Hertz Global Holdings, Inc.
Q3 2011 Earnings Call Transcript

Published: 2 Nov 2011

[Operator:]

Welcome to Hertz Global Holdings 2011 Third Quarter Conference Call. The company has asked me to remind you that certain statements made on this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance and by their nature are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking statements' 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 second (sic) [third] quarter results issued yesterday and in the risk factors and forward-looking statements section of the company's 2010 Form 10-K and 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 made available for replay starting today at 12

[Leslie Hunziker:]

Good morning. You should all have our press release and associated financial information. We've also provided slides to accompany our conference call that you may access 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 the website. We believe that our profitability and performance is better demonstrated using these non-GAAP measures. Our call today focuses on Hertz Global Holdings Inc., the publicly traded company. Results for the Hertz Corporation differ only slightly as explained in our press release. With regard to our IR calendar, we'll be presenting at the Barclays Auto Conference on November 15 and at the Bank of America Merrill Lynch Conference in Orlando on December 1. This morning, in addition to Mark Frissora, Hertz's 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, Hertz International; and Lois Boyd, Executive Vice President and President of Hertz Rental Equipment Corporation. They'll be on hand for the Q&A session. And now I'll turn the call over to Mark.

[Mark P. Frissora:]

Thanks, Leslie, and good morning, everyone. Let's start on Slide 6. As you saw last night, we performed very well in the third quarter, with strong results from both the revenue and profit standpoint. With over 11.3% top line growth, reflecting expansion across all of our businesses, and consolidated adjusted pre-tax income increased 38% from the higher sales, and $135 million of incremental cost savings. Importantly, we achieved these balanced quality results during a time of heightening global uncertainty, which is a testament to our clear and focused vision, our strong brands and solid execution. As evidence of this in the 2011 third quarter, we delivered our best revenue quarter of any quarter for Worldwide Rental Car. And both on a consolidated basis and for Worldwide Rental Car, we generated the highest GAAP pre-tax income in the company's history. More specifically, within our business units, third quarter 2011 highlights include

[Elyse Douglas:]

