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

Thank you, Tonya. Good morning, everyone, and thank you for joining us. On the call with me are Ron Nelson, our Chairman and Chief Executive Officer; and David Wyshner, our Senior Executive Vice President and Chief Financial Officer. Before we discuss our third quarter results, I would like to remind everyone that the company will be making statements about its future results and expectations, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and the current economic environment and are inherently subject to economic, competitive and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release, which was issued last night, our Form 10-K and other SEC filings. If you did not receive a copy of our press release, it is available on our website at ir.avisbudgetgroup.com. We've provided slides to accompany this morning's conference call, which can be accessed on our website as well. The company's comments today will focus on our results excluding certain items. These non-GAAP financial measures results are reconciled to our GAAP numbers in our press release and in the earnings call presentation on our website. Now I'd like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.

Thanks, Neal, and good morning. It's always nice to start these calls with the words, "We had a record quarter." But it's particularly gratifying this quarter, given that our results reflect continued progress on our strategic initiatives rather than a market-driven anomaly. For example, in North America, we grew our rental volumes, both on and off-airport, while reporting our third consecutive quarter of increased year-over-year pricing, excluding acquisitions. In EMEA, our initiative to expand the Budget brand drove exceptionally strong volume and pricing growth, which helped us achieve the strongest quarterly result in recent history. At Zipcar, we began the process of capturing unconstrained weekend demand by sharing fleet, initially in New York, while at the same time, harvesting the cost synergies we expected from this acquisition. And along the way, we initiated our share repurchase program we announced in August, repurchasing approximately 860,000 shares in the quarter. The net result was the highest quarterly adjusted EBITDA in our history. So let me spend a few minutes discussing each of these topics, starting with our North America segment. I particularly want to underscore how our third quarter results reflect some of our key long-term strategic initiatives and goals as these will continue to pay dividends as we go forward. In North America, the positive pricing trends we experienced in the first half of the year continued in the third quarter. Pricing was up 40 basis points, excluding acquisitions, and up approximately 1% when you take out the effects of the currency. We did institute price increases over the course of the third quarter, and we continue to shift volume to more profitable segments and channels. On the commercial pricing front, we continued our aggressive posture regarding contract negotiations. This is having a positive effect. Year-to-date, we renewed more than 1,000…

Thanks, Ron, and good morning, everyone. Today, I'd like to discuss our third quarter results, our fleet costs and our integration of Zipcar, as well as our balance sheet and outlook. As Neal mentioned, my comments will focus on our results excluding certain items. The third quarter marked our highest-ever quarterly earnings, principally as a result of higher volume and improved year-over-year pricing in North America, record results in Europe and strong cost controls, as well as the acquisitions of Zipcar and Payless. Adjusted EBITDA grew 2% year-over-year to an all-time high of $383 million in the third quarter, and trailing 12-month adjusted EBITDA now stands at $732 million. For those analysts who calculate EBITDA before deferred financing fees and stock-based compensation, our trailing 12-month adjusted EBITDA would be $41 million higher or $773 million. Our diluted EPS came in at $1.48 for the quarter with our year-to-date tax rate being an above trend 39.2%. Somewhat ironically, our third quarter EPS was negatively impacted by the one-point corporate tax rate reduction that occurred in the U.K. because we have a sizable deferred tax asset in that country. The impact of revaluing that asset through income tax expense was negative $0.03 a share. In our North America segment, revenue grew 11% in the quarter and was up 4%, excluding the acquisitions of Zipcar and Payless. Volume increased 5% in Q3 while pricing was flat. Payless and currency effects each reduced reported pricing by roughly 0.5 point, meaning that our pricing was up 1% on a constant currency basis, excluding Payless. As a reminder, our revenue drivers, which are reported in Table 3 of our earnings release, excludes Zipcar. Leisure volume increased 4% in the quarter, and leisure pricing grew 2% excluding Payless. Commercial volume was up 3% in the quarter, despite…

[Operator Instructions] Our first question comes from Brian Johnson with Barclays.

