Good morning and welcome to the Avis Budget Group Third Quarter Earnings Conference Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the meeting over to Mr. Neal Goldner, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone and thank you for joining us. On the call with me are Ron Nelson, our Chairman and Chief Executive Officer; and David Wyshner, our Senior Executive Vice President and Chief Financial Officer. Before we discuss our third quarter results, I would like to remind everyone that the company will be discussing forward-looking information that involves risks, uncertainties, and assumptions that could cause actual results to differ materially from the forward-looking information. Important risks, assumptions, and other factors that could cause future results to differ materially from those expressed in the forward-looking statements are specified in the company’s earnings release and other periodic filings with the SEC, which are available on the Investor Relations section of our website at avisbudgetgroup.com. We have provided slides to accompany this morning’s conference call, which can also be accessed on our website. Our comments will also focus on our results excluding certain items and other non-GAAP financial measures that are reconciled to our GAAP numbers in our press release and in the earnings call presentation. Now, I would like to turn the call over to Avis Budget Group’s Chairman and Chief Executive Officer, Ron Nelson.

Thank you, Neal and good morning to all of you on the call. So, let me begin with the headlines. Operationally, we had a great record third quarter, both in North America and international driven by strong demand in pricing trends in North America. We had continued growth of the budget brand in Europe. We realized benefits from Phase 1 of our integrated demand fleet pricing system and we harvested incremental synergies from our Avis Europe, Payless and Zipcar acquisitions. On the capital allocation front, we repurchased 60 million of our shares in the third quarter, 70 million more in the month of October bringing our total purchases this year to $280 million. We increased our share repurchase authorization by an additional $200 million not only to give us the capacity we need, but also to highlight the confidence we have in our company and the long-term prospects for our business. And as important, we announced a significant tuck-in acquisition of our largest budget licensee holding rights to all of Southern California and Las Vegas, a busy and productive quarter indeed. So those are the headlines and David will give you more detail in a few minutes. But this morning, I would like to spend some time talking about the trends that we are seeing in our business and how they influence and are influenced by our strategic initiatives. These trends include pricing, demand growth, and fleet cost in North America, record results in our European operations, continued expansion of our Zipcar brand and our use of free cash flow for both bolt-on acquisitions and share repurchases. So, starting with pricing, on the pricing front, the positive trends that we have experienced since late 2012 continued in the third quarter. North American pricing increased 3% year-over-year in constant currency with…

Thanks Ron and good morning everyone. Today, I would like to discuss our third quarter results, our fleet costs, our balance sheet and our outlook. My comments will focus on our results excluding certain items. As Neal mentioned, these results are reconciled to our GAAP numbers in our press release and in the earnings call presentation on our website. Revenue increased 6% in the third quarter and adjusted EBTIDA grew 9% to a record $417 million. Margins expanded by 40 basis points and diluted earnings per share increased by 29% to $1.91. At the risk of being immodest, we consider our 29% EPS growth in the quarter and 33% EPS growth year-to-date to be significant achievements. Our trailing 12 months adjusted EBITDA now stands at $862 million and for those analysts who compare company margins and valuations based on adjusted EBITDA before deferred financing fees and stock-based compensation, our trailing 12 months adjusted EBITDA would be $911 million. Revenue in our North America segment grew 8% to $1.6 billion making it the strongest revenue quarter ever for North America. Total volume grew 6% in the third quarter, while pricing was up 3% in constant currency. Ancillary revenue per day increased 7% driven by higher damage waiver and insurance product penetration and our in-car SiriusXM Satellite Radio service. For the third consecutive quarter, we saw positive volume and pricing in both our Leisure and Commercial segments. Leisure revenue increased 9% in the quarter, with volume up 6% and pricing up 3%. Commercial revenue grew 7% in the quarter including a 5% increase in volume and a 2% increase in pricing. And as Ron mentioned, large commercial pricing increased, a trend we hope will continue going forward. North America adjusted EBITDA grew 13% year-over-year primarily due to the increased pricing in higher…

Thank you. (Operator Instructions) Our first question comes from John Healy from Northcoast Research. You may ask your question.