Thanks, Mark. Good morning, everyone. Let me begin on Slide 18. We're pleased to report our third quarter record financial results on both a GAAP and an adjusted basis. Revenue for the quarter was up 11.3% to $2.4 billion. Growth was experienced across all business units and also included 1 month of Donlen revenues. Our GAAP pre-tax income of $295.7 million improved over last year's third quarter results of $156.1 million. In addition to revenue growth and cost savings including lower depreciation, interest expense declined 16.3%, and we also incurred lower restructuring costs in the quarter. This drove a GAAP pre-tax margin improvement of 510 basis points. Consolidated corporate EBITDA of $525.7 million was a 20.8% improvement over 2010, and the margin also improved 170 basis points to 21.6%. Worldwide HERC corporate EBITDA margin of 42.1% is 210 basis points better than Q3 2010. As we mentioned, our cost efficiency programs have been a key component in improving our margins. Year-to-date cost savings is $343.6 million. Slide 19 shows direct operating expenses such as a percent of revenue was down 180 basis points. This trend was driven primarily by improved operating leverage in HERC and lower damage cost in Rental Car and part due to higher damaged collection. Our labor productivity continued to increase with a 3.2% improvement over the third quarter of 2010. Our European Rental Car business is also a contributor to cost savings. As they continue to see top line pressure from the economy during the quarter, that business was able to reduce adjusted direct operating expenses as a percent of revenue by 160 basis points this quarter through improvements in the damage and maintenance processes, more aggressive supplier negotiations, and employee productivity improvement. Our GAAP net income this quarter was 33% better than Q3 of 2010. GAAP diluted EPS was $0.47 per share, $0.11 better than the prior year. Adjusted EPS in the third quarter was $0.51 per share, a 30.8% increase over the prior year. Diluted shares outstanding in the quarter of 2011 totaled 490.9 million. Now let me give you some more detail on the performance trends by business units, starting with Worldwide Rental Car on Slides 20 through 22. Worldwide Rental Car generated 10.8% more revenue than last year. The U.S. Rental Car revenue improvement of 5.3% was mainly driven by Off-Airport volume growth of 14.8%. We opened 54 net new Off-Airport locations this quarter and recorded same-store revenue growth of 8.6%. Advantage volume was up 30.9% in the U.S. and also contributed to revenue growth. Advantage now operates at 75 locations worldwide. Worldwide Rental Car adjusted pre-tax income increased 22.2% year-over-year, and the margin increased 170 basis points. This improvement was driven by revenue growth and declining vehicle costs, slightly offset by an increase in marketing and advertising expenses to promote our expanding profit offering and by a difficult economic environment in Europe. We closed the Donlen acquisition on September 1 so 1 month of results are included in the quarter. The business contributed $35 million to our revenues and had a small impact on profit. Going forward, Donlen will be reported within our Car Rental segment. And relative to their historical performance, their ongoing supported profits will vary based on a higher amount of fleet financing and the impact of purchase accounting, as well as the impact of synergy achievement. Now let's turn to the results of our Equipment Rental business on Slides 23 through 26. Worldwide HERC revenue increased 14.4%, driven by stronger performance in the U.S. and Canada offsetting the difficult environment in Europe. Despite a delay in the construction recovery and modest declines in industrial spending overall in the quarter, we continued to increase market share as indicated by recent American Rental Association Core Test. Rental markets in North America for the quarter were estimated to have grown slightly less than 5%, and we continue to drive higher market share, leveraging our industrial efforts, continued focus on specialty products such as Pump & Power, as well as niche markets such as entertainment. In addition, we believe rental solutions are a more attractive option in an uncertain economy, and national players are positioned to capitalize on these opportunities with newer fleet purchases. This improved demand was also supported by growth in government and railroad projects, helping drive time utilizations 470 basis points higher to 64.5% and increase dollar utilization 290 basis points over last year to 35.6%. We continue to build our industrial base with the acquisition of WGI Rentals in North Dakota, which provides us with a geographic footprint to take advantage of the industrial petrochemical market in the Bakken oil and gas field. In October, we closed the deal for Delta Rigging, which further expands our reach into the offshore oil and gas market. The average fleet age in our portfolio decreased slightly from the second quarter to 48.4 months, and we expect to continue to reduce the average fleet age by year end. We're also seeing improved sales of used equipment as the residual values of returning to stronger levels as we've shown on Slide 25. And as you may recall, our estimate from late last year for incremental revenue flow-through for HERC was 75% and included the assumption that nonresidential construction would be up 4%. As of today, that industry segment is down 6%, and the European effect was not known at the time. But as we pointed out last quarter, original full year corporate EBITDA margin estimate of 42% will come in less, and this equates to a flow-through in the 60% range. Moving to Slide 27. For the third quarter 2011, interest expense was $169.3 million, a decrease from 2010 of $32.9 million, reflecting the benefit of our refinancing activity. Cash interest expense was down, reflecting lower rates from refinancing, partially offset by the prior-year positive impact of the ABS interest rate swap which expired last November. For the full year, we've improved our forecast for net cash interest expense to down $5 million to $10 million versus 2010 from our prior estimate of flat to up $5 million. The revision is due to a greater usage of lower-cost floating rate debt -- fleet debt than previously forecasted and the lower rate achieved on the European ABS refinancing. Restructuring and restructuring-related charges in the latest quarter were $5.1 million compared with the prior year's $15.2 million. These charges reflect the continued efforts of streamlining the business and rationalize our global workforce. For the full year, we continue to expect these expenses to be between $60 million and $70 million. Moving to Slide 28, cash flow from operations improved by $248 million in the third quarter compared with the same period in 2010. However, overall corporate cash was $360 million worse than last year. Major variances this quarter included the acquisition of Donlen of $177 million, increased equity in Rent-A-Car fleet investment of $281 million, mainly due to the timing of program vehicle turnbacks and higher program receivables and increased HERC equipment cash outlays of $94 million versus third quarter of 2010. Turning to Slide 29, net working capital day trends were a negative 25.5 days this quarter. This is a 35% improvement over the third quarter of 2007. Mark already talked about our debt financing activity for the quarter, but Slide 30 provides a little more color for the deal. At the end of the quarter, we had $1.2 billion of corporate liquidity available to fund growth initiatives as outlined on Slide 31. With that, I'll turn it back to Mark.

