Herzfeld Credit Income Fund, Inc.

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 issued last night and in the risk factors and forward-looking statements of our second quarter and third quarter 2016 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., a publicly traded company.

Results for the Hertz Corporation are materially the same as Hertz Global Holdings. This morning, in addition to John Tague, Hertz's Chief Executive Officer; and Tom Kennedy, our Chief Financial Officer, on the call, we have Jeff Foland, our Chief Revenue Officer who will be on-hand for Q&A.

Now, I'll turn the call over to John.

Thanks, Leslie. I want to acknowledge and take personal responsibility to the fact that I underestimated the depth and the breadth and the complexity of the transformation we are now undertaking at this company.

I firmly believe that that does not change the full potential that we have laid out for this company. When this work is done, we know what the work is and we know we have the people to do it, I firmly believe we will achieve the potential that we have outlined.

Clearly, we are behind schedule and we are challenged earlier than we thought. Also, I had expected more momentum as we move through the process and face the inevitable challenges from our revenue performance that, whilst stabilizing, clearly has not provided us with the uplift to address the challenges that we are currently facing.

Additionally, we specifically made two mistakes that largely affected the income statement during 2016. One is we overbought in the compact car category.

Why did we do that? We did it because it allowed us to achieve our fleet refreshment and our mileage goals faster than we otherwise would and because we thought we could align the fleet closer to reserves class.

It didn't work. We moved quickly to address that, and it will have a significant negative impact on the year's financial statements as we began to discuss in the first quarter of this year when we moved to reduce the life remaining on the assets to transition them out of the fleet as fast as possible and had taken subsequent significant charges to move the autos into the disposition pipeline.

The second mistake they're seeing in our performance versus expectations this year was an assumption that our ability to over-deliver and pull-forward on cost reductions would continue. In fact, we saw a tipping point in the third quarter, and while we remain committed and will deliver the $350 million, we were less successful in being able to pull forward the future agenda and realize it during the period.

That should not diminish your confidence in the $350 million, nor should it diminish your confidence in the total cost takeout that we've outlined for the company in the future. It's merely a timing effect that worked against us that was working for us in previous quarters.

So what do we need to do as we go forward? We need to finish fixing the fleet, we're well on our way to doing that, and that will be – Tom will add to as he goes through his particular coverages quarter.

We also need to continue to execute on the costs as the team has exceptionally well and to take down those costs as they're outlined in the future, but not to become overconfident about our ability to pull that agenda forward particularly until we get more technology enablement. And we need to improve our revenue execution.

You're beginning to see that come through. Jeff will outline a very modest underperformance on an adjusted basis for the quarter, and we're making significant progress there adding new systems now and at the end of the year.

But in order to get the revenue performance, we need to provide an uplift on the margin here, we really need to attract quality demand to the company, and we're doing that through a new Choice product offering that we'll roll through 30 cities, significantly enhancing our customer satisfaction scores, making additional investments in fleets and restoring the Hertz brand. All of those things and time will ultimately bring us to our goal.

We know the work, we know how to get it done, time is clearly longer than we expected, the challenges are popping up when we have less momentum to deal with them, but we are on the right path. I take accountability for this large bump in the road in the third quarter.

And I take accountability for working with this team to bring it back on track. With that, I'm going to turn it over to Tom to give you more detail on the quarter.

Thank you, John, and good morning, everyone. This morning I plan to discuss our third quarter and year-to-date results, balance sheet, cash flow, liquidity and financial leverage covenant.

However, most importantly, I intend to address a significant change in our forecast resulting from our lower than expected performance in the third quarter and subsequent implications it's had on our previous outlook for the fourth quarter. Finally, I intend to provide some closing thoughts about how we're thinking about how these results shape our preliminary views for 2017.

As John mentioned, we are clearly disappointed with our performance this year, and the third quarter results only heighten the level of urgency needed to get the business on a more predictable path. So, what happened in the quarter and how did our expectations change so materially since our last call?

While the U.S. RAC pricing has sequentially improved year-over-year and each quarter this year, U.S.

transaction days were below our expectation in the third quarter. At the same time, U.S.

RAC vehicle depreciation costs were higher than projected. Internal cost savings stretch targets for the quarter fell short.

