Welcome to Hertz Global Holdings’ Third Quarter 2017 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I’d like to remind you that today’s call is being recorded by the Company. I would now like to turn the call over to our host, Leslie Hunziker. Please go ahead.

Good morning, everyone. By now, you should all have our press release and associated financial information. We’ve also provided slides to accompany our conference call that can be accessed on our website. I want to remind you that certain statements made on this call contain forward-looking information 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 our earnings press release and in the risk factors and forward-looking statements section of our 2016 Form 10-K and our third quarter 2017 Form 10-Q. Copies of these filings are available from the SEC and on the Hertz website. Today, we’ll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and related Form 8-K, which are posted on our website. We believe that our profitability and performance is better demonstrated using these non-GAAP metrics. Our call today focuses on Hertz Global Holdings, Inc., the publicly traded company. Results for the Hertz Corporation are materially the same as Hertz Global Holdings. On the call this morning, we have Kathy Marinello, Hertz’s CEO; and Tom Kennedy, our Chief Financial Officer. Now, I’ll now turn the call over to Kathy.

Thank you, Leslie and good morning everyone. I came to this Company knowing that the only way to drive a successful turnaround is to bring back growth, and so that’s what we’re focused on. We’re elevating our products and service quality to best-in-class levels, enhancing our brand and digital marketing to raise our exposure and solidify our value propositions to our customers and upgrading our systems capabilities to ensure we have the most advanced technology to enrich the customer experience and drive repeatable and reliable processes, all of which will provide us with a distinct competitive edge. Bringing back growth after an extended downward trajectory takes time, a consistent ongoing focus and investment. But we’re doing the work and making tough decisions even in the face of earnings pressure to ensure our iconic brands are attracting robust profitable demand and to position us for long-term sustainable leadership while leveraging our fleet management and distribution assets in this evolving industry. The good news is that our third quarter results reflect early contributions from the work we’ve already done, providing evidence that we’re on the right strategic path. For example, we’ve begun to see some operating improvement after getting the fleet capacity and car-class mix rebalanced in the first half of the year. Rolling out our new Ultimate Choice program to 47 U.S. locations to-date has resulted in NPS improvement, an incremental corporate volume. Enhancing our revenue management capabilities, has allowed us for better rate segmentation and faster response time. Building our Global Continuous Improvement program or GCI is reenergizing the operations inefficiency and customer service. And adding new leadership to complement the strong talent that’s already in place ensures we benefit from a breadth of knowledge and expertise that’s critical to informal decision-making and business innovation. To be clear, it’s still…

Thank you, Kathy. Good morning, everyone. Despite approximately $57 million elevated investments and higher vehicle interest expense and an additional estimated $15 million negative revenue impact from the hurricanes in the third quarter, we generated $321 million of adjusted corporate EBITDA, trailing the prior year quarter by just $8 million. We were able to narrow the year-over-year earnings gap compared to prior two quarters of the year by improving U.S. RAC total revenue per transaction day pricing from minus 3% and minus 2% in the first and second quarters respectively to a positive 2% in the third quarter; increasing the U.S. RAC revenue per unit per month from minus 8% and minus 4% in the first and second quarters respectively to 5% and 1% in the third quarter; moderate growth in the U.S. RAC monthly unit vehicle costs from an increase of 15% and an increase of 27% in the first and second quarters respectively to a narrow 1% in the third quarter; and continuing to deliver stable operating performance in our international RAC and Donlen businesses. Now, I will get into some of the factors that contributed to these improving trends in the U.S., international segments, and update you on our recent financing transaction’s liquidity and cash flow performance. Starting in the U.S. Rental Car segment, in third quarter, total revenue declined 1% versus prior year. The result, however, reflects an improvement from the prior two quarters where we posted revenue declines of 4% each quarter. As Kathy mentioned, our focus is to turn the top-line performance around and produce growth. And this quarter, we clearly made progress. We are narrowing the gap and heading in the right direction. Total revenue per transaction day or total RPD [decreased] 2% in the quarter comprised of a 3% increase in airport…

[Operator Instructions] Our first question comes from the line of Chris Agnew, MKM Partners. Please go ahead.

Thanks very much. Good morning. On the -- there is a lot of detail on the call. Thank you for that. So, you mentioned T&M around 5%. I am assuming that’s excluding ancillary items. And did you and can you share what leisure rates were in the third quarter? And then, with respect to that T&M, are you seeing headwinds on ancillary items outside of the impact from the lower Dollar Thrifty volumes which you called out and said were having a mix impact on ancillaries? Thanks.