[Mark P. Frissora:]

Thanks, Elyse. I just wanted to wrap up the third quarter by saying how pleased I am with our financial performance. As we told you, the headwinds this summer were significant, diminishing any potential upside to performance. The overall trends are still positive, and therefore, the disciplined execution of our growth and efficiency strategies keep us on track to deliver the meaningful revenue and earnings per share expansion that we previously guided to for 2011. You'll recall that we increased our guidance twice already this year, once in April and again in August. If you'll turn to Slide 33, let me tell you about some of the positive trends we're seeing as we move through the fourth quarter. Starting with the macro, the latest round of U.S. statistics reflects an economy growing slowly, but not contracting. So it seems general fears of a double-dip recession in the U.S. are waning. In Europe Rental Car, we're continuing to see a positive pricing environment in corporate business in the fourth quarter. And operating expenses continue to decline as a percent of revenue to offset demand weakness on the continent. In Equipment Rental, utilization is improving sequentially in the U.S. in the fourth quarter. Pricing continues to trend positive as we bring in new fleet. The increasing demand for earthmoving equipment for oil and gas projects, for example, and the growth in our specialty divisions like Pump & Power and Entertainment are helping to offset ongoing weakness in the construction market. Direct operating costs continued to decline as a percent of sales as process efficiencies take hold. And more than ever, contractors are looking for rental solutions instead of investing their own capital in new equipment. In U.S. Rent-A-Car, our advanced reservations for the holiday season are strong, tracking ahead of last year and reaffirming our belief in the resiliency of the consumer. We entered the fourth quarter in a stronger position than in the summer with fleet and demand now appropriately aligned. As a result of both tight fleets and longer rental lengths, we expect fleet efficiency to improve over last year's 79.1%. In terms of top line initiatives, we're focusing on driving revenue through higher RPD rental channels. Monthly depreciation per unit continues to be a good guide. In the U.S., the used car market is holding seasonably strong and clearly acts as a solid base for lower fleet costs. But as I mentioned before, the biggest contributor to HERC savings continues to come from better procurement and more optimal fleet rotation. For 2012, we expect our U.S. Rental Car monthly depreciation per vehicle to increase between 2% and 3.5%. The year-over-year change reflects the $40 million impact of the tsunami benefit that won't repeat next year and our planned purchase of a richer fleet mix versus 2011. The increase in depreciation should be partially offset by a larger percent of vehicles sold through higher return disposable channels and improved RPD versus this year given the higher, richer mix of fleet. Also in U.S. Rental Car, we continue to make headway on our asset light strategy. With nearly 50 virtual kiosks currently installed, we have plans to add 150 kiosks to airport and off-airport locations in the fourth quarter, reducing labor costs, extending rental hours in off-airport locations and raising the bar on customer satisfaction. The biggest risk to our assumptions for the remainder of the year is the global economy, and Europe in particular. In Europe, according to the Conference Board's October 24 report, euro zone industrial activity has softened. Service sector activity has been modest but steady, and consumer sentiment surveys are starting to reflect more nervousness about the prospects for '12. Of course, all this data was published before European leaders announced the plan to control the debt crisis. But as expected, there are plenty of critics popping up to point out flaws in that program. So far, the weakness in rental car and equipment rental demand in Europe continues. Therefore, we'll be imprudent, reducing discretionary spending in areas that won't impact the long-term strategies of our business, and putting cost saving actions in place wherever possible. Remember that Europe represents only about 20% of the overall company's adjusted pretax profit. Other risks include Worldwide Rental Car revenue per day, which should improve sequentially, and is expected to continue to be a headwind in the fourth quarter. We're working to offset the lower pricing as well as the incremental strategic investments by targeting another $55 million of cost savings, bringing our full year savings projections to $400 million from earlier guidance of $350 million. These investments we're making in emerging markets, Off-Airport, Hertz On Demand and Gold Choice, among others, are diversifying our business, expanding our customer base and they're driving growth, not just this year, but into the future as well, when we're anticipating generating even greater returns on these investments. Today, Hertz financial position is healthy, and we're delivering against our long-term targets. All of our attributes, a well-aligned management team, healthy brands, strong financial performance and clear, strategic vision has put us in a position of real strength as we push ahead towards 2012. Now before we open it up for questions, I want to quickly mention that we recently issued a press release that provided our most current update on the proposed Dollar Thrifty transaction. We'd like to hold all questions about that transaction until after the FTC process is concluded. Accordingly, we're not making or going to take any questions about the Dollar Thrifty transaction. Rather, we'd like to keep today's focus on Hertz fundamental operating performance and strategic initiatives. With that, let's open up the call for questions, operator.

