Welcome. Good morning and welcome to the Avis Budget Group Second 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, Jill. Good morning, everyone, and thank you for joining us. On the call with me are Larry De Shon, our Chief Executive Officer; and Martyn Smith, our Interim Chief Financial Officer. Before we begin, 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. Risks, assumptions and other factors that could cause future results to differ materially from those expressed in the forward-looking statements are identified in the company's earnings release and other periodic filings with the SEC. It can also be found on the Investor Relations section of our website. Except as required by laws, the company undertakes no obligation to update or revise its forward-looking statements. Our comments today will focus on our adjusted results. We believe that our financial performance is better demonstrated using these non-GAAP financial measures. All non-GAAP financial measures are reconciled from the GAAP numbers in our press release and in the earnings call presentation, which is available on our website. With that, I'd like to turn the call over to Avis Budget Group's Chief Executive Officer, Larry De Shon.

Thanks, Neal, and good morning. We had a strong second quarter, highlighted by double-digit profit growth, further margin expansion and exciting new business developments. Starting with some of our achievements, we delivered strong overall volume growth and a 1% increase in Americas' underlying pricing in constant currency with leisure pricing up 2%, despite the Easter shift. We drove a substantial reduction in per-unit fleet costs, our single largest expense, and improved utilization. We launched an exciting new product across multiple U.S. airports, which is helping improve the trends in ancillary revenue. We invested in and expanded our new demand fleet pricing system and the next-generation connected car mobility platform that will enable us to employ advanced analytics and data science to optimize all aspects of our fleet. We reached the 100,000 connected car level just last week, a significant milestone towards connecting our entire global fleet. And we announced new relationships with Amazon, Lyft and Luxury Retreats. So let me start there. In July, we announced an exciting new program with Amazon to reward their customers who rent an Avis car, enabling them to save money on their rental and receive an Amazon gift card. We've already seen strong demand from Amazon customers since the announcement and look forward to working closely with them in the future. We also began a new partnership with Luxury Retreats, making Avis their exclusive vehicle rental partner. For those who don't know Luxury Retreats, it was acquired by Airbnb in early 2017 and is a full-service villa rental company with more than 5,000 properties in over 300 destinations worldwide. The company is dedicated to creating authentic travel experiences for their customers and is a great partner for our premium Avis brand. The agreement went live in late June, and we are already seeing nice…

Thanks, Larry, and good morning, everyone. I'm now going to discuss our second quarter results together with our cash flow, liquidity and outlook. My comments will focus on our adjusted results, which as Neal mentioned, are reconciled from our GAAP numbers both in our press release and earnings call presentation. Beginning with an overview, we had a strong second quarter with overall volumes growing, underlying pricing in the Americas increasing, and fleet costs and utilization each improving. As a strategy, we increased our overall fleet capacity by 2.8%, less than our rental day growth of 3.6%. We delivered a record $2.3 billion of revenue and a 15% year-over-year improvement in adjusted EBITDA in the quarter with our margin expanding by 70 basis points. Adjusted earnings per share increased 90% in the quarter, benefiting from the strong EBITDA performance, lower tax rates and reduced average share count. Now turning to our Americas business. Revenue growth in the quarter was driven by 2% higher volumes with growth both on and off airport. Revenue per day, the new pricing metric we adopted at the start of the year, was lower by 1% in the quarter, partly due to a longer length of rental achieved and the roughly 50-basis-points impact from difficult markets in Brazil. But revenue per day did progressively improve during the quarter. Our pricing under our historical T&M per day metric increased to 1% in constant currency, despite the Easter shift. The difference between RPD and T&M was largely due to ancillary revenue per day being lower by 3%, as well as the change in customer loyalty accounting we adopted this year, which affected revenue per day by about 50 basis points in the quarter. Ancillary revenue trends also improved in the second quarter compared to the first as a result…

Thank you, sir. At this time, we'll begin with our Q&A portion. Our first question comes from Hamzah Mazari with Macquarie Capital. Sir, your line is open. Hamzah Mazari - Macquarie Capital (USA), Inc.: Good morning. Thank you. The first question, I was hoping, if you could just add a little more color and just frame sort of the strategy of going after a longer length of rental in commercial, I guess. Maybe just walk us through where do you see as sort of the trade-off between price and volume. Are you showing traction in that this quarter? It seems like volume and pricing came in lower versus your largest competitor that's public. I know it's not apples-to-apples; you've talked about Brazil and loyalty accounting, et cetera. But maybe just flush out the strategy for us.