Good morning, Chris. Yes, as I said, I think it’s important for us to kind of give a little clarity on the rate because I think fundamentally a good indicator of the industry and the company performance is the T&M rate. What is more addressing our control is the ancillary and the mix and improving the mix. So, the T&M rate excludes the ancillary performance; total RPD includes the ancillary performance. In the third quarter, we did have some by design and some by work we have to do. We just had lower volumes of Dollar and Thrifty business. And as a result that has the higher penetration of ancillary, as you know because it’s primarily leisure-driven and as a result, that has a more of a headwind on ancillary; and therefore, dampens the headline RPD price. So, as we go forward, I think we’ve got a lot of initiatives to balance the right mix of trying to continue to improve the performance of the Dollar and Thrifty brands. As we’ve talked about in previous call, those brands were very underinvested, you could say, for almost a decade. We have brand managers involved now in there, very talent person leading that brand. Our new Head of Marketing has got a lot of ideas on driving demand into those brands and improving the service and quality of the products offerings. But we expect to improve that mix going over time which will by definition improve the ancillary performance of the Company. There is obviously some secular headwinds, I think if you think about things like GPS, but we also have other products we offer, that are actually some early indications of uptick and positive response from customers and offset some of those secular headwinds that you have such as GPS. So, there is both the mix and a product issue, we’ve also worked with our incentives, our field people to improve and to test their improved penetration. So, a lot of good initiatives and a lot good things going forward to improve both the mix as well as the overall performance of the ancillary in the business.

Thank you. And I actually asked a couple of parts on that. Are you willing to share leisure versus commercial rates in the quarter? And while I’m here, just my last question was, if we back out the impact on the depreciation related changes that you had in the quarter, does that give us a better view on the underlying per unit fleet cost run rate as we’re heading in the fourth quarter? I think if I backed out, is it $15 million, is it something like 315 to 320 per unit per month? Thanks.

The leisure rates were up stronger overall, obviously because commercial as you know is contracted, so less flexibility to affect that near-term. It’s a competitive market commercially. The leisure rates were up between 5% and 6% on a total RPD basis in the quarter, so that was pretty positive for us. So, we were pleased with that. And again, keep in mind that we also have a 1 percentage point headwind for the T&C [ph] mix on the overall RPD, but on a leisure standpoint, we are up between 5% and 6%. On the fleet cost aspect, again, if you think about our first half and second half of the year and the full year fleet costs, and again, we’re not giving guidance. But, I think as we think about it, heading into next year, we have indicated previously and we’ve not changed this that we expect residuals decline at a 2 percentage points next year that equates to about every point about $60 million of fleet depreciation headwind. We also are substantially complete with our Model Year 2018 negotiations which we’ve achieved pretty significant price reductions which will help be an offset to that. And we’re continuing to improve our alternative disposition channel and expand our ride sharing business which also has benefits to our fleet costs. So, we expect while everyone expects potentially there are some temporary impacts on residuals due to Hurricane, as I mentioned in my remarks, even August pre-hurricanes saw on uptick. So, there was stabilizing going on. We nonetheless are still expecting about 2% decline next year that’s how we’re keeping our cards today. We do a rate review November, so we’re going to update some black list [ph] then. So, I don’t expect it to change. But, I think the first half of the year is an anomaly because it was primarily driven by -- there was a lot of residual pressure, from an industry standpoint, we had a lot of Hertz specific issues that we talked about on last quarter’s call that were unique to us that would not continue.

Our next question comes from the line of Sumeet Chatterjee with JP Morgan. Please go ahead.

Hi. Good morning. I just want to start off with, if you could share more details about the pricing trends during the quarter because there were certain one-off events during the quarter like the hurricanes and solar eclipse. So, outside of these one-off events, what was pricing like relative to the average two-person that you saw during the quarter. And just a clarification, I think, you mentioned October RPU was up 1%. Is that the same for RPD as well?

What we’ve seen is continued pressure on corporate rates. Obviously, businesses are looking for productivity gains, and it’s a very competitive space. We’ve seen a better match between increases in the cost of cars and the price people will pay for renting cars. I think we’ve also with rolling out our revenue management system and getting more and more experience with it and having a more strategic targeted approach to the segments and how we price those segments based on our different brands, we continue to see better pricing and picking better business and more profitable business. And we’re focusing on growing the spread in between, basically our RPU returns. So, we saw for the first time in quite a while growth, though slight, progress and growth in that number.

Yes. The trends generally, as we mentioned on our second quarter call, you might recall, we disclosed that we expected pricing to be up around 3% in July; that was somewhat consistent. We had about a 3% increase in August and then September was less than 1 point. The October time and mileage rates are up 1 point and 2 points ex ride-hailing, respectively. There is going be some headwinds as it relates to ancillary, as we talked about earlier. But, the headline pricing health of the business I think is better represented by T&M because the ancillary is more on our direct control base in our mix and our initiatives. But from an overall health, the industry and company, I think, the 1% T&M being up in October and 2% ex-C&C [ph] are good headline numbers of performance. Nonetheless, we’ve got to keep working on some ancillary to improve the overall RPD performance. But we always -- Kathy said in her remarks, what we’ve always done is we’re really focused on driving revenue per unit per month because that’s the combination of optimizing your fleet, your days, and your rates to get more revenue for every car per month and increasing that spread between the revenue you get per month and the cost per month. That’s the driver of the profitability of business. And that’s where we’re really focused on those two key metrics. And the inputs they are going to ask you, you’ve got to get the right balance between the mix of days and the mix of rates and the mix of the business.