[Operator:]

[Operator Instructions] And first, we'll go to the line of Emily Shanks.

[Emily E. Shanks:]

My question is about fleet, a 2-piece question since we're restricted to 1. Just around your comment Mark that, in HERC you delayed delivery of equipment until towards the end of the third quarter versus your competitors at the second quarter. If you could just give us a little color around what drove that decision? And then secondarily, around the RAC vehicle comment that the mix impacted RPD, could you just comment if you're seeing consumers trade down to the lower price points or what's happening there?

[Mark P. Frissora:]

Okay, so Emily, on your first question, there were 2 issues around fleet for us. One was the fact that, as I mentioned and the color I gave you was that, we are probably a little bit more conservative in the way we manage fleet. We don't build a field of dreams like "we get the fleet and they will come". We base it on the orders that we're actually going to get. The second driver that kind of hurt us is we had supply chain disruptions. We put orders in back in March and April, and frankly, they did -- they were supposed to arrive in June, a lot of our fleet, it was delayed probably 60 days all in. So I think some of our vendors were having issues with demand, and we weren't necessarily top of the totem pole in some cases. So some of the fleet miss in terms of having it there in place was driven by supply chain disruptions. But it's all in now, it's all fixed, but it should give us actually better results as we move forward and kind of a catch-up results orientation as we move forward. In terms of Rent-A-Car, your second question, which was the -- about the lower end fleet, we look at our mix of fleet. We, obviously -- when we lower our, let's just say, the cost of a given car because it's serving a market that is a lower-cost market like Off-Airport, normal net depreciation per vehicle, it's much lower in Off-Airport and much lower in Advantage than it is in Hertz classic airport business for business renters. So we've been differentiating that fleet more and more so that the fleet is sent to the right channel. And because it's lower, because the fleet is a lower-cost, the RPD is lower as well. And so anyways, it didn't get as much specialty equipment. Also there are a lot of minivans, for example, we didn't get. Chrysler didn't ship them to us, so we had supply chain disruptions that impacted our summer mix. So we would normally drive a higher RPD in the summer than we did because we would have more special equipment. We were having trouble getting Cadillacs, Escalades. We're having trouble getting minivans from suppliers because the short supply in the summer on what we call specialty mix. And that's always a strength of Hertz. And because we had that -- we didn't have that specialty mix that's higher RPD as well, that also impacted, again, the overall RPD for the summer. We don't expect that to happen next year, of course, but that did drive our RPD for Hertz down a little further than we normally see it because the mix wasn't as rich as it normally is.

[Operator:]

And our next question comes from the line of Rich Kwas.

[Richard M. Kwas:]

I just want to see if you could add -- give a little color on the Insurance Replacement business on profitability there. How much better is it versus the base On-Airport business? Is it 10% better, 15% better? How should we think about that because I think on the price side, you explained how RPD there is lower. But it would be helpful to understand the relative profit contribution there.

[Mark P. Frissora:]

I think on a pre-tax margin basis, we're generally about at the same, maybe a little incremental versus the airport business. Because the whole what we call the Off-Airport network has expanded its profitability so dramatically. We're still -- we're showing a little higher profit margins. But the bigger benefit probably is return on asset calculations where -- and when you look at the assets deployed against that business versus the assets deployed against the airport business, we're getting a little higher ronuse on it, and that's where the balance sheet comes in and we start driving just a better EBA equation, if you will, as we move into Off-Airport and continue to expand it, that a lot of that incremental revenue is against a fixed cost basis that's already in place and it drives again a higher EBA for us. So we look at it as a -- it's really driven around that asset light strategy. We have less assets deployed on a per dollar basis, and it drives higher returns for us.

[Operator:]

And our next question comes from the line of Chris Agnew.

[Christopher Agnew:]

A question on non-rental rate revenue. You saw strong increase year-over-year in the quarter. I'm just wondering if you could give us a little background what was behind that. And then maybe another 1. Can you give us an update on a -- your franchising strategy?

[Mark P. Frissora:]

Yes, let me ask a question again. You kind of broke up on me. The one -- the first part of your question was the growth in what was it?