Want to drill into your comment about the inflationary increases as you work with the automakers. So a couple of things around there. First, can you kind of reconcile that with the -- that point that, actually, program-car costs are going down? Does that mean they're also guaranteeing higher residuals? And then second, what do you think the impact of the higher cap costs are on the eventual cap costs to residual ratio? And then what does that mean for fleet costs going into next year?

Sure, Brian. I think there are a few things going on. First, with respect to the -- with respect to program cars, there, we're really focused on the rates that were being charged there. We may have a little bit of inflation in terms of cap cost, but what really matters is the difference in the monthly costs there. And what we're -- what I think we're seeing is that the used car has been fairly stable and reasonably solid this year. And I have to imagine that's impacting how manufacturers are looking at program cars since our programs cars are their risk cars, and I do like giving them a little bit more comfort with the stability of residual values there. And so my own view is that that's playing a part in making program cars a little bit more attractive year-over-year and bringing their costs down. In terms of risk cars, our expectation is that inflationary cost increases in purchase prices wouldn't change the ratio of residual values after 14 or 16 months to the purchase price. We do, however, think that the increase in off-lease volume and the general economic and market trends will probably create a modest amount of pressure, some decrease in residual value as a percentage of cap costs. And that is part of our thinking as we work through the 2014 plan. We're still working through our analyses of that issue, and I'm not ready to go out with a new [indiscernible] projection at this point in time. But we are looking for trends in the market to be a -- to put a little bit of pressure on the ratio of residual values to initial net cap costs.

And so just to remind us, do you have a view of the percent that residuals could go down or a rough range of residual trends next year?

Yes. When we look over time, over the last several years, which has included some fairly extreme movements, most of the time, rates will -- residual value have stayed within 3 or 4 points of the average. But that's sort of the range, including some relatively extreme periods. And at this point, I don't think we expect nearly that dramatic a shift from 2012 to 2013 -- sorry, from 2013 to 2014.

Our next question, Chris Agnew with MKM Partners.

Maybe a follow-up on fleet costs. You've left your per-unit per monthly fleet cost guidance for the full year unchanged at $285 to $295. I believe that you're largely through selling all your risk cars. I mean, what would cause you to be at the low end of that range versus maybe the higher end of that range, where you're kind of tracking?

We're not expecting a tremendous amount of volatility. And as I mentioned, in North America, we're largely done with risk car sales. So we don't expect a lot of movement there. We did see more noise in the European and Australian used car markets. We actually had a modest amount of gains in both of those markets in used car sales in the third quarter. And I think if there were to be movement in our costs, something driving it more toward one end or another, it would probably be driven by our International segment, much more than the North America.

And can I have a follow-up on Europe? Can you give us an overview on the European market? I mean, seeing tremendous growth of Budget, where's the market share coming from? Just really trying to get a sense of how much runway there is for Budget to grow in Europe. I think a lot of investors here are less familiar with the marketplace. And then have you -- is there scope to take a deep value segment or your brand over to Europe?

Chris, I still think there's a substantial amount of runway for Budget. I think when you look at the -- even despite the significant growth that we've had in Budget, we're still less than a 3 share of the entire market. And as you recall, the market is still about 35% independents. So -- and that -- and the independents tend to be the value players, and so that's the segment of the market that really represents Budget's target. They're continuing to grow strongly. Avis is also growing well. October, we had a much stronger month than we anticipated, volume-wise. I think Europe was up about 7% in terms of total days. So the combination, I think, of the economy starting to turn around and the opportunity to grab share from the independents, I think, is going to drive that business pretty significantly. In terms of taking our brands overseas, Payless has some -- I think about a dozen licensees in Europe. Zipcar is in Austria, Spain and the U.K.. The U.K. is probably the most significant of those 3 operations. And yes, we think there's a big opportunity to take Payless into the European market and drive it through our licensee network, as well as our own network. And we feel the same is true for Zipcar. What I do think is little -- the manufacturers in some of the countries are in the car-sharing business, and they have reasons beyond the profitability of car sharing to be in that market. So I think you ought to be careful about where and how you expand. But we think there's a lot of opportunity to grow the Zipcar brand and Payless overseas.

Our next question, John Healy with Northcoast Research.