International revenue pressure, primarily related to European terror events in the first half of the year impacted demand and subsequently has had added pricing pressure far worse than our expectations. Now, I'd like to provide a few examples in each of these areas and what we are doing to address them.

First, U.S. RAC pricing volume.

In the third quarter, U.S. pricing was largely within our expectations.

Transaction day volume fell short of our expectations. A number of factors contributed to soft volume including the following.

OEM recall activity and weather-related damage to our U.S. fleet impacted supply, utilization and, ultimately transaction volume during a seasonally peak time of the year.

We believe the unusually high vehicle activity and impact this quarter to be largely transitory in nature. We experienced softness in our overall corporate portfolio and continue our efforts to recapture corporate share, which we now think will take longer to achieve.

We reached out to our top 100 accounts and solicited feedback on our performance and opportunities to improve and incorporating this insight into our planning and investment plans including through new products and services but also better account management. And while expected on a year-over-year basis the closure of our deep-value brand in the U.S., Firefly, had approximately 0.5 point to 1 point impact on volume.

Now, turning to U.S. RAC vehicle costs, our U.S.

unit vehicle costs, which now will likely come in at the high end of our original guidance, we believe has been negatively impacted by our fleet mix. You may recall that in order to achieve the 2015 large scale rotation refresher in fleet age, we had to over-index the compact and mid-sized vehicles mix.

While we incorporated a vehicle depreciation readjustment in Q1 to account for expected weaker residuals in compact and mid-sized vehicles, our updated outlook completed at the end of September based on third-party forecasts required us to further increase depreciation rates in these categories. The third quarter rate review resulted in a $39 million unfavorable adjustment in the third quarter and an initial $26 million impact in the fourth quarter for a total of $65 million impact in the second half of the year.

To provide some additional insight into the process we go through in updating our (09:14) depreciation rates, we complete a mark-to-market rate review four times a year. This mark-to-market adjustment is done by car class, mileage and model year and is based predominantly on a third party foreign outlook on residuals, with an initial qualitative and quantitative overlay based on our own near-term remarketing history at our retail locations for company-specific experience.

The timing of this review, of course, occurred four times a year. Once in each quarter with the timing of the updated release by the third quarter determining when in the quarter this review is completed.

For the third quarter and the first quarter, this occurs at the end of the quarter, while on the second quarter and the fourth quarter, these are mid-quarter reviews. The fourth quarter depreciation rate review will be completed in mid-November, and we have assumed in our forecast an additional $30 million of depreciation expense adjustments associated with this review in our updated full-year guidance.

We have shortened the whole period of our compact and mid-sized units which also had near-term pressures on depreciation. We have done so with the objective to rebalancing our mix of these categories for more optimal level.

Further, we have worked hard with our OEM partners to negotiate capital cost decreases in our model year 2017 risk buy and continue to focus on other initiatives to help mitigate the near-term residual pressures that we do expect will continue into 2017. Now, moving to operating expense and the full potential plan, in terms of operating expense, based on the recent favorable experience, internally we had expected to achieve our $350 million expense target in 2016 by an additional $75 million this year.

Unfortunately, the pace of the incremental savings for this year has slowed as the next level of savings require a significant process reengineering our technology enablement to achieve. Further, we had to realign our focus to prioritize on those that would capitalize the near-term opportunities to address the corporate share losses such as the Choice rollout and upgrading our fleet mix.

While it's disappointing we had to slow the pace of expense takeout, we remain committed to our full potential savings of $800 million to $950 million over a three- to five-year period. The annual cadence for savings will vary depending on investment and timing of the technology delivery and rebalancing priorities with what we are able to accomplish each year.

It is our expectation that the level of savings will slow somewhat in 2017 and then accelerate thereafter as we bring technology online that will enable additional reductions in costs all the while asserting quality in our front of house and back office operations. While cost savings helped offset some of the revenue depreciation surprises, unanticipated expenses were an incremental headwind in the quarter on top of those experienced early in the year.

Recalls and weather-related damage, maintenance and transportation costs were unusually high in the third quarter. Finally, we also decided to accelerate the modest investments to facilitate work on our revenue management and fleet areas to better position us for improved results in 2017.

In total, we estimate the combination of these factors had an impact of approximately $30 million to $40 million in the second half of the year. Moving to international performance, in the International segment, while performance is on pace to deliver a significant adjusted corporate EBITDA improvement this year, this pace was negatively impacted by the terrorist events and higher than expected liability expense that have combined to negatively impact the results for the year.