We have continued opportunities in our utilization rates and our ability to get days and not give up on price. So, it is very difficult and it takes a lot of analytical prowess and patience. But we believe we have opportunity to get more days. And we also think operationally, as we focus on better process out in the field and some of the technology enhancements we’re doing in our cars to manage our fleet, as we get better at fleet management, which will pay off in the long run in any kind of market whether it’s ride-hailing or autonomous, the pricing that we’re doing around matching better what we’re paying for our cars and the price we get being more selective up on what business we take, managing some through the ancillary headwinds, there is a lot more opportunity out there around price, and we’re working it.

It is declared by I think our use of acronym C&C, [ph] just for folks on the phone, that’s kind of an internal acronym. That’s the ride-hailing business. So, our dedicated rentals to Uber or Lyft, which have longer length of rent, lower RPD, that is a big growth item for us year-over-year that has about a 1 point negative impact year-over-year from a comp standpoint on RPD and T&M.

And a just quick follow-up. You mentioned opportunities on fleet utilization. It declined this quarter in the U.S. And I think you mentioned there was some sort of prioritization given to wait times et cetera, which is why it goes down. But do you -- like when we think about what would get it to increase and start to improve, do you see that fleet size has to be brought down further or do you see the demand already there where you can start to improve utilization rates, maybe like next quarter onwards?

Actually, our challenge is that we have cars out there, we have demand for those cars and we have to improve our ability to clean the cars, put them in position, get them installed and get them rented. So, it’s really an operational issue, if anything. I think based on what the demand we’re seeing for our rentals, there is actually pressure on, there would be a temptation to add cars but rather improving -- we’re looking at improving how well we manage the process to get cars cleaned and then installed versus just drawing a lot of fleet out there. So, it really isn’t about having too much fleet, if anything. We are putting pressure on ourselves to have too little fleet and be better at managing the fleet we have.

Yes, the market demand is there. We’ve just got, as Kathy said, get the right car position where it plays and capture the demand. An example would be, the latest information top 100 U.S. airports, there is a lot of color about concerns about the growth and health of the market or the industry. The 100 U.S. airports grew in the month of July, which is the most recent month -- excuse me, grew 4 percentage points. So, grew 4% in August. So there’s growth out there and we just got to continue to improve our product and service offerings to capture our fair share of that growth.

I think ultimately both in our European operations as well as in our corporate fleet management business, we have a lot of great core competencies around vehicle location, what’s going on in the vehicle, like how much fuel, whether there has been a bump et cetera. So, the work we are doing around enhancing the technology in the car and letting that help us be better at positioning the car and getting the car in place, knowing where the car is at all times, that capability will drive much better utilization, obviously getting more value out of the cars we have but also the large corporate fleet business that we have and what we’ve built over probably 15 years around telematics and logistics is going to be invaluable as autonomous fleet starts to come into an existence and grow, somebody is going to have to help them manage those fleets.

Our next question comes from the line of James Albertine, Consumer Edge. Please go ahead.

Great. Thank you for taking the question and congratulations on a strong quarter. I wanted to ask, if I may, and I appreciate all the color on the call, the $280 million you alluded for 2018. If we can kind of take a little bit of a longer term view, and if you could help us understand sort of within your spending aspirations sort of what percentage of your plan spend sort of a maintenance sort of CapEx versus a growth CapEx or repositioning the brands for growth over time? And how should we think about that sort of trending over the more like the three to five-year period.

I think going back, we are focusing our RPU, and one of the things that is pretty evidenced in this industry is that we only use the math exercise here as about getting more revenue from the top-line and managing the cost of your fleet. And in between, even though there is significant expansion or distribution, I mean, we have upwards of 40,000 people, thousands of locations and a lot to go along with that, but the reality is, it’s really about those two numbers that we have to stay focused on. What is clearly impacting the top-line number is how well we are at delivering a great experience out with our consumers and how good we are at making sure we’re everywhere where they’re looking to rent a car when they need to rent a car. And when we look at that we really in this Company have had a real lack of marketing focus and expertise. We hadn’t kept up the speed with many social media channels. A classic example of that is Carolyn Everson who is a fabulous marketer and has marketing at Facebook; he spends around $10,000 to $15,000 on Facebook marketing. So, here we had a Board member for the last few years on our Board and we weren’t leveraging our expertise and that amazing channel. So, now we brought in a very seasoned, successful, experienced leader from P&G, Jody Allen, to manage a great group of talented people that have been making an impact on how we manage our digital marketing, social media. We actually did not have brand managers in this Company, which is just stunning, given Hertz is one of the most well known brands, defines the category and has been here 100 years. So, we made this fantastic asset that we…

Understood. Thank you so much for the very thoughtful answer, and best of luck.

Long answer for a short question. But obviously, we’re pretty pumped up about what we’re doing and the progress we’re making.

