Welcome to the Hertz Global Holdings 2012 Third Quarter Conference Call. The company has asked me to remind you that certain statements made on the call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performances, 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 in the risk factors and forward-looking statements section of the company's 2012 Form 10-K and 2012 quarterly reports. Copies of these filings are available from the SEC, the Hertz website or the company's Investor Relations department. I would like to remind you that today's call is being recorded by the company and is also being made available for the replay starting today at 12:30 p.m. Eastern and running through November 15, 2012. I would now like to turn the conference over to our host, Leslie Hunziker. Please go ahead.

Good morning. You've 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 at www.hertz.com on the Investor Relations page. 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. With regard to our IR calendar, we'll be presenting at the Barclays Auto Conference in New York City on November 13, and at the Bank of America Merrill Lynch Credit Conference on December 4 in Florida. This morning, in addition to Mark Frissora, Hertz' Chairman and CEO; and Elyse Douglas, our Chief Financial Officer; on the call, we have Scott Sider, Executive Vice President and President of Vehicle Rental and Leasing The Americas; Michel Taride, Executive Vice President and President of Hertz International; and Lois Boyd, Executive Vice President and President of Hertz Equipment Rental Corporation. They'll be on hand for the Q&A session. Now I'll turn the call over to Mark.

Good morning, everyone, and thanks for joining us. I'm going to start on Slide 6. The third quarter had its share of headwinds worldwide, and yet our team delivered strong profitable growth ahead of expectations. We generated 23.5% more adjusted earnings per share in the third quarter than a year ago. You could see on Slide 7 that this resulted from increasing our top line by more than 6% on a constant currency basis, as equipment rental pricing and volume growth remained strong, and we make progress on incremental revenue strategies in rental car. We're also driving costs down through our technology focus, restructurings in Europe, more strategic fleet buying and selling and Lean Six Sigma process improvement initiatives. In the third quarter, employee productivity increased more than 170 basis points over last year, representing the 25th consecutive quarter of year-over-year improvement. In the recent quarter, this productivity was part of a 220 basis point decline in consolidated adjusted direct operating and SG&A expenses as a percent of sales. As I said, it was a pretty good performance in spite of the headwind. Let me explain using Slide 8 as a reference. Foreign currency movements in the third quarter had a negative impact of $73 million on consolidated revenues and $7 million on adjusted pretax profit. The soft macroeconomic environment in Europe has yet to recover and continues to underperform our expectations. Inbound rental transaction days are good, but pricing is competitive. And finally, a low number of insurance claims this year industry-wide compared with last year's significant number of catastrophic claims had about a 6 percentage point negative effect on insurance replacement revenue growth in the quarter. Regardless, we still generated double-digit growth in this business as we continue to expand our share. Despite all of this, company-wide adjusted…

Thanks, Mark. Good morning, everyone. Let me begin on Slide 23 by reviewing our GAAP financial results. GAAP pretax income improved 24.8% to $368.9 million. Net income was up 17.5%, resulting in diluted earnings per share of $0.55, which is an $0.08 increase over the third quarter of 2011. As Mark mentioned, our strong earnings performance continues to be driven by incremental top line growth and disciplined cost controls. If you move to the next slide, you'll see a 190 basis point improvement in direct operating expenses as a percent of revenue. The direct operating expenses benefited from favorable trends in fleet-related expenses, primarily vehicle damage in the U.S. and Europe, as well as improved operating performance in equipment rental, Donlen's low operating cost structure and the efficient execution of our cost-saving programs. Year-to-date, consolidated direct operating expense as a percent of sales is about 53%, which is in line with what we're expecting for the balance of the year. Now on Slide 25. In the third quarter, we captured $145 million of incremental cost savings. Of the total, more than 50% of the savings came from direct operating expenses and 41% from depreciation, reflecting in part the fleet management initiatives Mark talked about. Our Lighthouse Lean Six Sigma program was put into practice at another 16 locations worldwide in the third quarter. Currently, 124 of our Global rental car and equipment rental locations, representing about 45% of total revenue, have gone through this efficiency program. Lighthouse drives improved customer service and employee productivity, as well as increased revenue. For the full year 2012, we now expect to achieve $375 million of cost savings. Now let's move to Slide 26, where I'll fill in some of the details by business unit. Starting with fleet leads, Donlen celebrated its 1-year anniversary…