European performance in the second half of August was particularly weaker than our expectations, and we have seen the ongoing impact of the security concerns on inbound demand continue. However, we believe the impact of the terrorist events is largely transitory in nature.

Further, we have exited lines of business that were contributing to the high liability expenses that we discussed during our second quarter results and believe this too will improve as we enter 2017. On a consolidated basis, our third quarter performance fell short of our expectations, resulting in a year-to-date adjusted corporate EBITDA of $541 million.

We expect our full year ending results to be between $575 million to $625 million, an approximate $300 million reduction from the midpoint of our prior expectations. While a change of this magnitude is always of a concern, we also recognize transformations of this magnitude for Hertz can lead to a near-term volatility from quarter-to-quarter and the journey to return to consistent and predictable results probably in hindsight was not realistic in the first year of a multiyear turnaround plan.

We do fully acknowledge, however, that we need to do a better job improving the predictability of our results in the near term and balance the confidence we have in our long-term objectives with our more moderate near-term expectations. So, what have we done to address the forecasting challenges?

First, we have a new management team that is eager to drive an ambitious transformation agenda. However, we recognize that we have to temper our ambitions with our capabilities in the near term to execute on this agenda.

As such, we have streamlined our objectives, established a holistic process in prioritizing our initiatives and a subsequently narrowed our focus on near-term agenda. Second, we have made some personnel changes to better align appropriate skills and experiences in areas of rental cars analysis experience and workforce improvement and predictability of our core performance in driving results.

Third, we need to simply reduce our expectations near term and execute in a simplified agenda and deliver on our communicated commitments before we can be in a position to expand that agenda. Now let me provide some additional insights on the quarter by segment.

In the third quarter, U.S. RAC revenue performance, as I mentioned earlier, was characterized by improving quarter-over-quarter pricing albeit still negative year-over-year and moderate volume.

U.S. rental car revenues decreased 2% versus same period last year as a result of a 1% increase in days offset by a 3% decline in RPD.

As a reminder, similar to last quarter, the impact of transaction days accounting methodology related to the integration of Dollar and Thrifty to Hertz counter system as well as declines in areas such as fuel-related ancillary revenue had an approximate 200 basis points unfavorable impact and year-over-year RPD. These are transitory issues.

Adjusting for these factors, third quarter RPD would have declined by approximately 1% year-over-year. Transaction days adjusting for the methodology change would've been flat.

A higher mix of business in our off-airport locations and an increase in average rental length, both of which resulted in a lower overall yield per day, impacted RPD by approximately 100 basis points year-over-year. On-airport volume was flat.

Leisure transaction days were impacted by reduced opaque rental volume and the discontinuation of the Firefly brand in the U.S. Excluding the Firefly brand, closure on-airport leisure volume increased 1%.

Business volume increased in the quarter as corporate weakness was offset by strong growth in government replacement business. Off-airport days increased 4% fueled by a significant increase in insurance replacement business.

Our insurance replacement volumes are trending back in line with 2014 levels after declining significantly in 2015. We are on track with our long-term actions to improve the mix of cars we rent, enhance the customer segment mix through greater customer preference and optimize our revenue management execution.

Towards that end, in the third quarter, we completed the rollout of our first component of the next generation revenue management system and roll out another module by the end of the year. In addition, the top line remained sharply focused on improving how profitable and efficiently we utilize our fleet assets.

Vehicle utilization and unit revenues were both impacted by unusually high number of out-of-service vehicles driven by the recall activity at two major OEMs. Vehicle utilization decreased 60 basis points year-over-year to 82% and unit revenues as defined by revenue per available car day decreased by 4%.

As I mentioned, in the quarter, net depreciation per vehicle per month increased 14% year-over-year, which resulted in a $63 million increase in net vehicle depreciation expense year-over-year. As a result, the decline in residual values which was at a higher rate than what we had originally anticipated.

Looking at fleet disposition, our retail disposition channels continues to perform well. During the third quarter, we increased our retail sales by 16% and achieved nearly 9% improvement in financing the insurance product income per unit on retail sales.

Retail sales as a percentage of total rent sales for the quarter have reached a record 39%, up from the 25% in the quarter last year. Overall, alternative sales channels represent almost 72% of our non-program sales, a significant increase compared with the 60% achieved in the third quarter last year.