Ron, I want to ask a question on the volume side. I'm sure you know there's been a good amount of healthy debate of what's happening in the U.S. airport market in terms of volumes and why the -- there's a little debate in terms of what's happening at the corporate and leisure and government. And I want to get your thoughts as you plan your business for next year. When I think about your business, you pulled off some opaques, you had got some government disruption and you've been probably a bit more disciplined on the corporate side. But as you plan the business for next year and you hear airlines are adding capacity, I mean, is it realistic in your thought process to think that the volume gains in -- on the airport market next year can be better than what you've seen this year, specifically for Avis? And are you planning your fleet that way for next year?

I don't -- John, I don't think that we see next year as a whole lot different from this year. We've had a strong, strong year in commercial in Avis. I think it largely represents some new accounts that we got. But I tend to think that we're going to see overall growth in the car rental market probably, again, in the 1% to 3% range, and that's the way we're going to plan to fleet. What I think will affect it is that we are maintaining our discipline. And if we can't get rates that we think are remunerative with some of our commercial account renewals that come up, we're not going to lose money simply to post volumes. So I think that tempers some of our view of what our volume increase will be, not withstanding how strong it was over the course of this year. So -- look, I think everybody is kind of in the slow-growth mentality, economic growth of 2%, 2-plus percent, and I think that probably suggests volumes that are not dissimilar from this year.

Great. And with that point, you said everyone's kind of -- seems to be, in my words, rational in terms of how they're thinking about growing the business with an expectation of some moderate level of fleet costs. You've made the comment that December, you get tougher comps on pricing. Are you still a believer that in 2014, the stage is still very much set to maybe experience some pricing?

Yes. I don't think we're going to let up on this. I still think that the return on capital on our business has some ways to go, and we're going to continue to drive pricing. I think we certainly need to be driving pricing on the commercial side of our business, because as I've said earlier, you can't compound down 2% for the last 4 years and maintain a profitable business model. So I think on that side of the realm, the industry does need to get more pricing. If you look at what we've done since 2009 on the leisure side of the business, I think the industry has actually done reasonably well. So the focus has to be commercial but, to a certain extent, I think everybody's fleet costs are going to move in lockstep. And to the extent that we think they'll be up modestly on inflation, I think you'll see some pressure to move prices up to recover some of those costs.

Our next question, Kevin Milota with JPMorgan. Kevin Milota - JP Morgan Chase & Co, Research Division: I was hoping to talk a little bit about price here. Was hoping you could give some commentary on kind of the price increases that you've been able to achieve, what's coming from the increased mix shift versus actual prices that you been able to push up organically.

Sure. Well, since the end of the third quarter, we've launched 3 price increases that I would say, one, with substantial adoption and, two, with mixed results. We just announced one for December 2, and I would say the trends that we've seen in the past characterize this one. Enterprise was the faster follower. Adoption rates are still climbing, but they look like there's going to get -- we'll get some traction with it. So I don't think that the matter in which people are adopting price increases has changed much since the end of the quarter.

The second of part of the question was about mix impacts. And I do think mix is having a -- mix is a part of our strategy for achieving increased pricing. And so as we shift away from opaques a bit and adjust our fleet mix to have a few more luxury or premium vehicles in the fleet, that is having a modest effect. But I think the -- a greater effect is the one that Ron was talking about, the moves for price increases in spot markets, as well as the push we're making when we talk to commercial accounts to try to retain and increase pricing there.

Our next question, Adam Jonas with Morgan Stanley.

First, one of your competitors has been making some noise about buying used cars to help offset the used car price decline. Wanted your view on that and whether that's a tool that you could consider or have done in the past and how that -- how we should think about that.

Sure. We've bought used cars from time to time over the last couple of years. They're not a substantial part of our fleet. I'd say, at any given time, they might be somewhere between 5,000 and 10,000 cars. Usually, we do it to fill it in areas where -- at times, when it's not -- you either can't get cars from the manufacturer or it's the wrong time of the year to buy new cars and you just need to fill in -- to supplement some volume surprises on the upside that you might have had. But I think it's entirely a reasonable strategy, and I think that we'll continue to use it. But I don't see it becoming a substantial part of our fleet mix.