Absolutely. No, thank you again, I really appreciate it.

Our next question comes from the line of David Tamberrino of Goldman Sachs. Please go ahead.

Yes, thank you. Hopefully you can clarify something, I think, you’ve mentioned that October time and mileage was up 1%, maybe 2% excluding the ride-hailing business. Can you translate that how revenue per day is tracking so far in 4Q 2017 October time period?

So, RPD is a little - ex-ride-hailing is a little under -- it’s about 0.8% down in October, and October having somewhat of a stress because of the long rents and the hurricane related rentals and the service rental sales. So, we again -- we see that as not alarming, but nonetheless that’s what we have because the T&M rate being up too and the overall RPD being down a little less than 1, it’s basically all in the ancillary line. So we’ve got work to do that’s more on direct control to close that gap in ancillary.

Got it. Is that just because you’re seeing some -- the deception in hurricane recovery demand and maybe there is a little bit of excess fleet out there and that should be kind of solved as we get into the holiday travel season, so you would expect it to sequentially improve throughout the fourth quarter?

Again, I would say that our T&M rates ex-ride-hailing is more comparable; being 2 is pretty good for the month of October, which is historically as you know is a more of a corporate month. Therefore, corporate doesn’t have as much ability to affect the rate near term because there is longer negotiated contract. So, we view that as a pretty healthy performance for the month of October being up 2% on T&M. The issue is, for our direct control, how do we improve the mix of Dollar Thrifty business and bring the right mix between Hertz and Dollar Thrifty, and do how we close the gap at some of the ancillary performance we’ve had. In this past year, we’ve been really keenly focused on service and not as much as getting paid upgrades but more on free upgrades, not as much on insurance products but we’re going to be working on that moving forward. So I can -- I want to emphasize, I think the health is better represented by T&M rate and that’s being up 2 in a corporate month, which is traditionally corporate month, which is, I think, a pretty good performance. But nonetheless, you are in a quarter which you have these -- lot of peaks and valleys within the quarter with the Thanksgiving holiday, that Christmas holidays and New Year’s holiday. You’re going to have some peaks and valleys throughout the quarter on price.

Totally understood. Thank you, Tom. Very helpful. Also, earlier you mentioned on the fleet buy pretty much complete for 2018. I’m curious how much of a brand change your fleets are going to see year-over-year. I think the Detroit 3 had pulled back pretty noticeably selling into the daily rental channel this year. As you head into Model Year 2018, is there going to be a massive shift in different brands that I’m going to see in the aisle for Hertz or is it more muted impact?

Well, as you might guess, I do have a little bit of a bias towards one of those Big Three. However, I did not let that get in the way of buying the most profitable end demand cars. What I’ll say is we did have a shift in mix. We do have more of our mix going to General Motors cars where we got a very, very competitive bid year-over-year, one of the best out of all the manufacturers. We still have a very large relationship with Nissan and Chrysler. And what I would say is we’ve probably got a better piece of the share out of what they are actually putting out into the rental fleets. And being on the board of General Motors for almost 10 years and being in the corporate fleet business before that and understanding of rental business, I was a proponent on not using the rental fleet as an outlet for increased inventories, and not to flood the market with stripped down cars that we only degrade at the residual prices. And I think all of the Big Three, Detroit, OEMs have gotten much more disciplined about the quality of the cars that they put out into the rental fleets and the quantity. And as a result of that, I do think that’s having a positive impact on the residual value. That discipline has been pretty -- I know specifically for the -- who we’re dealing with, they’ve been very disciplined around that and they’ve also been managing around putting better trim and what’s going in the car, adding more reasonable price to us because as you probably know, you really can’t get the value when you go to sell the car on these enhancements, but they tend to have very nice margins on…

In addition to GM and Nissan and Chrysler, those two big partners of Fiat and Toyota, last year, continue to be big partners this year as well. And additional point, I know people might want to be asking, our mix of buy is going to improve slightly on progress. So, we are about 22% on the mix of buy Model Year 2017; we are about 25% for Model Year 2018. So, there has been a little bit uptick in the program availability and they are actually attractive economics in the Model Year 2018 buy; that’s another change from year-over-year.

Our next question comes from the line of Chris Woronka with Deutsche Bank. Please go ahead.

Hi. Good morning, everyone. I was hoping to get an update some prepay trends and also distribution in terms of where you are on both direct versus OTAs and maybe transparent, opaque just general trends would be helpful? Thanks.

Good morning, Chris. Our prepaid is around 10%, it’s increasing. Obviously, there is a higher demand from the product under the Dollar Thrifty brand, so as we continue to improve that, performance of that help that business. Those businesses, we expect to continue to grow. That’s an important aspect. Your other question was about OTAs and opaque. Can you please repeat that question? Excuse me.

Yes. Just kind of how the book direct -- where you stand on book direct versus OTA mix and whether you’re decreasing the amount of opaque that’s out there?

