Welcome to the Hertz Global Holdings Third Quarter 2010 Earnings Call. The company has asked me to remind you that certain statements made on this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance, and by their nature, are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date, and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements is contained in the company's press release regarding its third quarter results issued yesterday and in the Risks Factors and Forward-Looking Statements section of the company's 2009 Form 10-K and second quarter 2010 Form 10-Q. Copies of these filings are available from the SEC, the Hertz website or the company's Investor Relations department. [Operator Instructions] I would now like to turn the call over to your host, Leslie Hunziker. Please go ahead.

Good morning, and welcome to Hertz Global Holdings 2010 Third Quarter Conference Call. You should all have our press release and associated financial information, which we issued last night. This morning, we've provided slides to accompany our conference call that can be accessed on our website at www.hertz.com/investorrelations. Let me give you a quick update on our IR calendar. We'll be attending Northcoast Fall Management Forum on November 9 and Barclays Global Automotive Conference on November 16, both in New York. Hertz's annual financial modeling workshop and Investor Day is scheduled for December 6 and 7 in midtown Manhattan, and more detailed information on that will be sent out next week. In a minute, I'll turn the call over to Mark Frissora, Hertz's Chairman and CEO. Also speaking today is Elyse Douglas, our Chief Financial Officer. In addition, we have Scott Sider, Executive Vice President and President of Vehicle Rental and Leasing, the Americas; Michel Taride, Executive Vice President and President, Hertz International; and Gerry Plescia, Executive Vice President and President of Hertz Equipment Rental. They'll be on hand for the Q&A session. Before we begin, I need to remind you that, today, we'll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and at the back of the slide presentation, both of which are posted on our website. We believe that our profitability and performance is better demonstrating using these non-GAAP metrics. Our call today focuses on Hertz Global Holdings, Inc., the publicly traded company. Results for the Hertz Corporation differed only slightly as explained in our press release. Now I'll turn the call over to Mark Frissora.

Good morning, everyone, and thanks for joining us. Let's start if we can on Slide 5. As you saw in our pre-announcement a couple of weeks ago, we delivered a solid third quarter performance despite the slower pace of the economic recovery. Revenue from our U.S. Rental Car business grew faster than our public competitors for the fifth consecutive quarter, benefiting from a relatively healthy pricing environment this summer as well as higher demand in the commercial market. Our European Rental Car revenue growth neared double-digit levels when you exclude the effects of currency translation, and the Equipment Rental business turned the corner, generating 33.7% higher adjusted pretax income in the quarter and year-over-year revenue growth that was positive for the first time in nine quarters. Turning to Slide 6. For the company as a whole, our balanced strategy that focuses on diversified growth and continuously improving our cost structure paid dividends in the third quarter. We generated 29.9% higher adjusted pretax income on 7.1% more revenue compared with last year. The significant profit improvement was generated despite higher interest expense, $3.7 million of negative currency exchange rates and continued investments in our expanding Advantage Leisure business and our Off-Airport operations. Third quarter 2010 adjusted pre-tax margin for the entire company increased by 200 basis points year-over-year to 11.6% as we continue to benefit from ongoing cost-saving initiatives. In particular, we're seeing strong flow-through of the savings in our U.S. Rental Car business, where on Slide 7, you can see that the adjusted pretax margin was 160 basis points higher in the recent third quarter and adjusted pretax income was $14.5 million higher than in the third quarter of 2007, which was a historic peak period for Hertz. This stronger profit was achieved in the face of today's macroeconomic pressure…

Thanks, Mark, and good morning, everyone. Let me begin on Slide 19. We are very pleased with the third quarter financial performance. On a consolidated basis, we generated $2.2 billion of revenue, up 7.1% or $144.9 million increase over the same period last year. GAAP pretax income of $158.3 million reflects a 108.8% year-over-year improvement due to improved operating earnings and lower restructuring costs offset by higher interest expense and cost related to the proposed Dollar Thrifty transaction. GAAP diluted earnings per share of $0.36 for the 2010 third quarter represents a 140% improvement over the prior year period's $0.15 per share. Adjusted pretax income of $253.6 million, as Mark mentioned, was up 29.9% over last year's third quarter, reflecting a margin improvement of 200 basis points. On an adjusted basis, EPS increased 29% in the quarter to $0.40 per share compared with $0.31 per share in the third quarter of 2009. The increase in earnings was driven primarily by higher revenue, cost savings, including improvements in monthly depreciation per vehicle and higher labor productivity as Mark showed you earlier. Let me give you some more detail on the performance trends by business segment. On Slide 20, our Worldwide Rental Car revenue for the quarter of $1.9 billion was up 8.3% year-over-year, or 10.5% excluding the effects of foreign currency translation. U.S. Rental Car revenue increased 11.4%, while the European Rental Car operations experienced 8.3% growth in revenue, excluding the impact of currency translation. As you know, revenue is a function of volume and revenue per day. Volume, as measured by transaction days, grew 8.9% in the U.S. and 5.8% in Europe. RPD, as Mark mentioned, was up in the U.S. and Europe with increases of 1.7% and 1.5%, respectively. And excluding Advantage, U.S. RPD was up 2.4%. The total…