[Christopher Agnew:]

Non-rental revenue -- ancillary revenues.

[Mark P. Frissora:]

Is that ancillary revenue or is that -- is non-rental rate to you the -- are you on the HERC business?

[Christopher Agnew:]

On the RAC car rental.

[Leslie Hunziker:]

There's Donlen that's $35 million for the month of September.

[Mark P. Frissora:]

For the month of September -- we only have 1 month of Donlen results in the operating results, it was the month of September. That was $35 million, just so you know.

[Christopher Agnew:]

Okay, right, that's disclosed in outline. Okay, that makes sense. And then just on your franchising strategy, which you talked about at the Investor Day.

[Mark P. Frissora:]

Yes. We have a lot of irons in the fire there. There are -- I mean, we have about 3 countries in Europe that we're in discussions with a lot of investors in. We have a country here in North America. We have regions all over the United States that we're looking at. I mean, I think that in terms of having a significant impact, that's really a 2012 event, maybe some announcements in the fourth quarter. As you know, Chris, that will be very positive for us. It will be a pre-tax positive, and we will have much fewer assets deployed against that pretax as we move forward. It also start impacting the revenue growth, but our plan is to -- every single quarter give you what revenues that were in our corporate base that move to franchise, and so you'll be able to delineate core operations are growing versus franchise and the impact of that. So again, that will start becoming much more significant as we move into 2012.

[Operator:]

And next, we'll go to the line of John Healy.

[John M. Healy:]

Mark, I want to talk about the equipment rental business, good to see the progress continue there. I wanted to get your confidence -- the level of confidence in the trajectory of that business. How confident are you that we're -- maybe benefiting not only for some modest cyclical benefits and more of a secular tailwind in the industry? And maybe how you feel that business can progress over, maybe, the next 4 to 6 quarters? And with that, what sort of incremental margin do you think we can achieve going forward on the current mix of business?

[Mark P. Frissora:]

Well, I think we feel good about the Equipment Rental business. That is going continue to improve at a double-digit rate on what we call the top line. And then as we look at the bottom line, again, nothing but positive fleet utilization, dollar utilization numbers. Pricing, we think, will continue to be strong. And we feel that this is a business where the flow-through will continue to improve as we get the new equipment up and running and as we continue to grow. We have a lot of growth initiatives that you don't see in our numbers right now. A couple of acquisitions are actually fairly significant in terms of growth potential. And we have couple of other acquisitions in the works right now, but should be announced in the fourth quarter. So again, we feel pretty good that we're going to get some inorganic growth in new markets based on the acquisition strategy that will help grow our top line. And then, the margin expansion will continue as the business continues in the cycle, we're assuming conservative assumptions next year on growth. And again, double-digit is still in order so that's as much color as I can give you right now who are watching [ph] . Europe, we think will recover as well and that's dragging down our operating results more than you would think with 10% revenues are tied to that, but when Europe's shrinking on us, it does impact the overall numbers by 2 or 3 points. So we think once Europe recovers and we are working on restructuring Europe -- we continue to restructure it, next year that would end up being kind of a boost year-over-year in terms of our operating results and you'll see that in our numbers going forward.

[Operator:]

And next we'll go to the line of Michael Millman.

[Michael Millman:]

Could you give us a breakdown, I guess, of the revenue -- how the revenue compares with -- how the RDP compares with the profit, for example, you spoke about not having enough specialty mix, which would help our revenue per day, but would've that helped the bottom line when you take into account their [indiscernible] take into account? LOR. And sort of relatedly, when you talk about your HERC and revenue per day by mix, how did that really compare on a same-product basis?

[Mark P. Frissora:]

It's a good point, Michael. And I would tell you that in general, and I can't get a whole lot of specificity here, but by not having probably 10,000 vehicles of a richer mix for us, it's probably worth at least a point of RPD to us and probably worth $0.01 or $0.02, a couple of pennies a share of EPS. So it definitely had a big impact to us in the third quarter, and so I don't want to understate it. It was significant enough that we pointed it out, and we were, like I said during the summer, really trying hard to get that fleet, but as you know, we're able to get it, but not until after the summer season was gone. So that's upside for us in the third quarter next year obviously, but it did impact our operating results on both an RPD basis and a profit basis.