That’s about half-half. Obviously, what we’re focused on, we’re working to redo our brand websites and our mobile platform. So, we believe the tools we’ve had for the customers have been somewhat behind what is the modern expected means to book directly with us. So, we’re going to be rolling that out early next year. I think web, a mobile platform, both Hertz and the Dollar Thrifty. So, those I think are going to be critical tools for us to really improve our ratio of the direct versus indirect distribution, which as you know something that’s important for us to get the direct relationship with the customer, but also have the residual benefit of your distribution costs. So, that’s an important investment that we’re in the middle of working on that we expect to roll out early next year which I think will help, continue to improve that ratio to a more direct and less indirect.

Okay, great. And then just a follow-up for you Tom on the fleet, on the buys for 2018. Is the timing -- since you guys did a really big refresh kind of in the first half of this year, is the timing of that going to look any different? And I guess the other directional question is, on overall fleet size, are you still kind of trending down year-over-year?

The timing really isn’t affected by our rotation last year or earlier this year. That was more of just improving the mix of full size on a higher premium cars and getting those in sooner. The mix of car days from Model Year 2017, the delivery, one aspect that improved in the third quarter performance as we went from about 47% of our supply in the second quarter with Model Year 2017 to nearly 60% of our supply in third quarter. And as we, recall, said in previous call, we achieved about 2% cap cost reduction in Model Year 2017 cars like-for-like; that was another benefit that drove better appreciation in performance in the third quarter. So, normally, we’re now taking 2018, there is no change in the historical pace for that. So, those are coming in now and those will make up between 40 to 50 of the car days, next year. So, we’re working on a final plan, but those actually have a cap cost reduction in excess of what we achieved in Model Year 2017.

The last part of that is, I think the fleet size next year will be comparable to the fleet size this year. We may see an increase in older cars for the ride-hailing space. But, again, we’re working hard towards fleeting up as versus having -- hoping that the volume comes. I think this is a little over-exaggerated, our impact last year, I think everybody had a little bit too much fleet. But in general, as we get better at utilization, we also are hoping to get better at the days that we drive and have more of a demand for fleet. But right now, I think, we’re getting better and smarter at matching when we need the cars and where we need the cars. We have invested pretty heavily in analytics tools. And recently we brought together the demand part of the company with the fleet buy part of the Company to make sure there’s a smooth communication around demand and that it’s quick and as accurate as possible. So, we have a really good visibility to the demand that we see coming and the relationship with where we need to get the cars and how quickly. And then, finally, we do have a really strong dealer network and dealer support. So, if we see good demand and we need to fleet up, we have a lot of dealers that we could go to quickly and add a good price, boot up on some pretty decent buys, both program as well as risk.

Yes. I mean, it’s safe to say too that our first half of the year, utilization this year with our fleet rotation was somewhat of a headwind. And we obviously think we have opportunity while we perform in the third quarter. So wherever we think we’re going to be next year, our fleet levels are likely to be a little behind the demand levels because we expect utilization improvement on a year-over-year basis, both because of the headwind we had in the first half of the year plus the tools we are rolling out including Ultimate Choice, which could have some benefit to utilization next year. So, whatever demand and we’re working through that in our business planning, we think we can achieve next year with fleet a little behind that and expect some utilization improvement to supply that.

Our next question is from the line of John Healy, Northcoast Research.

Thank you. Kathy, as I was hoping you could tell a little bit more about the evolving world of ride-hailing and how you’re positioned there? Is there any way you can think about -- tell us kind of more about the number of markets you’re in, the size of the fleet? And then, maybe from internal perspective, when you look at that business, say, two years to three years from now, how big you see it potentially, how you see it potentially contributing to the earnings? Because, I think you made a comment that you see the partnership is more of on a net basis upside rather than destructive to the business in terms of demand destruction on just the corporate or leisure side. I was hoping you could just talk to that a bit more.

Keeping my CFO happy, I’m going to stay away from giving guidance on this. But, what I will say is, we spent the last 12 months understanding this space and understanding how to price it, how to manage insurance around it, the technical connections between the ride-hailing businesses, the marketing et cetera, whether you can put these rentals into your normal or Hertz level edition locations or whether we need to dedicate locations. We’ve also partnered with Pep Boys as another way to reach these renters as a way to improve our speed to distribution. Pep Boys also is a big help around maintenance and providing maintenance quickly for these drivers. They also can use Pep Boys for those who own their own cars for those maintenance needs. So, that’s been a great partnership. But, we see it being a really a nice pace, as long as you understand the dynamics and manage through those dynamics. And so, we’ve been rolling out, literally over the last year, dozens of locations, mostly dedicated to this customer. We have in some of the more, I would say suburban areas where the demand is not quite as extreme, leveraged our local edition locations. But for the most part, we have been working with these partners to roll things out in such a way that we can handle the demand as well as not have a hit to our operating costs. So, we’ve had some good learnings. As I mentioned it is profitable for us. And I see it being a consistent growth area for us over the next several years. I think there’s been and there continues to be a lot of energy around how the rental business is dead and ride-hailing is going to kill it. And the reality is and I…

Great. And just one follow-up question. You talked about the rental car market being a growth market. When you guys look at maybe data that you received from the largest airports, if you look at the overall revenues in the industry, maybe on a year-to-date basis, are you seeing the revenues or rental days true for the industry or are they flattish or are they declining do you think?