Good morning guys. I wanted to ask a big picture question Ron, in your prepared remarks you continued to indicate that you don’t feel like yourself or the industry is getting enough further value that you provide to the customer, I was hoping that you could kind of help us shape that a little bit, I mean ultimately from a return points or from a price point standpoint, I imagine there is a way you think about what the appropriate return on your services should be and I was hoping you can give us some bigger picture thoughts of what you think that is?

Well, there is a couple of ways to answer that, John. One is sort of the market or the customer approach is what I like to think about it. I think people get to an airport and they have – they make decisions based on convenience and price. And when you think about the alternatives when you get to an airport, it’s either a limousine service or a taxi. The limousine service is far more expensive and a taxi is far less convenient. And it seems to me that when you look at the value that car rental provides and the prices at which we provide it there should be a significant amount of upside in terms of the pricing that we actually realize for the service. Secondly, just in terms of return on capital, I have said this many times before. It just feels to me like we are a couple of hundred basis points shy in terms of what our return on capital should be given the investments that we make and the amount of capital that takes to drive our business. Everybody measures return on capital in a different way, I tend to look at it what’s our free cash flow return on our market equity plus our debt and it’s still a number that’s in the mid-single digits and I think it needs to get higher. And we should be 100 basis points or 200 basis points over our cost of capital. And then maybe a third way to think about it is, look at what’s happened to other people in our – in the travel sector, I mean airlines and hotels have increased their pricing significantly over the last few years. There is absolutely no reason why car rental, which is the smallest component of anybody’s travel budget shouldn’t be able to realize some incremental pricing just solely on the basis of what’s going on in the travel sector, so that’s my view.

Great and I appreciate that. And just wanted to ask one follow-up operational question, you talked about the de-fleeting that the industry had a little bit later in the year this year, how do you feel about that de-fleeting process. Do you think you consider yourself right fleeted, do you think your competitors are right-fleeted just a little color on around where you think the environment is today?

Yes, it’s – I think throughout the third quarter and even through October and looking forward to November, I think everybody is right fleeted. We tend to monitor the number of locations that go on LOR restrictions on a daily and weekly basis, so we know what percentage of locations are shutdown or restricted based upon and that only happens based upon fleet levels. And so looking at October and even into the third quarter, all the shutdowns would suggest that everybody was right fleeted. And I think it begs the question about the excess fleet Hertz is rumored to have and I think the conclusion that you can draw from it is that they probably parked a lot of these cars and are really managing their airport fleet with the cars that are simply available to them.

Okay, great. Thank you, guys.

Our next question comes from Chris Woronka from Deutsche Bank. You may ask your question.

Hey, good morning guys. I wanted to ask you about as we think about recalls this year and then into next year I mean obviously it was a huge jump this year, do you guys – is there any fundamental shift in – maybe if you look back a long ways and what the typical recall rate has been, I mean is there something going on there where we might expect higher recall levels kind of on an ongoing basis maybe not this year’s level, but versus the long-term historical average, do you think that rate is trending up?

Well, I think there is two things Chris, one is you are right. I mean we had over 140,000 vehicles recalled this year through the end of the third quarter and that’s twice the rate at which we had them in last – the year before. And the year before was higher than the year before that. So I do think it was out of the ordinary. I think there has been a structural shift in what is a safety recall. A number of the things that were part of the 140,000 this year would have been campaigns last year, but didn’t necessitate grounding of the vehicle. And I do think going forward, that the OEMs will be quicker to pull the trigger on a safety recall just based upon the scrutiny that this is all had over the course of the last 8 months or 9 months. That being said, I think what we are hoping is that there is some perception that this is we are in an amnesty period here and everybody is cleaning out their closet for all the things that can possibly be recalls and that next year’s level of recalls won’t be anywhere quite as significant. I think when you add up all the cars that have been recalled over the past year, there may not be many left out there that haven’t been recalled. So the opportunity maybe smaller, but I think we all believe that recalls will be down next year and that this is really just sort of a one-time event, but obviously we can’t guarantee that.