Thanks, Elyse. Let's move to Slide 40. From a macro standpoint, regulatory, legislative and economic changes around the world, present potentially greater headwinds as we close out the year. Specifically, uncertainly regarding the U.S. political election, slower economic growth in Europe, China and Brazil and continued rental car pricing pressure warrant some caution in the fourth quarter. In the U.S. rental car, October volume was up about 11%, and advance reservations for November continue to look good. We're optimistic this trend will continue through year end. Our rental car pricing remains weak globally. Worldwide rental car total RPD is down 3.3% year-to-date, which is roughly the level we're now assuming for the fourth quarter. However, we have put in place a national price increase for Hertz rentals effective November 26 in an effort to capitalize on the strong demand. If successful, there could be some upside to the last month of the year. For the fourth quarter, we've modified our currency rate expectation from $1.32 to $1.29, reflecting the pressure we've had from the weaker euro. On the upside, we believe equipment rental volume should continue to see double-digit growth in the fourth quarter in keeping with the year-to-date trend. In terms of expenses, the worldwide rental car net depreciation per unit improvement this quarter should be slightly better than the 5.7% run rate through September 30. The net of all of this keeps us within our annual guidance ranges. So we're not making any changes to our full year 2012 forecast on Slide 41, we're just giving you some insight into some of the puts and takes. Overall, we remain confident in our strategy to grow profitably by expanding our positions in the large and growing off-airport market, vehicle leasing and industrial markets. And we'll continue to invest in…

[Operator Instructions] Our first question will come from the line of Rich Kwas with Wells Fargo Securities.

Mark, could you give us an update on the fleet sharing and the status of that? Utilization was up nicely this quarter, and I know the theory or the approach or the strategy was to rotate more and more vehicles from on-airport to off-airport and vice versa. What percentage of your U.S. locations really are fully utilizing that now, and where could that go over the next couple of years?

I think it's fair to say that they're all utilizing right now because off-airport is big enough to take each airport, major airport, and we're able to work between the 2 businesses effectively. Advantage is also helping us in certain select airports, probably 6 or 7 airports, where the Advantage volume is significant enough that we can drive utilization improvement with their longer length leisure rentals and their weekend rentals. So both are helping and, obviously, big opportunity going forward because our plan is to increase our footprint in the off-airport segment to at least 4,000. And probably, if you look at Advantage -- if we assume that we kept Advantage, it would certainly be at least 100 to 120 airports with Advantage pretty quickly. Whereas today, in the U.S., we're only at approximately 50 airports, I think. So big upside we think on utilization continues based on our growth in those 2 segments.

Our next question comes from the line of Michael Millman with Millman Research Associates.

Maybe you can give us some better insights into why fleets continue to seem to compress and volume seems to exceed fleets, and yet the leisure price seems to continue to go down? And also, did you say that your price increase was for December 26? I'm not sure I got the right date. And maybe how much that was for?

The price increase was for November 26, and so that would be the effective day. In terms of talking prospectively about pricing, obviously, I cannot do that. I would tell you that we have tight fleets, have continued to be tight through the third quarter for the most of the third quarter, and heading in this quarter, we have obviously loosened the fleets since you've heard that our transaction days were up over 11% in October. So the fleet is -- has expanded with new car deliveries that we received, but we're continuing to run tight into this weaker pricing environment. Again, one can only speculate about what the market will do. Will everyone have fleet -- tight fleets? We have no idea. We can certainly cannot predict competitors' moves. So at this point, we're hopeful that with the increased demand that we're seeing, it's pretty strong at least through the end of November, that's kind of our visibility window right now, that -- with that, the fleets would naturally tighten. But we, again, cannot predict competitive movements right now.

Our next question comes from the line of Chris Agnew with MKM Partners.

I wonder if you could remind us of HERC's geographic exposure in the U.S. And then also if you could discuss the impact of Hurricane Sandy on equipment rental and the car rental business.

Yes. In terms of our exposure to revenues outside of the U.S., I think that's the question, right, Chris? Is that what you're asking? Or our U.S. concentration? Is it HERC?

Yes, HERC. So we're basically North America market, roughly around 90% of the business is in the North...

90% of the HERC business is in North America. And so -- I didn't -- I guess, I didn't hear HERC. So you didn't say Hertz, you said HERC?

It's HERC.

Okay, good, good. And then the second question was the Hurricane Sandy. We believe that when we look at the equipment rental and the Rent-A-Car business, and this is a very in-flux situation right now. But net-net, it should be neutral to positive. So -- and we're still counting the impact of having all the flights canceled, which obviously hurts the business. But then in off-airport and the Rent-A-Car side, we do get longer rental length on times like this, and we get a lot of one-way rentals for people wanting to drive instead of fly because there's no flying. So those things kind of offset each other. The impact of the off-airport piece is just hard to calibrate at this point, but we know it should be positive in November and December. In the equipment rental side, when you look at the generators and the power and the pump business, those are all positive in the region right now, and we've been sending equipment in via trucks. We started that week -- over a week ago. So that's a positive momentum, but at the same time, we had to close our operations in a lot of cases in our sites that were in the Northeast. So it's kind of offsetting factors but kind of a net -- probably on the equipment rental side, probably a net positive. So that's kind of best case I can give you right now, best estimate.