Third quarter adjusted EBITDA for the U.S. segment was $199 million, representing a 12% margin.

Turning now to International rental car segment, excluding the impact of foreign currency, total revenues increased 1% primarily driven by a 2% increase in transaction days partially offset by a 1% reduction in total RPD. The decline in RPD was primarily driven by higher value brand mix and lower than expected demand from higher-yielding long-haul business into Europe as a result of the Paris attacks I mentioned earlier.

Net vehicle depreciation per unit increased 1% from the prior year driven by a decline in residual values partially offset by improved fleet management processes including strategic procurement and greater use of alternative disposition channels. In total, the International segment adjusted corporate EBITDA of $151 million with a margin of 22% for the third quarter.

Now, I'd like to try and update our balance sheet, financing, cash flow and financial leverage covenant. During the quarter, we continued to strengthen our capital structure liquidity position.

With regard to our non-vehicle debt, we completed a redemption of a 7.5% senior notes due in 2018 and also issued $800 million of eight-year 5.5% senior notes, the proceeds of which we used in October to redeem a like amount of our 6.75% senior notes due in 2019. On the vehicle financing side, we secured long-term vehicle financing for our European RAC business through the issuance of €220 million bond in addition the tenor of our vehicle financing facilities to the Donlen business was extended and a new standalone VFN financing to fund our New Zealand Rental Car fleet was established.

Additionally, we are in the process of extending pre-existing bank-funded vehicle facilities and expect to complete them by yearend. With the completion of these refinancings, debt maturities in 2017 will be limited to $7 million related to non-vehicle debt, $200 million related to U.S.

RAC and HVF securitization debt and $400 million relates to the Donlen fleet release securitization/amortization. Our liquidity position provides substantial support of our business needs as well as our limited amount of debt maturities occurring next year.

As of the end of the third quarter, our $1.7 billion liquidity position was comprised of $1.1 billion of availability of the senior revolving credit facility and $600 million of unrestricted cash after subtracting the cash amount earmarked for the October bond redemption that was executed. From a corporate net leverage perspective, we closed the third quarter with a net corporate debt to adjusted corporate EBITDA ratio of 5.2 times.

Given our financial outlook, we will not achieve our target lever ratio of being at or below 3.5 times at year-end and expect to end the year in the high 4 to 5 range on a reported basis. However, we remain committed to deleveraging and intend to direct our free cash flow towards debt pay down until we achieve our targeted lever ratio.

Let me address our financial covenants. The only financial maintenance covenants we have is the leverage based on the – contained solely in our senior revolving credit facility.

Importantly, the (20:31) EBITDA in the senior credit facility differs from our reported EBITDA because it allows us to add to the EBITDA the pro forma impact of certain cost savings initiatives we expect will provide future benefits. This cost savings add back is capped at 25% of reported EBITDA.

As a result of this difference, our leverage ratio at 9.30 (20:46) is calculated for purposes of the covenant was 4.5 times which gives a threshold of 5.25 times with the inclusion of approximately $100 million of EBITDA or $525 million of net corporate debt. The leverage covenant threshold stepped down in the fourth quarter and first quarter to 4.7 times and then will revert back to 5.25 times for the peak quarters next year.

Even at the low end of our guidance, we expect t o remain in compliance to our leverage covenant. It is also important to note that none of our other debt instruments contain cross-defaults to the senior revolving credit facility.

They only contain cross-acceleration triggers. This means that even if we breach the leverage covenant (21:26) with banks, we need to accelerate the loan before it impacts the remainder of our capital structure.

Free cash flow for the nine months year-to-date was $71 million, and as we seasonally reduce our fleet in quarter four, our free cash flow for the remainder of the year will increase. Finally, let me summarize to the updated guidance for full year 2016.

The approximate $300 million change in our guidance is largely comprised of four areas. First, U.S.

RAC vehicle depreciation utilization. As a result of our quarterly U.S.

RAC depreciation rate which we've completed at the end of September and potential implications on the fourth quarter from the November rate review, we have increased unit vehicle depreciation expenses from below the lower end of our previous guidance to the high end of our revised guidance to approximately $300 per unit per month. Further, while we have outperformed vehicle utilization in the first half of the year and expected a moderation of this performance in the second half of the year, we have further reduced our expectation of utilization in the fourth quarter.