Sure. Just a quick follow-up if I can on pricing, do you see more of an – you talked about some of the large commercial pricing being up for the first time, as we think about next year in the opportunities, is that a much bigger opportunity than Leisure if we kind of try to breakdown the portfolio on the whole?

Well I think in the abstract, yes it is a much bigger opportunity, because it’s gone from being our best business to our worst business. And I think at the levels that exist in the large commercial marketplace now that going much lower is just basically taking on unprofitable business. But I do think it’s always going to be competitive. And I don’t – we are sort of bouncing around the zero to up a half, down a half place in the pricing scheme in large commercial. So I don’t want to get too carried away with it. But my feeling is it just can’t go any lower unless you want to lose money on a contribution basis. So look we are going to continue to push for increased pricing. We are not participating in RFPs where there is no service issue. And I think the number as we have reduced – we have renewed something like 70% of the contracts this year at flat or better rates. So, I am mildly optimistic and hopeful that we are going to continue that trend.

Okay very good. Thanks, Ron.

Our next question comes from Chris Agnew from MKM Partners. You may ask your question.

Thanks very much. Good morning. Given the fleet cost headwinds in general and from the recall in particular, have you seen any change in behavior of your peers in terms of greater willingness to follow your lead on pricing? What are the sorts of adoption rates you are seeing to your initiatives? Thanks.

Chris, it’s still inconsistent. The tone of the market right now is that we are leading with price and enterprise seems eager and anxious to follow and – but they are generally not following unless Hertz comes along. And from time-to-time, we see Hertz coming along and other times we don’t. And look I think all of this plays into the sort of the fleet bubble that’s kind of working its way through the system by virtue of recalls and excess fleet. I continue to believe it’s transitory that throughout the course of the fourth quarter and the people work their way through and then we will get some normalization of the fleet market. I think it will normalize at a lower level, because it is a supply-driven market and you can’t deny that the supply is up, but you know this industry has always been best at getting price when it had cost driven pressures. So, I think that, that in combination with the fact that both of our competitors have far more risk cars than we do and a far greater need to get price would suggest to me that, pricing will hopefully be more consistent as we go forward.

Thanks. And as a follow-up, can I just confirm you are not planning on breaking out Payless going forward in terms of, but it’s still likely to be a mix drag and I guess as you add grow Payless and add tuck-ins is it fair to think that mix drag will kind of be half a point next year? Thanks.

Good morning, Chris. It’s right. We anniversaried the Payless acquisition this quarter and we felt it was the right time to re-simplify our disclosures. The Payless effect this quarter is that it added about 1.5 points to our volume. It reduced our pricing by just under 1 point. And I think the volume impact was a little bit greater than it typically would be, because last year we had Payless for 10 weeks in the quarter, not all 12. So, that’s what’s giving rise to it. I think there will continue to be mix adjustments depending on the acquisitions that were folding in. Generally speaking though I think they are going to be relatively small and that’s why we took the approach we did with respect to the Payless disclosure, but those are the numbers, so you have them.

Thank you.

Our next question comes from Kevin Milota from JPMorgan. You may ask your question.

Hey, good morning guys. I appreciate your commentary on 2015 fleet cost and the reiteration of the $1 billion target for EBITDA. With the fleet cost in mind and the EBITDA target, what’s kind of your early view on pricing for ‘15? Is it still kind of expected to grow in the 1% to 3% range on a normalized basis? And then secondly, on the yield management systems, what are your expectations and kind of talk about timeline and rollout for Phase 2 and Phase 3 and what the potential benefit could be to the overall operation? Thank you.

Hey, good morning, Kevin. With respect to more details on 2015 and pricing in particular, I think we are going to wait until February when we have our full year results and go through our 2015 projections in detail to go into that. We are clearly enthusiastic about the continuation of the trend we have been seeing of price up 2% to 3%. And we do as Ron alluded to, we do view fleet cost pressures as being a reason for us to continue to try to push pricing in the future. Beyond that and with respect to any particular numbers, we are going to wait until February.