[Elyse Douglas:]

The only thing I would add to that, Mark, is that, although it's a lower RPD, and that has a high flow-through to the bottom line that's really offset by much lower operating costs associated with some of that mix, right. So Off-Airport has lower operating costs than the airport business so you make it up in the profit margin which is why the margins expanded.

[Operator:]

And our next question comes from the line of Fred Lowrance.

[Fred T. Lowrance:]

Just wanted to ask a 2-part question on Advantage. Just the first, wondering how your absolute pricing on that brand kind of compares to others who participate at the low end, like an Enterprise? And then just wondering if you could characterize for us what the recent and current competitive response looks like to some of the rapid growth that you're achieving at Advantage?

[Mark P. Frissora:]

Yes, I'm going -- we've got John Holden who runs Advantage. But I think the RPD quoted for the quarter was in the 30s, wasn't it? Roughly, what was the RPD for the quarter?

[Elyse Douglas:]

$31.50. Fully-loaded it's $38.00.

[Mark P. Frissora:]

Fully loaded, we were at $38 revenue per day. So it might not have been as well as you would have expected it to be. Without being fully loaded, it was more like around $31. So when you look at the ancillary revenues and what we sell there, it's $38. In terms of comparison at a rate level to our competitors, John, you want to comment on that?

[John A. Thomas:]

I would say it performed at or slightly better and to note that our length was up 6.8% on top of that.

[Mark P. Frissora:]

Our length was up 6.8% on top of that, okay, good. So we feel like we continue to grow that brand and its presence. Obviously, we want to become less reliant on what we call third-party intermediaries as we grow the brand and so -- and more reliant on just getting walk-up rentals as well as generating demand from our website.

[John A. Thomas:]

We have that -- we have [indiscernible] continuous initiative that we rolled out the next 2 or 3 quarters.

[Operator:]

Yes, that will be from Howard Goldberg.

[Unknown Analyst -:]

Your net corporate debt increased sequentially by less than half of the cost of the Donlen acquisition. I was wondering how you were able to accomplish that, number one? And if you can talk about your plans to drive net corporate debt lower over time.

[Elyse Douglas:]

Yes. Well obviously, we were able to put in place the $850 million conduit, which is fleet financing. So when you look at the actual corporate outlay for Donlen, it was really $177 million so it was very favorable from an equity investment for us.

[Unknown Analyst -:]

Okay. So then yes -- then it, I guess, intensifies the importance of the second question, which if the cost-to-net debt -- net corporate debt, it was only $177 million and it went up $400 million in the quarter, what were the drivers there? And what's the likelihood of the net debt -- net corporate debt number coming down?

[Elyse Douglas:]

Yes, well, a lot of the increase was related to just the year-over-year cash flow. It's the incremental investment in the fleet that I talked about both on Rent-A-Car and equipment rentals. We...

[Mark P. Frissora:]

Yes, $250 million on rental car, $94 million on HERC incremental investment.

[Elyse Douglas:]

Right. And that's seasonal. Our largest cash flow quarter is the fourth quarter, so we'll see that reverse in the fourth quarter, so we'll see strong cash flow in the fourth quarter.

[Mark P. Frissora:]

And in terms of our long-term plan -- in terms of net debt reduction, we are very focused on that. And I think over the next couple of years, our expectation is to be -- have statistics that would be investment-grade within the next 24 months.

[Operator:]

And we'll go back to the line of Emily Shanks.

[Emily E. Shanks:]

I just was curious if you could give us an update on what your thought process around dealing with the 2014 senior notes when they become redeemable at par in January, both the U.S. dollar and euros?

[Elyse Douglas:]

I mean, Emily, we're going to look at that and we'll probably act opportunistically.

[Operator:]

And we also have a follow-up question from Rich Kwas.

[Richard M. Kwas:]

Just a follow-up on Equipment Rental performance in the quarter. How did pricing trend sequentially as the months wore on? And then if you could give same stats on the utilization front?

[Mark P. Frissora:]

Go ahead, Lois.

[Lois I. Boyd:]

Yes. Basically, between Q2 and Q3, we were up 3.5% in our calculations on the pricing front, okay?

[Mark P. Frissora:]

Most current months, yes, monthly basis. Do you have monthly price?