Thanks, Elyse. Let's move to Slide 33 if we can. While the consumer sentiment rose slightly in October, it remains at historically low levels. Despite this, we're cautiously optimistic about the macro trends going forward in both of our businesses. If you turn to Slide 34, you'll see a 20-year industry trend represented by the yellow line that validates the expected continued growth in the rental car industry. A lot of people ask us how closely we correlate to airline travel, and while certainly a driver of our growth, you can see our market has moved independent of the airline industry as a percent of the GDP. Off-Airport rental revenue, which is represented by the blue line on the chart is the biggest driver of the rental car industry's overall growth. This supports our strategy of Off-Airport market penetration and gives us confidence that we're focusing on the right things as the industry shows positive macros going forward. For the fourth quarter in particular, we're seeing a typically seasonally low quarter for leisure demand. However, on Slide 35, the global environment for commercial travel remains strong. Moreover, our growing U.S. Off-Airport business will continue to make healthy contributions to both revenue and profitability, and our value leisure product Advantage continues to rapidly expand its presence nationally, at the same time, existing locations are adding to market share and margin growth. In the U.S. and Europe, industry fleets are currently right sized for demand. And worldwide, we expect to deliver at least 200 basis points of year-over-year utilization improvement in the fourth quarter. Pricing remains the only real wildcard. Right now, we've got strong leisure pricing in place for the holidays, which will help us as we face a tough year-over-year leisure pricing comparison. Competitive pricing pressure in the commercial accounts…

[Operator Instructions] First question comes from the line of Brian Johnson, Barclays Capital.

I just want to get a sense of some of the market share momentum in the corporate travel market. A, what's driving it? And b, how do you think that's going to play forward into pricing as you go into the contract negotiations? It seems like there is a clear preference for the business traveler for your brand. The question is, can you translate that into contract price increases?

Brian, first of all, the market share improvements, both in leisure and commercial, probably in equal segments. So I want to make sure you're clear and that. In terms of contract negotiations, we have a couple of hundred every single month. Where that goes is where the competitors go, right? So we protect our share with 99.3% retention rate. So we're not going to give that up. I mean, that will continue to be our retention rate. So pricing pressure is less than it was in a year ago. It continues to be in the neutral to down 1% or 2% range. When does that improve? I don't know. I really don't. For me to forecast that would be like crystal balling and I just don't know. But hopefully, as volume improves, you would think that the pricing in commercial will begin to improve with that. So hopefully, we would expect sometime next year, we start getting some positive price growth, if you will, in commercial business.

On the one hand, are competitors going to get more desperate if they see share going to you and cut price further? Or on the other hand, at what point can you just take a firmer line with the procurement department and travel department and saying we should be rewarded for what your employees want to rent?

First of all, nothing's changed. Our market share growth is built around those pieces that you saw. We showed you the growth in distinct segments, right? So I mean, it's clear that the share growth is coming from a broad base return-to-value proposition that we've established. We got higher customer satisfaction scores. We're not doing it with pricing. And I'm not growing the business through pricing. We had positive RPD growth in the highest volume quarter of the year.

No, I was suggesting, do competitors cut price further to make up for their, perhaps, brand disadvantage with the corporate traveler?

I mean, for me, anyways, I think the competitors have all settled on market share numbers that they're at right now. I don't think anyone in the industry is looking to cut price. I think the fleets right now are fairly tight. I mean, I wouldn't call them tight, but they're adequate, they're certainly were they should be right now. So we feel pretty good about the fact that the industry is very rational. We haven't seen return to irrational times or anything at all because the market is not that great in terms of absolute demand. It's still not at '07 levels. We're doing better than most because of our growth programs. So we're driving double-digit growth because we've got areas to grow double-digit. But in general, the general demand level is still below 2007 levels in most markets. So you still got a pretty rational industry right now. We're not seeing what you're indicating as some irrational competitors trying to gain share. We don't see it.

