottom line. We have recast our forward-looking guidance to reflect the impact of the membership trends we have recently seen as well as the U.K. macro environment. As Scott outlined, we're moving ahead on several important strategic initiatives to regain our growth momentum.
And with that, I'll turn it back to Scott.
Scott W. Griffith - Chairman and Chief Executive Officer
Thanks, Ed. We have a lot going on, but we are very clear in our priorities over the next several quarters. While we were disappointed with our recent revenue performance and faced near-term challenges of driving member acquisition, we believe we're taking the steps necessary to improve our growth trajectory and we remain very excited about our long-term prospects.
With the strength of the Zipcar brand along with our technology infrastructure, first-to-scale advantage and market position, we're confident in our ability to introduce and scale a broader array of mobility services to meet consumer expectations. As you can tell from my comments earlier, the Zipcar team is working very hard, and I'd like to thank them all for their dedication and commitment.
I'd like to thank all of you for your interest and support, and now let's open up the call to your questions. Operator?
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