Yes. Only six airports, John, of the top 100 actually break out rate and volume, so you really can’t get an industry volume versus rate separation on that. So, it’s really revenue share. So, the metric I focus on is the health -- as an indicator of the health in this group and whether there is any kind of risk relative to that is how the overall revenue has grown in these top 100 airports. And as I said earlier, August is the most recent month we have all the data in and that was up 4%.

We just saw I think Delta just guided on what they saw volumes. I think there is a natural 4% to 5% growth in this industry. What sometimes tampers that is corporate travel as companies have pressure on their expenses and they -- one of the areas they quickly look to is don’t get on a plane and going, we have new conference call. But, I think what we have seen over time is a consistent mid to low single digit growth and Hertz just needs to get more of its fair share in that space.

Our next question is from the line of Anj Singh Credit Suisse -- Securities. Please go ahead.

Hi. Good morning. Thanks for taking my questions. I appreciate the color you folks provided on the investment spend and the outlook for that into 2018. I was wondering if you have a sense of how long you may need to be investing aggressively like this to get the parity or ideally ahead of your competitors from a capability and offering perspective. Asked another way, do you think your investments over the last few years and what you’re calling out going forward are they going to position you to get the parity or will there still be an element of playing catch-up?

I think as we mentioned, still very significant capital and cash impact throughout 2018, probably somewhat significant at the very beginning in 2019. But, then, I think we will start to see the upside of improved consumer demand and reach to our consumers of our products and services as well as a tapering off on the intense level investment. And then, I also think, with better service and better reach, we should see the top-line increase and we should also see a reduction in our overall servicing and infrastructure costs. So, somewhat, I would say moderate at the beginning, pretty significantly moderate at the beginning of 2019 and even more so towards the end of 2019.

Okay, got it. That’s helpful. And then, I wanted to follow up on your alternative disposition channels. It’s an impressive number of fleet being disposed through those channels. Is the goal to get this percentage even higher? Is this percentage of fleet disposals through those channels something you believe you can sustain? Just trying to get a sense of what you’re targeting internally and how to think about the steady stayed version of your disposals through alternative channels? Thanks.

I think you will have to always sell cars that are suggestive as damaged or the issues with the cars from a salvage perspective. But for the most part, we want to continue to move more to Dealer Direct at auction and more out of Dealer Direct into our retail lots. So, as we get better on that and we are doing better on the technology, we are making some improvements on the website and the ability to take out loans and do the financing for the consumer, but there is a lot of goodness in our retail car sales. Again, it’s the 10th, largest business out there. So, there is a lot of value there that I think people aren’t necessarily identifying in our business.

Yes. As we look forward, for example to that point, we are identifying, for example retail businesses with intrinsic value that’s within the Company, how do we give it -- put more life and continue invest in. And as we grow that channel, so we’ve grown it 10,000 units likely this year at sales, how you grow -- not through brick and mortar but how to grow it grow it online. So, we’ll be investing into the tool and the system in order to move some of that sales activity from the traditional brick and mortar onto an online platform and then allow customers to have that choice to probably want to interact and buy, whether it’d be online or in person. So, I think there is an enormous kind of underlying value there that’s not only contributes today to our fleet depreciation cost and managing that but just from a valuation of business that’s really untapped and not yet really been fully leveraged and it reveals the marketplace.

Our next question comes from the line of Hamzah Mazari, Macquarie. Please go ahead.

Hi. This is Mario filling in for Hamzah. Could you give us a sense of -- or update us on how you think about secular risks for the rental car business and how you get comfortable with them?

I think it’s just what we talked about being really smart at the cars you buy and then being really good at selling the cars. So, I think the biggest secular risk is probably residual values. And we have seen just an all-time low, I think, in residual values which clearly has impacted our margins and everybody’s, in this industry. So, it is a cyclical industry and you can never get comfortable that a good trend is going to stay. So, constantly managing our channels and smart buys is I think the most significant secular challenge we have to deal with. Then, if you have some big shots to the system like we did with 9/11 and travel, that’s obviously an impact. Hurricanes, we win and lose in hurricanes. And given we have State Farm who’s a fantastic partner of ours, we do have a place in the replacement business. However, those are really the things that we have to think about and manage for.

Yes. Further I think to expand on that there is a lot of concern, and we obviously monitor it from a metric standpoint and the noise in the marketplace about the rental car industry and its and we’ve talked a lot about this. I think if you go back and we recap the opening remarks, the core tenets of what a car rental company has is the fleet financing, the fleet management, the logistics, the fleet remarketing, assets, and the distribution and the network in order to manage large fleets. And there are lots of -- as mobility evolves, there is a need for that service and that activity for which I think we’re uniquely positioned to provide to the marketplace. So, all this concern is out to health of the rental car industry. Clearly in the near-term, there has clearly been some impact on the use cases. For example, for those of you who live in New York, obviously, take Uber. But, I would say that the fact is as Kathy said, less than 10% of use case. And there is no users and new growth markets that we’re building on, our partners -- for example, the ride-sharing business is to build the business in other areas.