Yeah. I think one of the things that we learned when we started implementing DFP, DFP was built around trying to drive to profitability. And so, it will make trade-offs based on the volume demand, based on the fleet that we have. It will make trade-offs around different decisions as it relates to trying to drive the ultimate profitability solution. So, we know that when we drive longer length to rental, those are more profitable transactions for us. So we drive up our revenue per transaction and we don't have to touch the car and handle the car as many times for the number of days that you get on the longer length. But as you drive longer length, it has a negative impact or an effect, if you will, on rate per day. It's the right profit solution. Instead of taking a lot of one-days and two-day businesses, if you can get four-days, five-days, six-days, seven-day businesses or monthly business, that's a better profit solution over time, even though the rate per day is going to be less than if you did a one-day or two-day. So, DFP is allowing us to push for longer length earlier in the process in an effort to try to get more of your fleet on longer length rentals. So, we've been pushing hard on that, pushing hard on monthlies, and we're seeing our length of rental grow fairly significantly, particularly with the commercial book of business. And although the effect is going to have a lower rate per day, the overall revenue per transaction improves fairly significantly and overall improves profitability. Hamzah Mazari - Macquarie Capital (USA), Inc.: Okay. Great. And then just a follow-up question on Brazil, could you remind us how big that business is for you today and sort of the impact that you saw in Q2 versus Q1 in terms of just deterioration?

Hamzah, we don't disclose market details. But the deterioration kind of worsened in quarter two, and we're expecting it to be broadly similar to the balance of the year. Hamzah Mazari - Macquarie Capital (USA), Inc.: Okay. Great. Thank you.

Thank you, Mr. Mazari. Our next question is from John Healy with Northcoast Research. Your line is open, Mr. Healy.

Hi. Thank you. Larry, I wanted to see if you could give us a little bit more color on the outlook for July and August. Hertz provided some pretty powerful numbers on how their July looked, and qualitatively, some confidence in August. And I know you guys have kind of talked to an improving trend throughout 2Q and there's an optimism, but was just wondering, if you could maybe provide us maybe some more parameters regarding how successful July was for you guys and how you feel about summer 2018 ultimately shaking out.

Sure. In the Americas, I would say, leisure rates were pretty strong in July, and we're expecting that continue at least for the first two weeks or three weeks of August. Once again, we really push for a longer length of rental in July, which we got. Once again the effect of that, it will bring rate per day down, but we got very strong revenue per transaction growth in the month. And so, I'm very pleased on how DFP is performing and how the other initiatives we have are impacting our length of rental, it's proving to be extremely strong just month-after-month-after-month. But then you still have to balance that with the loyalty impact in the month of July of the loyalty program, and of course, the Brazil effect that Martyn has talked about. But I would say, leisure rates were strong; length of rental, very strong; revenue per transaction, strong. And we expect to see that continue this month until you get kind of the fourth week of August and things start to slow down, then you head into the September kind of the typical kind of valley after the summer.

Great. And just to provide a little bit of a reminder about 2017, I know there was a little bit of benefit the industry got from kind of some of the eclipses, I think, out West and then the storms in Texas and Florida. Is there a way to think about what kind of hurdle that might be for you guys as we think about September and just kind of – I know it's normally a shoulder period for you guys, but is it a material headwind that we should be thinking about as we calibrate our models, or is it more modest?