Okay. And then on the yield management system benefit?

Sure. And then on the DFP system and yield management, we ramped up from a very small number of markets using the pricing robotic to about 110 markets currently over the course of the first nine months of the year. And so, we will have the benefit of starting 2015 with 110 markets or more. And so we will get an anniversarying benefit solely from the robotic in the first half of next year, which we think will be helpful. We are making progress toward our forecaster and expect to be able to combine that with the integrated demand fleet pricing module in the second half of next year. I think it will be helpful in the second half of next year, but I am not expecting it to have a large impact on our results in the second half of the year. I do think with respect to the pricing robotic and the yield management tool, the benefits that we will get in 2015 aren’t just the anniversarying of the rollout in the ramp up. It’s also that using the tool as much as we have this year and getting more experience with it is making us better able to derive value from it. And so, I do think it will have an incremental benefit in 2015 even after we anniversary being at 110 markets. And the last element I want to mention is that given the success we have had with the pricing tool, we are accelerating the rollout of it in Australia and New Zealand and into Europe. And I think as I mentioned earlier, the rollout to Australia and New Zealand should have a positive impact beginning in the spring and we are looking to get Europe up and running as soon as possible in 2015 as well.

Okay. Thanks a lot guys.

Our next question comes from Afua Ahwoi from Goldman Sachs. You may ask your question.

Thank you. Good morning. So, first on the pricing front, can you remind us what is the, as reported, pricing number, especially because especially North America given the Canadian dollar has been a headwind and probably will be again in 4Q. So, how does the 2% to 3% number you have mentioned on a constant look on an as a reported number? And then separately in international I guess I think I was at least frankly a little surprised that maybe the volume didn’t grow at least it wasn’t flat given some of the gains in market share that you indicated in the past the Budget has been making. So, does that imply that the core has softened materially more? And what do you expect in the out-years or is the Budget gains more moderate now given it’s been around for a while now? Thank you.

Sure, Afua. The foreign exchange impact in North America was around a half a point in the third quarter and that’s really a half a point negative and that’s really where it’s been running throughout the year in each of the first two quarters and probably will have a similar impact in the fourth quarter as well. So, that’s where the impact there. With respect to Europe, I think the way you are looking at it makes sense. We are continuing to grow budget volumes. They were up in the high-teens in the third quarter and where the economic weakness and some industry-wide over-fleeting showed up is in our overall volumes. And so you could see that Avis gave up a little bit of volume to get to our overall numbers and we really attribute that based on what we are seeing to economic weakness that was there in Europe in the third quarter.

Yes, this is Ron. There are a couple of other considerations too to take into account. You shouldn’t judge the ability of Budget to grow by the third quarter. We yield Budget up fairly significantly in the Southern region during the third quarter. So, it’s not going to have the same capability to grow in the 20% to 30% range that – and actually into the 40% that it grew in the first half of the year, but we continue to believe at least for the next 3 to 4 years the budget is going to grow in the 20% to 30% range. We are actually adding a fairly big block of Budget licensees in one of our bigger territories over the course of the next couple of months that will drive the volume fairly significantly. And then the other thing is that there are few things that affected volume over the summer months. I mean one clearly was the World Cup. There is no question that it had an impact on volumes, but I think the other thing that affected it, volumes were short in Italy and Spain in markets where you didn’t actually think they were. And our sense is that our competitors, it wasn’t lost on our competitors how well we did last year in those markets. And I think they all fleeted up to try and grab some of the business that we took last year in those markets. And so I think the combination of the World Cup and the increased fleet drove what manifested itself as fairly tepid volume in those markets, but we still did quite well in those markets over the course of the summer. So, I don’t want you to take away that there was some sort of serious economic issue that affected the ability to harvest the summer peak in those markets.

It’s exactly right. We are bringing some of the tools that we have used in North America to focus on profitable transactions to Europe as well. And so what you are seeing is that, yes, in some areas, some submarkets we may have given up some volume. And I think that was all part of our strategy to focus on profitability and it’s how we were able to achieve the record results that we did in Europe.

Thank you.