And autonomous, the OEMs, Uber, Apple, Google, nobody manages large fleets other than the rental car companies, not dealers, nobody. And if you look at what Hertz and the rental car companies have, we are getting better every day at managing large fleets of cars. And we have the distribution network, we have the people. There is great article, robust can’t clean up vomit, and that’s the truth. And if you look at the fact that we are the only car rental company that has a large corporate fleet company that has been managing large corporate fleets for well over 15 years, we are uniquely positioned both in the ride-hailing as well as in the autonomous world.

Okay, perfect. And one more and I’ll turn it over. The international business has been competitive for some time. Has that gotten worse in terms of pricing recently or what do you see going forward?

I think there has been pricing pressure. You have a much larger percentage of very small priced play rental car companies in the space. We have franchise in the smaller markets in that business, so we don’t have the overhead and some of the capital investment issues that we might have in that kind of a space. So, we continue to again take leverage some of the great revenue management tools and what we are doing over here and transfer them into Europe as we get smarter. So, we try to leverage each other around how do we get priced. And then, we try to manage the ups and downs with franchising and fairly small markets. So, just we’ve done a pretty significant deal over for the Nordic countries as well, to that end. So we are trying to mitigate that with how we approach Europe strategically.

And we have great partnerships as well, not only the franchise partners but the Nordic franchise but an Ireland, Portugal. As you know with our Localiza announcement in August and the close of that transaction, a great partner; the number one market leader in Brazil. China Auto Rental in China, great partner. Really untapped opportunities for us to work with these two groups. In certain countries in the world, it’s better to partner with a local operator who is the market leader than try to be corporate and running yourselves. So, in our opinion, those are another two great examples of how we are very well-positioned in very large growth markets which are going to be very positive inbound of the U.S. opportunities for us to leverage.

We spent time down in Brazil when we launched and celebrated the Localiza relationship. It is a huge market and has huge inbound traffic for us and they are just a great smart partner. We think we will learn some things from them and vice versa and we are really excited about that relationship.

Our next question is from Michael Millman, Millman Research. Please go ahead.

Thank you. I wanted to follow-up a little bit on Dollar and Thrifty. And I guess, considering where they are now, would you consider or are you considering selling one or both of them and what do you think the market value might be? And if you don’t do this, what do you think the cost and time is going to be to return these to acceptable profit?

It’s about shelf space. So, if you look at the distribution channels and how people rent cars, we do believe we have undermanaged and underutilized those brands. We do believe having shelf space in both of those brands is critical. We think there’s enormous value and upside to maximize how we make sure we take advantage of that shelf space. And we have a great leader out of P&G who clearly knows how to manage shelf space and get the most out of it, and we are very excited about the prospects.

How long do you think it’s going to take before you get them to acceptable values, acceptable returns?

Actually, it’s not all bad news. We’ve been probably more impacted by the ancillary issues for those products than we have necessarily around getting our fair share. But, we actually have already seen from breaking those brands out and starting focus on them this year, some improvements, and we think we will get a lot more goodness out of them next year. And I actually am very optimistic that we will see them return to growth by the end of next year.

And to follow something, you also said about your partners. Can you talk a little bit about what percentage of your sales, rentals come from those partners?

It’s a -- every partner has a different percentage. So, we don’t -- for sensitive reasons, we don’t really break that out, but all those partners are classified as very important and critical to the company very good partners. And we have other partners you can call out too, the other airlines American and Air France, were maybe primary or secondary with this. So, all the partners are very important and they do contribute to the business. I think in the past the Company has not necessarily optimized the relationship. With Kath and Jody coming on board, I think we’re really excited about how we really kind of activate some of these partners more directly and drive more business from the partnerships. So, it’s an opportunity as we see it.

We have a great corporate sales team and corporate sales leader who’ve done a great job at signing those contracts, building those relationships. We need to make a greater investment. I think we’ve been good partners, but I think we can be even better partners.

Our next question is from the line of Adam Jonas, Morgan Stanley. Please go ahead.

Hi, thanks. Two brief questions as I get off the call. First, how much of your businesses subject to long-term contracts in U.S.?

That would be primarily the commercial business, Adam. And those -- when you say long-term, there are some commercials are one, two, three-year contracts, commercial depending on the season can be anywhere from 30% to 40% of the business.

I guess, overall, I’m including even business outside of commercial or long-term contracts, is there global number as you define greater than a year?

I think it’s probably in the 40%, 40% ranges probably roughly.