Well, I think the eclipse is a headwind, because obviously, it drove a lot of volume and good rates through the whole eclipse channel across the country. So, you won't have a repeat of that. Not that we're not booking good in those markets for a normal summer period. We are. But you did have this kind of nice bump last year. The hurricane effects, we'll just have to see as it plays out. Obviously, it helped us on some residual values as we sold cars in October, November, but it also took out some business obviously in September and October, particularly in Florida, where we didn't have bookings for like a solid week as it led up to the hurricane. So, you'd expect those volumes to return back to normal versus last year. So, I think there are some opportunities and there are some headwinds on residual values that we have to kind of deal with as we go through. So, we just have to move through the quarter and see how all the impacts shake out.

Okay. Great. And congrats on a strong first half.

Thank you, Mr. Healy. Our next question comes from Chris Woronka with Deutsche Bank. Your line is open, sir.

Hey. Good morning, guys. Larry, I was hoping, you could talk a little bit more about the Lyft partnership, just in terms of how and when you expect to kind of ramp up on volume, and then what kind of impact you think it could have on things like fleet costs and margins?

Yeah. We're really excited about this. As you know, we didn't jump into this right away. We've been really taking our time working with the car hail companies, and Lyft just has been a tremendous partner to sit down and really work through this with. And we finally got to a solution that we think really works well for them and their drivers and works well for us. We won't start actually rolling fleet over to them until towards the end of this year. But, we have said it will be in the thousands of cars making available for them. Obviously, with the size of our fleet, that's fairly easy to do these. The demand is going to be scattered across a number of different locations across the United States, which we'll be able to support pretty well. We're going to – we have a lot to learn in this, as we go through. We've had some experience with it on the Zipcar side, but we need to gain more experience on the rental car side. We're going to be probably a bit conservative on our fleet costs approach to this, until we learn kind of the level of mileage and so forth that we put on these cars. We will have our eyes on each car every month at least every month. These are weekly rentals, and they can renew the weekly rental over again and over again. But every month, we have to see the car. So, we'll use our data analytics team to really look at how the cars are accumulating miles and use the data that they have been able to put together, all the internal data and all the external data that we now have access to, to run models to see when is the absolute right time to sell the cars. So, since we'll have our eyes on these cars fairly often – and many of these cars will be connected, so we'll also be accumulating mileage information as they go – we'll have good insight to how they're accreting miles, and then we can take a decision on whether we need to get that car sold earlier than what we had originally planned and put the driver into another car, or we can let that car run to 100,000 miles, for example, and sell it at the end of its life then. So we've got a lot of flexibility, a lot of data analytics, and a lot of data coming in that will help us kind of manage the fleet in a way that we feel pretty comfortable with as we go forward. So, as I said, we'll be conservative upfront on the fleet costs and our depreciation levels. And then, as we learn, we can make adjustments as we go from there.

Okay. Very helpful. And then I realized you guys don't provide quarterly guidance, but maybe if we could look back on second quarter. Did that unfold generally in line with your expectations? Just trying to get a sense. You still have a wide range out there for the full-year. How would you characterize second quarter versus your kind of internal budget?

Hi, Chris. It's Martyn. It came in very close to expectations with a little bit of movement within the months, but it came in very close to what we expected. So, we're on track.

Great. Thanks.

Thank you, Mr. Woronka. Our next question is from Michael Millman with Millman Research Associates. Your line is open, sir.

Thank you. Could you talk about concessions? Some of the airports supposedly have spread their concessions to the ride-hailing. Some of the people in the industry say it's not working; some say maybe it is. So, I'd be interested to hear your take on it. And secondly, on your strategic initiatives, I think when you talked about them publicly, you were expensing about $50 million a year. Does that expensing continue? Is that likely to be permanent expensing, a change in one way or another? Thank you.

Michael, on the concessions, I think every airport is trying to deal with the impact of ride-hailing and the volume of cars that's putting on to the airports' curbs. And we don't get in the middle of those disputes, really. And so some airports have taken the stance to add certain taxes or concession fees to ride-hailing companies. I think they're all kind of different in form and amounts and so forth. That's up to the airports, and the ride-hailing industry is not something that we're really actively getting involved in.