Our next question comes from Fred Lowrance from Avondale Partners. You may ask your question.

Hey, good morning guys. Just wondering and looking at fleet costs, if what you can tell us about the 2014 fleet cost guidance, if you can sort of parse out the impact of recalls versus just maybe normal market changes in terms of what’s happening to residuals here lately. How many points or whatever related to recalls? And then sort of along those lines when I look at the 3% to 6% increased target guidance for fleet costs next year, have you done anything to maybe put in a little bit of a cushion for maybe after this year having more historically elevated levels of recalls obviously nothing like this year, but maybe taken a little bit more conservative approach to what that normalized recall run-rate might look for you?

Sure, Fred. As we think about fleet cost this year, we really do view the increase in our fleet cost guidance range, which had been 300 to 310 and now it’s 312 to 315 as being essentially all due to recalls and the disruption they have created both in the used car market and our ability to adhere to the optimized fleet plan we started with this year. And as a result, we do think the recalls had a significant impact in the movement upward from I’ll call it the midpoint of the range, where we started to the midpoint of the current range. So, we attribute that to recalls. As Ron mentioned and I agree I think recalls should moderate a bit in 2015, because of some the pent-up elements that were released in 2014, but I also expect that recalls will be at a higher level in 2015 than they were historically, because of the sensitivity and scrutiny in this area. So to put together 2015, I think one of the biggest or best buffer that we could put in place would be to increase the percentage of program cars we have in our mix. And I think the plans we have been able to adopt, the ability to make a fairly sizable shift for us of north of 10 points in the program component of our fleet does provide us with some buffer to be able to manage fleet cost in an environment that’s had a bit more volatility than over the prior 18 months. So, that’s sort of the thinking that goes into the forecast of a 3% to 6% increase in per unit fleet cost in 2015.

Okay. And with those – that fleet cost guidance in mind, can you just either one of you guys, Ron or David, just give us a sense for how the path to your $1 billion plus in EBITDA for 2015 has changed since you first introduced that target. Obviously, it seems like pricing running a little bit hotter, fleet costs are obviously a little bit higher and also curious to know how these tuck-in acquisitions like your Southern California licensee purchase, how maybe that pipeline has changed and given you more confidence in that $1 billion target over the last few months?

Yes. Well, Fred I think that historically we have used somewhere around a 2% to 4% fleet cost accelerator when we built the model to get to $1 billion of EBITDA. So, obviously, if we are at 3% to 6%, we have got some headwind there that we got to make up somehow. I think the components of what’s going to get us there is still the same. It’s the continue to harvest the synergies from the acquisitions. It’s the continued benefit that we are going to get from demand fleet pricing. I think overall pricing is going to play a greater role in it now than it would have before largely because we have got to overcome some cost pressures. And the $1 billion was made without the impact of considering the Budget acquisition, so it will be disingenuous for me to tell you that, that’s part of the $1 billion target, but nonetheless we will go a long way towards hitting our revenue and EBITDA targets in Budget. It’s a property we know well and it should integrate fairly smoothly. I think so I would like to see it add to the $1 billion target that we get, but we will issue guidance in February and you will get a better sense of where all this fits together.

Alright, thank you.

Okay. And we are running out of time. So, that will be our final question. And for closing remarks, the call has been is being turned back to Mr. Ronald Nelson. Please go ahead, sir.

So, before we close, I just think it’s important to reiterate what I believe were the key points from today’s call. One, we expect 2014 to be a record year driven by healthy industry dynamics as evidenced by strong volume and pricing in North America. Two, we continue to focus on pricing as a key lever in our business whether it’s to offset input cost increases or to drive margin improvement or both. Three, we are achieving the incremental synergies from our acquisitions of Avis Europe, Zipcar and Payless. And lastly, we continue to return cash to our shareholders through share repurchases. We do have a full investor calendar this quarter beginning with the Northcoast Best Ideas Conference next week in New York. I hope to see many of you during our travels. With that, I want to thank you for your time and interest in our company.

And this concludes our conference. You may disconnect at this time. Thank you.