[Lois I. Boyd:]

Yes. Sorry, Rich, hold on a second. I don't have -- this one is actually -- August, pricing was up 3.8%, September pricing was up 3.5% overall. Our non-contract business continues to grow as well in the -- if you look at where we were in the quarter, the 9 contract was up 6.8%, and if we view that in terms of how our competitors look at it, it was 9.7% on noncontract business for the quarter as well.

[Mark P. Frissora:]

Noncontract business means it's not a national account for the most part, and it's local business and what does that represent, Lois, as a precent of our overall revenue?

[Lois I. Boyd:]

National contracts in Q3 are about 51% of our overall business.

[Mark P. Frissora:]

So noncontract would be 49%.

[Richard M. Kwas:]

And do you have the utilization numbers?

[Lois I. Boyd:]

Yes. Utilization continued to go up in the quarter. Time utilization in July was at 63.4%, going to 66.4% in September, so a nice gain during the quarter. And dollar utilization as well went up from as well -- in July, we were at 34.3%, in September, we were at 36.1%. So a nice gain in both places.

[Operator:]

We'll go back to the line of John Healy.

[John M. Healy:]

Mark, I wanted to get a little bit more color on how you feel the operating environment in October worked out in the U.S. Rent-A-Car business? It sounds like inventory levels in the industry are a little bit more balanced. If you were to adjust for mix in the business, how confident are you that pricing can be similar to last year, maybe have the chance to improve, maybe in the fourth quarter in the industry?

[Mark P. Frissora:]

We don't believe pricing will improve in the fourth quarter in the industry. I mean, maybe it will -- some -- depends on your year-over-year comp, but in general, industry is still -- pricing is still very aggressive, being led by one competitor in particular and people have to match that competitor. That -- one of those competitors has gone on record as saying that they'll continue to price aggressively per share. And I think as long as you've got a competitor pricing per share has put pressure, we think it will improve, we think pricing dynamics will improve from where they were in the third quarter, but they'll continue to be a headwind in the fourth quarter given what we see today, and that can change. I don't want to say that it can't turn more positive, but at this point, what we're seeing is there's continued pressure to what we saw evidence 7 -- in October, althought November and December does look more positive, it's still overall -- still a headwind.

[Operator:]

And we'll go back to the line of Michael Millman.

[Michael Millman:]

Under the same theme -- could you talk about industry fleeting in October or as you see it in November and December in U.S. RAC?

[Mark P. Frissora:]

Right. We think industry fleeting has improved, and we know that we're running our fleets tight. And we -- like I said, the whole biz, we've seen most of our competitors being more light fleeted. But again, the bigger issue is that if you have a competitor who's pricing per share, you end up having to respond to that. So again, anyone that's gone for share gains is going to cause that condition if they're using price as a way to get share gains, right. So we continue to try to lead industry pricing up over that increase we announced in October. And it was -- some people matched it, but others did not. So again, we'll continue to work as expressly as we can to raise pricing. And -- but on overall, the question was whether or not we saw it as a good guide in the fourth quarter year-over-year, and I don't want to lead investors into thinking that it is. At this point, we still expect to be a little negative. But improved from the third quarter.

[Michael Millman:]

Year-over-year or just sequentially?

[Mark P. Frissora:]

Sequentially.

[Michael Millman:]

Isn't that standard -- usual?

[Mark P. Frissora:]

Well for us, it isn't.

[Operator:]

[Operator Instructions]

[Mark P. Frissora:]

I think with that, operator, let's go ahead. I'm going to just give some closing remarks.

[Operator:]

Okay, thank you. I have no further questions.

[Mark P. Frissora:]

So as a quick summary year-to-date, I just want to go over that we've expanded our reach by opening up 160 net new Off-Airport locations. We've added a net 29 global Advantage locations. We broadened our used car sales presence to dealers and consumers nationally. We extended our hourly rental services into Boston and soon to be announced in Washington. We won new commercial contracts around the world. We required a greater presence in the growing Equipment Rental industrial market. We've taken out $345 million of permanent costs through efficiency programs, and we generated almost $326 million of adjusted net income so far this year, which puts us on track to potentially deliver more than 90% adjusted net income growth for the full year. So we're excited about our progress and remain enthusiastic about our expanded offering. Thanks for your time and interest this morning.

[Operator:]

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