Okay. Thanks. And my second question is on your car vehicle age. You’ve made some efforts to, say, control the fleet growth. Our understanding is that that’s been mainly because you’re buying less, but you might also be selling a little bit less or maybe more of buying less rather than selling more, if you know what I mean. I guess, the question is looking at your size of fleet and to keep an age around 15 to 18 months or 25, to keep the mileage at a good level, not too crazy, you may have to sell -- a business you size might sell 25,000 or 30,000 units per month in the U.S. Are you doing that? And maybe is that right that maybe you’re hanging on at some fleet or maybe seeing your average going up? I am just curious. Thanks.

We are not going to age the fleet; we know that that’s a stupid move. Some cars, we are keeping older model cars out for the ride-hailing business. But actually, I think we’re running around 10, 11 months for our overall fleet and we will not go to lengthening to keep. In some cases, if we see enormous demand that we have to meet for unique reasons like Hurricane Harvey, we’ll keep cars a little bit longer and move 14,000 cars down to Texas in order to get all the demand met. People who have no car are probably okay with a little older car for the short-term. So, we do have -- what helps us a little bit again on managing the curve of these assets is the business that we have with State Farm. The industry average for those vehicles or one the competitors who dominates in the replacement business has really set what the age limits are and they tend to be in the 30,000, 40,000 mile range.

Yes, just to put -- get a notice back. Our fleets roughly average between 320,000 to 330,000 units in U.S. last year and that’s pretty consistent on year in, year out. So, the way we managed a little bit of the fleet this year take a lot that [ph] but the average fleet age is still pretty constant. As Kathy said, we disclosed we aged 2017 a little bit, that was only because we actually were selling cars lot more junior to get the fleet down in the first half of the year. So, we have the opportunity plus demand in the insurance replacement and more importantly the ride-hailing business is growing so much. That allows us to have a little bit longer whole period, but with that ride-hailing business, it gives us that ability to move cars into ride-hailing and continue to refresh the airport business and keep a nice fresh fleet there, a competitive fleet at the airports.

Our last question is from the line of Dan Levy, Barclays. Please go ahead.

I wanted to just start out with one on the quarter. In the past, you’ve provided a year-over-year bridge on the per unit fleet cost. Could you provide something similar? I didn’t see that in the deck. Could you provide something similar for 3Q, just the broad stroke of the year-over-year? I know it is roughly flat, but what…

Yes. Dan, that’s wh6 we originally provided it because there wasn’t such a growth that we saw about 15% and 20% increase in cost, we thought it was important to illustrate and provide that transparency what’s driving growth. With only 1% growth, we didn’t see it was really important on year-over-year basis. But, the big buckets would be the headwind is year-over-year decline in digital that’s a headwind. We’ve had cost reductions on Model Year 2017, which is a tailwind. And it’s now representing 60% of our car days in the third quarter versus 48% in the second quarter. That was a benefit. Our retail distribution and our Dealer Direct distribution channels growing up 10 percentage points roughly year-over-year. That’s a tailwind, benefit on a year-over-year basis. The slight aging of the 2017, there is only $9 million impact for the whole second half of the year, so it’s a pretty de minimis overall impact. So, we’re looking at that. So those are the big buckets. It’s the penetration of the retail and wholesale, it’s a good guy, it’s the Model Year 17 is a good guy. The bad guy is residual and some investment in fleet mix obviously, as we’ve talked about which has been pretty consistent year-over-year.

Richer mix, better price for a richer mix.

Okay, got it. And just a longer term type follow-up to Kathy, and Tom, you’re now almost a year into, let’s call it a new regime. So, I’m guessing there should be some incremental perspective on this. And if we look at pricing over the last, say, three to four years, there has been roughly a 10-point decline; that’s corresponding to what’s your margin compression. I know you’re not in a position to provide guidance today. And I think folks are wondering when they can get deeper guidance. But beyond that, based on the trajectory of your plan, how much of the 10 points do you think can be recovered? What’s the low-hanging fruit, what’s the longer term piece? And how much of this do you think is contingent on industry conditions?

We stay pretty focused on how to be smart on the demand that we go out, against. If you look at the Hertz brand, it is a brand that stands for excellence, premium. Really our employees are incredibly proud of the brand and our people are our brand and they do a great job around making sure that that excellence and the service is out there. So, I think it’s more around smart segmentation of who our customers are, what their demand is, matching -- buying and selling cars as smart as you can sell them, managing them in between, and then, from a marketing, a price and a distribution, really maximizing what we get for those cars. So, I try not to focus on what the overall industry is doing and more around how do I match the value we deliver with our costs, how do I drive the best service, which is generally most efficient and accurate service by great people, and then how does that bring a greater NPS and more customers to me, which is the smartest way for me to get priced. So, I think as we continue to leverage our great brands, Dollar, Thrifty and Hertz, segment better, go-to-market better, leverage our great partnerships better, deliver better service, the payoff will come. In all my years of running businesses, it’s always the best approach.

And at this time, there are no other questions in queue.

Well, thank you. It’s been a -- you’ve had a lot of patience hanging on, on the call for these questions. And thank you for your time and attention today. Have a great day.

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