Yeah. Michael. Just on the $50 million, I think it's materially the same as to what you heard, which I think we talked about several years ago, so predominately through OpEx and some CapEx as well, but we're pretty much in a similar position to what you were calling.

Thank you.

Thank you, Mr. Millman. Our next question is from David Tamberrino with Goldman Sachs. Your line is open, sir. David Tamberrino - Goldman Sachs & Co. LLC: Great. Thank you. Larry, it sounds like very-well-thought-through, slow-approach strategy to onboarding some longer-life vehicles and putting them into the Lyft network. I'm curious, if you could communicate what you're targeting from a margin perspective and a returns perspective for that business relative to your base leisure and commercial rental?

Yeah. We're not really going to discuss kind of expectations around margin of that at this point. We've run our own models and run some pro formas of what we think it will be, not ready to really discuss that publicly yet. But you're right at the beginning of your comments that we are going to take a steady approach to this. And the way the rollout works with Lyft, it does actually support just a steady approach and learning as we go in multiple markets going at the same time. And it's kind of a perfect timing, because at the time we'll be de-fleeting a number of cars after the Christmas season. We'll be doing a little bit before Christmas, but most of it will come really in the first quarter, second quarter of next year. So, that works out well from a timing perspective. And as I said, we've got – our fleet optimization folks are just – we have so much more skillset and data, external data that allows us to have a lot more granularity, a lot more understanding and visibility into residual values than we've ever had before. Every year, it gets stronger and stronger and stronger. And we know that not every – not all the cars should be sold at the exact same time. Not every car should be sold at 100,000 miles or 110,000 miles. And it really makes a difference depending on the make and model, where you're selling it, the trim levels that are on it, the mileage that's on it and so forth to make sure that you really optimize the opportunity of when you're going to sell them. And so we'll be using our fleet team to really help us understand that as we roll these cars in…

Yeah. I think the impact really is Easter moving into the first quarter which benefited the first quarter, but also obviously hurt pricing in April. So that had a fairly large impact for pricing in the month of April and overall impact for the quarter. And so, when you have Easter that early in April 1, the number of yieldable opportunities between April 1 and the end of June is quite a bit less than it was in the first quarter. Other than Memorial Day weekend, there aren't as many kind of peak opportunities as you're going through the second quarter. In the first quarter, you're building fleet kind of month after – because you've done the de-fleet after Christmas and then you start building fleet up for Easter and you kind of build it month-by-month. And it just so happens, volume is kind of improving month-after-month-after-month to kind of help soak up those cars you're bringing in. When Easter is that early, you're bringing cars in, in the second quarter for the buildup for summer and there's not the buildup of the volume at the same time to kind of absorb the cars. I think the whole industry would probably love a second quarter like this one to bring the cars in June 15, but that's not obviously how the industry works. So, you're bringing cars in throughout the quarter and the yieldable opportunities just aren't as many in that kind of quarter, as it would have been the year before when you had a good strong Easter towards the end of April and the Memorial Day weekend and so forth. And as we also said, Brazil has also been an impact as leisure, so it's been really, really tough in Brazil this year. David Tamberrino - Goldman Sachs & Co. LLC: Understood. It's very helpful. Thank you, Larry.

Thank you, Mr. Tamberrino. Our next question comes from Brian Johnson with Barclays. Your line is open.

Yes. Good morning. I want to ask you about the evolution of your U.S. fleet from sedan which, of course, are out of favor in the showrooms with weak residuals towards CUVs. Is that – and it certainly shows up in the auto fleet data in terms of rental car, fleet purchases which were up this year? Is that something you're participating in? Can you give us any metrics on percent of fleet in sedans versus CUVs and how that's evolved? And is there enough of a pricing boost you get on that to offset the higher fleet costs, if they, in fact, are in it?