Well, speaking of that, since one of your growth initiatives is Off-Airport, we would assume that some of that Off-Airport share, not a large part of it, is coming out of Enterprise. Are they at the point where you've gone from being a net to a mosquito or a bee? Are they noticing what's going on with your success Off-Airport? And what does that mean? And could they potentially retaliate on-airport or at corporate against your growth in Off-Airport?

I think there's always been healthy competition between Enterprise and Hertz. So there's nothing new going on there. And the competition is exactly as you've outlined. It's on-airport is where they've always try to grow, and we've always tried to grow on Off-Airport. This has been going on for about 10 years. And the reality is that we feel like we're growing faster than the industry in Off-Airport, and it's because it's a huge market. It's $10 billion, just as big as on-airport. And there's been 80%, 75% market share held by one person, and that one person can only -- if a formidable competitor comes back and establishes a network and we become a second choice, we're just going to keep growing. I mean, I think it's obvious, right? That there is going to be market share gain when there's been almost a monopoly in one particular market. So I think we have a big opportunity there to continue to grow without creating a pricing situation. Frankly, it does no one any good to create pricing problems. You saw our Off-Airport grew on pricing. We were above 450, 480 basis points on pricing year-over-year in Off-Airport. So I think in terms of what's going to happen, I think it's more of the same. I don't see anything really changing. We both compete based on value. And whoever provides the best value to the consumer, ultimately wins in any market.

So they are not saying, we're bothered by what you're doing Off-Airport and we're going to take it out against you in airport pricing?

I don't know what they're saying. They don't talk to me. That's for sure.

But you're not seeing it in how they're showing up at the corporate bids?

I think I've answered the question.

And the next question comes from the line of Emily Shanks, Barclays Capital.

This is Mike Perez on behalf of Emily. Mark, we're wondering if you could comment on your overall view of Rent-A-Car fleet levels in the industry? And related to that, what's your view on pricing power going into 2011?

I just did in that last question. I'll repeat it, okay? And what I said was I think industry fleet levels are adequate. They're right where they should be. We don't see a lot of over-fleeting anywhere. We think they're right where they need to be. The pricing environment for us, I said in my call, it's a wildcard, right? So it looks good. And the peaks, and then the trough areas, it looks fairly stable. So that's the best way to describe it for fourth quarter, positive in the peaks, a little tougher but stable in the trough areas.

Second question if I could is, what are HERC gross net CapEx plans for 4Q 2010? And do you have a preliminary view for full year '11?

I do. So I guess, in terms of net CapEx for Q4, we'll probably right in line with Q3, approximately $80 million. For 2011, our net CapEx will be in the range of $300 million to $400 million. I don't have a gross number. We look at everything on a net basis.

[Operator Instructions] Next question is from the line of Rich Kwas, Wells Fargo Securities.

Depreciation per unit, you continue to see nice declines there. You're getting to that mix level in terms of disposition mix that you're achieving a 50% or so. How much do you think depreciation per unit per month has [indiscernible] as you look out the next several quarters?

Well, I mean, I can't really forecast that for you, I guess, the way you probably like me to. But in general, it's going down. Net depreciation per vehicle will continue to go down throughout the year next year. So we're confident in saying that and it'll be significant. So we're doing an awful lot, as you know, in the remarketing side where we can take that, we think, down to like 20% at auction, longer term. I mean, that's kind of our goal. And then on top of that remarketing, some of the programs we've got in place for car manufacturers are very attractive. We bought a wide range of fleet and we've got an attractive range of prices. So our cap cost, we believe, will also have an impact to that depreciation line. So we feel pretty confident that you will continue to see from Hertz a net depreciation per vehicle improvement throughout 2011.

And then just a quick follow-up. On Advantage, RPD was down 7% to 8% year-over-year in the third quarter. Was there anything driving that? How should we be thinking about RPD as we move into next year? I don't know if that's inclusive of everything. Is that a same-store number? But if you could provide some color on that, that would be great.

Sure. I mean, Advantage is a brand-new brand. It has very little volume. I mean, we were at a run rate of about $160 million roughly a year right now. And what you've got is, last year, when we were looking at it, very few locations. Those locations we did have, we were yielding up, obviously, with Hertz. Sometimes, we had no cars in the industry. And because the industry was tight fleeted, Advantage had cars and we were getting rates of $50, $60 a day. Now that Advantage is more mature and we don't have that same condition with tight fleets, I mean, everyone seems to be more right-fleeted this year. Advantage is returning to the RPD rate that it always has been. So there is no deterioration of RPD, per se, in Advantage. It's right about where it always has been. And it's just the vagary of what happened last year versus this year of having a very tight fleet last year in the industry, and we were able to take advantage of that with the Advantage brand.

Next question from the line of Chris Agnew of MKM Partners.