We'll go to the line of Fred Lowrance with Avondale Partners.

A question about the other income that reflected the one-time gain for the Switzerland franchise agreement. You also had Penske during the quarter, but no gain was called out there. So I'm wondering if you could just walk us through what that gain is for. And then you called this "one-time gain" but with franchising such -- going to be such a big part of your strategy going forward, can we expect recurring one-time gains?

Yes. So this particular gain was primarily in Switzerland, and it primarily had to do with the CTA that was on the balance sheet. So it's not something that we would anticipate. So truly, it had to do with the buildup of the currency translation over the life of the period we've held Switzerland. So I would not anticipate seeing something like this going forward, unless it's another major European franchise deal.

I think it's clear to say, though, that we will have consistent -- every time we do one of these deals, there is typically some kind of a profit gain, but that's allocated usually over the life of the contract. And so you won't see like a big number, but you'll see numbers that are positive in terms of the pretax as you move forward every time we negotiate one of these transactions. In Europe, if we -- our plan is to continue to do franchising. And there are several countries that we're talking about right now, and yes, you may see something positive on these, and you may see something negative. We don't know until we get into the details of each particular deal. But -- so it's, I think, a net positive when we'd look at things as we go forward. But I wouldn't put anything into your models around any assumptions around it because it's highly variable on a case-by-case basis.

Our next question comes from the line of Adam Jonas with Morgan Stanley.

Last quarter, you gave a chart that showed source of depreciation improvement that bridged how much of it came -- of the fleet cost improvement came from better selling, better buying, rotating. Didn't see it this time. I was wondering if you could break -- if you were in a position to break that down. And just to clarify an earlier question, did you say that the both RAC and HERC independently would be neutral to positive as a result of Sandy? I just wanted to note that question was for both combined or at each individually.

So the question on the Sandy, both of them would be, yes, you're right, I said for both of them would be neutral to positive, so that was my comment on both of them. Of the 2, HERC would likely be more positive than Rent-A-Car. As it comes to the chart you're talking about, depreciation chart, Leslie, you want to talk to that?

Yes, we had put that in during the times when we were trying to explain the difference between everything coming -- all the profit coming from residual values versus a lot of the work that Hertz has done in changing strategies and implementing new ways to drive lower depreciation and a higher return from our initiative. We hope that we've made our point through those slides, and so we've moved on to talk about other things, and that's the reason that we didn't continue with those graphs.

Yes. The numbers didn't change. If anything, if we did those numbers, they probably improved, but...

The point was less about the numbers than where they came from. And again, we hope that we've made our point, and you've seen how much we've moved the channels into especially consumer direct sales this quarter was very significant. And again, it was more about making a point than specific numbers.

Our question comes from the line of Afua Ahwoi with Goldman Sachs.

My question is on the volume update you gave through, I think, the end of November at the 11% on the Rent-A-Car side. How does that compare to your expectations before you sort of saw that come through? And if you could sort of maybe parse out through what the sources are, where the improvement is coming from.

I think that it's probably a little bit of upside versus where we thought the business would be, so I'd say the demand is a little stronger. However, the pricing is probably a little weaker, so some offsetting factors there. In terms of where it's coming from, it's pretty universal across-the-board in both off-airport and airport. So we're seeing, probably of the 2, the airport demand is a little stronger than we would've thought at this time of the year.

We'll go to the line of Rich Kwas with Wells Fargo.

Just a follow up on HERC. In terms of the flow-through, so very strong this quarter. You get some FX benefit, and you're saying you're spending some more dollars here in the fourth quarter that's going to compress the flow-through. But if we think about it beyond this current quarter, how are you thinking about the flow-through? Because this is a really good quarter and your fleet is younger, pricing is pretty stable. Do you expect to be able to leverage that at a similar level potentially over the next 6 to 12 months?

I think that's a fair assessment, Rich. I think that you'll see better levels of flow-through as the fleet continues to get younger. As you noticed, we think we're probably one of the youngest fleets in the industry now, and it is getting younger. And that's going to help us in terms of maintenance expense and getting higher flow-through due to, as a percent of sales, DOE and SG&A continuing to improve. So yes, we're hopeful of the flow-through next year will certainly be better than this year as we look forward, and we continue to build on the increased demand that we're seeing.

Thank you. And that's all the time we have for questions. Please continue.

Okay. Well, listen everyone, thank you so much for listening in on the call, and we certainly look forward to talking about our fourth quarter results in the first of the year.

Thank you. And ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.