Okay. And this -- you brought up earlier in your prepared remarks the debate about the true strength of the airport market in the United States. And I'm just curious how you reconcile this very -- this gap between you and Hertz in terms of how you see it. I mean, you talk about your share being relatively stable and the market was holding up well. Hertz, I believe, says their share was stable, if not up, and that the market was weak. Have you seen that kind of loggerhead of views before, and how do you reconcile it?

Well, all I can speak to is what our results have been, and we've seen a fairly consistent pattern of commercial growth on the airport. We haven't lost any share. Our share is roughly flat. So it could well be that our competitors have had some mix shifts and we're getting more commercial and they're getting more leisure, and that affects their commentary. But I actually -- Adam, we've been surprised by the strength of commercial, particularly over the summer. I think as I said in my comments, Avis was up 8% over the third quarter. It was up in the mid-single digits in the first 2 quarters this year. So I don't think that there's anything anomalous going on. We did win a big account that started at the first of the year that could have had a point or so impact on that, but I don't think it would be much greater.

Just to follow up on that, though, on the on-airport market. Why is it that car has to be the -- why is it that Avis Budget has to be the lead in price increases? Why does the onus seem to be on you to kind of carry the flag for the industry? I'm just curious why no one else...

Look, he who leads always gives up the volume when you do that, because people don't follow quite as quick and harvest the benefit of you having higher prices. Look, I don't -- we're happy to let others lead. But until somebody does, we're going to continue to step up and do it, because we do think it's the right thing for the industry and we do think that it's important to get our return on capital up.

Our final question comes from Afua Ahwoi with Goldman Sachs.

Just 2 questions from me. First, on the 4Q numbers. You've mentioned for volume and prices that of x Payless, given that, obviously, as we model, we will have Payless impact and that I expect to maybe positive to volume but negative to pricing. So can you give us some -- that -- an idea of what the Payless impact will be for the fourth quarter? And then also, for the fleet cost for vehicle sales for the de-fleeting season. Can you remind us how much you've sold already this season versus last? I think, earlier, you sort of intimated that you've been selling more than usual when the prices were good.

Okay, Afua. On the first question, we did, on Table 3, try to provide our North America drivers, both with and without Payless, so that you can see the effects there. I think they work out to between 1 point and 2 points on the volume side of increase, as you said, and then about a point negative on overall price as a result of including Payless. That is sort of the order of magnitude associated with the Payless transaction, and we tried to be good about providing the drivers there to why it is exactly, what impact it's having. What was the second part of your question again?

Sure. On the second part, but actually, for the first part, I was asking about for the fourth quarter, the numbers that you gave, is the impact -- are you saying the impact will then be similar to the impact that Payless had in third quarter? Because it's a more leisure brand, it may be more third quarter versus fourth quarter. But -- maybe correct me if I'm wrong. And then the second part was just on the vehicle sales. Can you update us on how much you sold this season versus you typically sell? Are you ahead of plan, right on line with plan versus history?

Sure. The Payless impacts are going to be fairly close to the same in the fourth quarter as they were in the third. I think our aggregate car sales in the fourth quarter are going to be in the 7,000, maybe 8,000 car range in total. The sales had been very much in line with our expectations, so we don't expect any significant gain or loss associated with our North America vehicle sales.

For closing remarks, the call is being turned back over to Mr. Ronald Nelson. Please go ahead, sir.

So before we close, I think it's important to reiterate what I believe were the key points from today's call. One, we're encouraged by both our pricing and volume trends in North America over the summer, and we're seeing similar trends this quarter. We think the European economy has bottomed, and we're seeing some encouraging signs in certain of the geographies. And we are excited about the opportunities Zipcar holds for us in the future and remain committed to achieving the $50 million to $70 million in annual synergies from this acquisition. We have a fairly full investor calendar in the upcoming months and hope to see many of you during our travels. We're also planning on hosting an Investor Day in early 2014, so we'll have more information surrounding that to get to you in the next month or so. With that, I want to thank you for your time and interest in the company.

This concludes today's conference. You may disconnect at this time.