First question on Equipment Rental. The government and engineering services, which is about 1/3 of your business, just maybe could you shed a little light on what the drivers are there and what activity you're seeing as you're heading into next year?

Gerry, feel free to answer that question.

Sure. It's actually about 8% of our business, Chris. 1/3 of our business is what we call fragmented and that's about 20% of that pie. But we're seeing stimulus money start to have an impact on the road construction, on transportation terminals, municipal work and that's where we're seeing the money start to come in to our industry. And it appears that, that level of spending, the increase we've seen lately, will continue into the first half of 2011. So some of the impetus behind the earthmoving improvement that the industry is seeing, we expect to see into the first half of '11.

And then a quick follow-up on China. I know it's very small, but you're in there in Equipment Rental and Car Rental. I mean, what do you think the opportunity is there? And is this something we'll be talking about more in one to two years? Or is it more sort of three to five years?

Well, we just hired, actually, a general manager, run operations there very well, respected Chinese professional. And we've put together a fairly aggressive strategy in China for both the Equipment Rental and Rent-A-Car. We've now got four locations in each. I mean, what revenue growth we get, it will expand rapidly as we open up the stores. Everywhere we open up, we've been successful. We're making money in Equipment Rental already, and the growth is double-digit very rapidly once the store is opened and established in that area. So on the Rent-A-Car side, again, big opportunities more of a chauffeur-driven model and what we call fleet-leasing model. So it's a little different model than what you traditionally think about Rent-A-Car, but it's very rapidly growing as well. And we've made good connections with the Chinese government, the mayors of different cities in order to expand that business model with licenses that we need in order to grow the business. Our strategy in China for Rent-A-Car is to open up the top 30 airports and have a corporate store opened at each major airport, all of those being larger than O'Hare. And then, actually expand in a hub-and-spoke concept, so that we end up having local Chinese franchise of those franchise and get trained at that corporate location that's at the major airport. So we can deploy that kind of strategy, actually, fairly rapidly. But in terms of your actual question, I wouldn't look at significant revenues probably occurring for three to five years. Although, we'll get nice revenue growth the next two, I think it's more of a three- to five-year time horizon where you start seeing a much bigger piece of our revenues coming from Asia-Pac.

[Operator Instructions] We have a question from the line of John Healy, Northcoast Research.

Mark, kind of a longer-term question, when you look at the performance of HERC and RAC on the pretax margin front this quarter, the highest we've seen in a number of years, I was wondering if you could give us some thoughts of where you think, longer term, the pretax margin potential of the company is today, kind of in light of a more disciplined pricing environment, the internal initiatives you've put to reduce costs in the strong used car market, where you think kind of over the next couple of years, we can march to on the pretax margin side?

Well, when we look at kind of the '07 levels of pretax margins for the company and the corporate EBITDA margins. Our expectation is to move, I would say, 300 to 500 basis points higher than the '07 levels, which were historic for us. And we think that, that's very achievable over the next two, three years, that we'll be higher than '07 pretax and EBITDA margin levels by 300 to 500 basis points. So that's kind of the longer term strategy. We're developing, from the Investor Day, kind of an outline of revenue growth and margin expansion and cash flow generation for all the models for the Investor Day that we're hosting for investors. And we'll be more clear on that and try to give you some framework around that. But good news is, again, much higher margins, both on EBITDA and pretax side, based on our current trajectory and the cost takeout that we've had over the last three years.

Next question is from the line of Steve Kent, Goldman Sachs.

This is Neal Portis for Steve. I just want to follow-up somewhat on a prior question. Could you just talk about some of the ways that you've been able to drive sequential increase in commercial rental car pricing? I think, in the second quarter, it was down about 2%, but this quarter it was up 0.5%?

Yes, so on commercial pricing, it involves a wide range of accounts, right? There's like a Fortune 100 list, Fortune 200, a Fortune 1000 list. What we're finding is that in the very competitive top 50 accounts, pricing pressure continues to be high. However, it's getting more flattish, right? Because we had to have some large reductions a couple of years ago. And middle-range businesses, again, good pricing pressure. But if you provide more value added, there's obviously more opportunity for pricing growth. So kind of in the midrange, small-range accounts, more opportunities on pricing growth. Top-range customers continues to be competitive, but we believe we're getting, in some cases, value equations where we're increasing because we did lower our prices so much over the last two years in order to save market share. So feel pretty good. Small accounts are BAP [ph] accounts. These are very small local businesses that we sign up in Off-Airport locations often times. That pricing, that RPD, was actually up 1.5%.

Next question from the line of Michael Millman of Millman Research Associates.