Yeah. Brian, you didn't come through really clearly, but I'll try to address the question, as I think you asked it. I couldn't hear all of it. But I think it starts with our view of what customer demand is. And before we go into the buying year, we sit down and really take a look at what customers are looking for in rental car. We don't buy cars outside of what the customer demand is, by make and model. So, we really try to focus putting the right fleet in place that's going to meet the needs of the customers. And as the customers own purchasing habits have changed more to crossovers and to SUVs, so has rental demand has matched that. People like to rent, but they like to drive. And so, we always keep that in sync as we go forward. So, as we've shifted out of – we have shifted out of some sedans into SUVs and crossovers and some into larger SUVs. And, yes, we can get a higher rate per day on some of the bigger SUVs and what we call our non-core fleet. And even though, the cap cost of those cars are more expensive, the residual values have also been stronger. So net-net, when we take a look at those acquisitions, our fleet optimization team and our fleet acquisition team look at – take all that into consideration, starting with the most important thing and that is, make sure you've got cars that customers want by marketplace and then use the data analytics to get the right mix of models with the right trim levels and the right colors in the right markets to maximize your residual value on the other end and then take the advantage of what those non-core cars can help you with rate per day. So, we haven't seen any issues. We haven't seen any kind of misalignment as we've made transitions to some of the richer fleet that we did in the last half of last year. Yeah, it puts a little pressure on fleet costs, and obviously the comparable this year over last year, but it's the right thing to do, because that's what customers want and the residual values will be there to support it on the other end when we go to sell them.

And do you have a rough percent of where sedans are as a percent of your fleet?

I think it's about 24%, somewhere around that.

Hi, Brian. It's Neal. So, in the U.S., our fleet plan for the U.S. this year for, call it, all of our cars, mid, small and large are going to be little less than 50% of our fleet this year. That's the kind of what we call the non-core – typically the car cost.

Okay. And then second question, as airports roll out the centralized renting facilities, we're in the process of that at O'Hare, as you know. Do you see any difference in just price sensitivity competing against TNCs and others who are still picking up at the curb? And as you kind of look at that, is that a trend that is at all affecting your business, or is it just that you move from one type of lot to a central lot?

I'm sorry, Brian. Could you just repeat the question? If you could just speak (45:01)...

The impact, if you look at any city that has moved – if you look at a city that's moved from central – to a centralized pickup lot from the older system of buses going to individual lots, do you see any material difference in the rates you can get, the volumes you're getting? There certainly is a bare pieces out there that when you go to a big central facility like Miami or Houston, the budget – small B budget brands are in equal footing with the larger brands, and hence it's harder to maintain price differentiation. And secondly, the hassle of getting to those central lots may flip some travelers over into TNCs or other forms of transport.

Yeah. I think as you take a look at how things have evolved over the years for the number of walk-ups that you used to get are not – you don't get near the number of walk-ups, where people are just walking up into the counters without reservations. With the advancements of apps, mobile apps, and we're seeing a huge growth on our mobile app, most people are arriving to the airport already booked. And through things like mobile apps, they're actually booking, and not only booking, but they're also selecting their car in advance and so forth before they even get to the airport. So having a consolidated rental facility versus non-consolidated rental facility isn't really – it doesn't really make much difference at this point. I think most people have already thought through it, booked their reservation, and selected their rental car company. I think as it relates to airports, where it is more – where it's a lengthier transaction to get from the airport over to the rental facility, yeah, of course, that can impact convenience, which is why things like dropping customers off the new product that we're offering has some real appeal. People are willing to pay a fee for us, just to drive them directly to the curb, not have to go through, perhaps, a long tram ride or a congested bus ride or so forth. So, when the rental car facility is right across the street from the airport, sure that makes a difference. When it's a tram ride away, yeah, you can you can feel it. And that's why coming up with products that make it more convenient, providing more technology, more ability for people to transact online and use their apps and select their cars on the app and do everything that they need to do on the app makes it a lot easier for customers to be able to get to the car and have a more enjoyable experience. So that's why we're focused on those types of new product offerings. It's just that it saves some time for consumers and make it more convenient.