Could you give us some idea of the cost, maybe frame it in operating expense plus SG&A for the different components, for example, airport, commercial, Leisure, Off-Airport, Advantage?

You mean like DOE, direct operating SG&A by segment or something? Is that what you're asking?

Yes, exactly.

Don't have that off the top of my head.

Or at least give us ranges if you could?

I mean, Michael, I wish I could answer that question. I don't have it. I mean, typically, the way we look at our segments, we have Off-Airport and Airport. Certainly, in Off-Airport, our operating expenses are lower than On-Airport, probably by a factor of, I would say, maybe 20% to 30% lower, in that range roughly, 20% to 30% lower on a DOE SG&A basis. And then you asked about Off-Airport and Airport, what else did you ask about?

Well, I asked about Airport, Leisure and Commercial.

Well, see, now it's blended. I've got a cost center at the Airport, and the DOE and SG&A is one cost center, and I'm handling Leisure and Commercial together. In terms of which is more expensive, a lot of it depends on the customer, right? So leisure traveler, in general, we can get a higher, fast RPD growth than we can we with a business traveler. Business travelers rent typically cars that are a little nicer, medium-sized, full-sized cars. So sometimes, we get a better rate there. Leisure travelers and an airport like Orlando, as you know, has a very competitive market. So again, it's more price competitive. In the midwest market, though, we can typically do better with Leisure in some of those markets than we can in the highly competitive markets. So really is kind of airport-specific in terms of the margins we make on the businesses. But in general, a business traveler with a two- or three-day rental, it's more difficult to make a higher [indiscernible] assets than it is on a seven-day, or at leisure, a five-day, or 13-day rental in Off-Airport. And that's just because it takes more labor, as you know. Every time I do a two-day rental, that's all I'm doing is two-day rentals with a business traveler. I've got to turn that car 15 times a month. I have to relocate that car. I have to clean that car. I got a lot more labor associated with it. So that's why the Off-Airport growth strategy makes a lot of sense for us. And it's very helpful, we think, longer term from even a margin enhancement standpoint for us.

That's exactly what I was looking for. If you could give a little bit of quantification for what that two-day extra cost? And also, Advantage was the other name.

Yes, Advantage, again, for Advantage, our operating expenses typically, are probably, I would say, somewhere around 35% -- probably 40% lower, roughly, 40% lower on operating expenses. And then in terms of fleet costs, the fleet cost there are, let's see, if I do the math on this, we're around, I'd say, $300, $240. So I mean, $300 kind of per day versus on Hertz classic versus $240 per day net depreciation per month on Advantage. So that's about 20% to 25% lower. So that's what we're seeing in terms of Advantage in terms of cost comparisons.

Next question from the line of Chris Doherty of Oppenheimer.

Elyse, you guys have been very successful tapping the market, the debt markets recently and you said that you're going to use proceeds from 7 1/2 to take out the 10 1/2. I mean, you've sort of leapfrog when maturities which are the 8 7/8 [ph] and those stepped down in January on a call price basis. What's the thought that come into the market again?

Well, we're definitely looking at it. So we're keeping tabs on where the market is. And when we think timing is right, we could potentially tap the markets again and refinance those early as well.

Mark, in terms of the net CapEx for HERC, where are you right now in terms of a time-utilization standpoint? Or can you absorb more demand without growing the fleet at this point?

Yes, I mean, we certainly can. I mean, Gerry, you want to expand on that a little bit?

Sure. Where we have room is in aerial and material handling. We still have room in that segment of our fleet. Earthmoving and industrial power pump, some of those areas is where more highly utilized than we're purchasing fleet into. So it's really by type of fleet. We can absorb more demand in aerial and material handling. We have to buy some more in the other specialty categories to grow utilization.

Gerry, the 300 or 400 that Mark mentioned of net CapEx in '11, does that assume any growth or is it that just pure maintenance?

It assume some growth as well. We're expecting closer to double-digit growth overall in volume next year. So there would be -- about half of that would be for growth.

And the final question comes from the line of Fred Lowrance of Avondale Partners.

Just a brief one on the Off-Airport business. You've obviously drawn that pretty quickly and gaining a lot of traction. Just interested to know if just how quickly those Off-Airport locations mature? And maybe if you could compare that to the sort of timing that you're seeing with your Advantage expansion?

I'll have Scott answer that. Scott Sider who is President of our North American and South American operations for Rent-A-Car.

So the locations are profitable within the first year. And I would say they get to full maturity, in terms of margin, takes about three years. But within the first 12 months, they are turning a profit for the locations.

That was the final question.

Well, listen, thanks, everyone, for attending the call. We look forward to talking about more good news from Hertz. Thank you, everyone.

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