Okay. Thank you.

Thank you, Mr. Johnson. Our next question is from Wayne Cooperman with Cobalt Capital.

Hey, Neal. Question is, first, the expenses in the quarter, operating expenses grew 6%; SG&A grew 10%, if you could talk about that. And I thought I heard you say depreciation and amortization would be $200 million for the year, would seem kind of low since you've been run rating like $65 million a quarter for quite some time. So, if you could elaborate on those two things.

Yeah. It's Martyn, Wayne. Just on the operating expenses and SG&A, they're both – partly, it's currency translation is making them look higher. Plus, we also – and I think we talked about this as we presented last time. We've reset our comp schemes, which largely didn't payout in 2017, so had to reset those for 2018 target. And there's a bit of further channel commission costs because of the growth of leisure that Larry and I were discussing earlier, tends to bring in some more channel-related fees into SG&A as well. So, in summary, it's translation to an extent, channel cost to an extent plus resetting the compensation schemes. On the depreciation, some of it is currency and some of it is timing as well, just when the stuff is falling within the quarters, but the depreciation number, that's what we're expecting for this year for the non-acquisition related.

Yeah. There's a big step-down.

Yeah. It's a bit. But it's probably timing in the quarter, just the way it kind of falls.

Okay.

Okay.

Thank you, Mr. Cooperman. Our last question at this time is from James Albertine with Consumer Edge. Your line is open, sir.

Great. Thank you and good morning, everybody. Wanted to ask again to follow on here with sort of this narrative around future mobility and connected vehicles. Can you help us better frame – you're providing how many vehicles are connected in your fleet, we appreciate that; saying it's higher revenue lower cost, we appreciate that. But can you help us frame the economics here? And is this something that we need to track more closely, with respect to – as a percentage of your overall fleet adjusted for seasonality, what this number should look like over time? And is this going to be net more costs than benefits here in the short term or is it already a positive sort of margin situation?

Yeah. The revenue generation that we're getting from the connected cars right now is really focused around gas collection. So, we're collecting more gas revenue on every connected car transaction than a non-connected car transaction, because they can read gas down to one-tenth of one gallon. It also will refund gas to a consumer if they brought it back with more gas than they had in it when they took the car out, because it's calculating that as well. So even net that, we generate more revenue per transaction on gas collections, and that more than offset the cost of the technology altogether. What we're really focused on now through the Kansas City Mobility Lab, is looking at ways of how we use the connectivity to manage the fleet and to – tighter control around the assets, since we know pretty much where the car is at all times. So, we've developed a number of reports that managers are now using that keeps track of exactly where their cars are at all times? Whether they're on rent? How they actually show on the system versus what we actually see them doing? And making sure that we get our cars back and on rent, service and on rent faster than non-connected cars. And also, we're using the technology to get ahead of maintenance concerns on the car by being able to read the diagnostic codes on the car. One of the first ones we launched was the ability to actually know that there is going to be tire inflation problem before our customers sees the red light go off on the dashboard that causes some concern during the rentals. That allows us to quickly be able to know exactly what tire we need to inflate before that light goes off. The…

Very good. Thank you. And best of luck in the third quarter.

Thank you, Mr. Albertine. For closing remarks, I will turn the call back over to Mr. Larry De Shon. Please go ahead, sir.

Thank you very much. Before we close, I think it's important to reiterate the key takeaways from today's call. We had a strong second quarter with volume, underlying pricing and fleet costs improving. Our work to improve our profitability was evident this quarter with margins increasing 70 basis points. We reached a significant milestone towards our goal of having a fully connected global fleet, and we announced exciting new relationships with Amazon, Lyft and Luxury Retreats. We have a full calendar of Investor Relations activities planned again this quarter, including events in New York, Boston and California, and we hope to see many of you during our travels. With that, I want to thank you for your time and your interest in our company.

Thank you. That does conclude today's conference call. You may disconnect at this time.