The combination of these two factors resulted in approximately $100 million increase in vehicle ownership cost in the second half of 2016. U.S.

RAC revenue contribution. While the U.S.

pricing has largely been at or near expectations in the third quarter, we nonetheless have experienced lower transaction day levels contributing to an incremental $60 million decline in our adjusted corporate EBITDA outlook. International.

On the international front, while we had experienced some softness in second quarter as a result of the terrorist attacks in Brussels in March and the additional attack in July in France, we had a more significant impact on our business particularly in the second half of August time (22:59). In addition, while we are approximately 43% per (23:02) vehicles in Europe, we are seeing some pressures on residuals and have adjusted our expectations with vehicle residuals in the second half of the year.

As a result, we now expect international adjusted corporate to be approximately $50 million lower than we issued in our previous guidance. Costs.

In terms of costs, while we expect to achieve our committed $350 million in cost savings in 2016, our previous guidance, and we'd outperformed this commitment by $75 million for a total of $425 million. This is largely a timing issue and should not affect our full potential cost savings target over a three- to five-year horizon.

However, it does impact our full-year outlook. Further, other onetime and unanticipated cost increases such as gross damage, maintenance and transportation costs contributed to the balance of our reduced earnings expectations this year.

Given these impacts, we've updated our guidance to the following: full-year 2016 adjusted corporate EBITDA of $525 million to $625 million; U.S. RAC fleet capacity down 1% to 1.5%; U.S.

RAC revenue decline of 2% to 3%; U.S. RAC net depreciation of $295 to $300 per month, with our guidance assuming the higher end of that range; adjusted EPS range of $0.51 to $0.88 per share.

Other cash flow guide items include full year net non-vehicle CapEx of $75 million to $85 million, non-vehicle cash interest expense of $280 million to $285 million. Cash income tax of $60 million to $65 million and free cash flow of $250 million to $300 million.

Finally, as I stated earlier, we need to improve our ability to balance the aspiration of our full potential plan with our near-term focus agenda. As we think about 2017, there are clearly new headwinds but also positives to build on going forward including the following: we will achieve our $350 million of cost savings in 2016, and we have the benefit of the annualization of some of the partial year (24:51) in 2017.

We expect to deliver new cost savings in 2017, but as I mentioned, are more likely to be less robust than 2016 as we move to a period of investments. We expect a favorable industry environment and we'll be disciplined in our fleet capital deployment and expect continued improvement in our revenue execution model.

While negatively impacting performance in 2016, we believe that terrorist events and higher-than-expected insurance liabilities expenses in Europe to be largely transitory or addressed. While we have seen unusually high vehicle cost increase in the U.S.

and expect continued pressures on residuals in 2017, we also recognize some of the impacts to us has been disproportionately higher to the market, and we have taken steps to moderate an expected increase in 2017 below the increased experienced from 2015 through 2016. And we plan to continue to make investments in our core business to support the long-term objectives we have laid out.

With that, I would like to turn the call back to John for some closing remarks before we open up the call to questions.

Thanks, Tom. As Tom mentioned, there's been a lot of areas of progress.

Maybe I'll just recap for you what I think that we and you need to see over the next year imagine this company getting back on track to that full potential plan in terms of that margin aspiration for the business. We're rolling our Ultimate Choice in 30 markets.

We know from a market research perspective it is preferred by our consumers and gives many competitive consumers the opportunity and the desire to reconsider Hertz. That will be combined with an enriched fleet for our highest value customers.

It's in market in five markets today, will be in two more markets in the next 30 days, and 30 markets by the end of next year, following which we will expand into the top 50 markets. We rolled out new digital assets this year and then further enhanced those in the middle of next year, and we'll be making an investment not only in how we go to market in digital but making an investment in go-to-market and against the brand in totality.

We will refresh facilities and rebrand facilities in Dollar, Thrifty, and Hertz as appropriate, and reuniform our employees to present a more professional brand that matches the Hertz aspiration, the Hertz we will become again. We're going to be making investments to do all of that, but as Tom said, the momentum we have on the carryover of the cost takeout and the identification of new initiatives will provide us the resources to do so.

We need to continue to make progress on the tech transformation of the company. A very important deliverable next year will be the fleeting system, particularly as a multi-brand company, we lack the systems to put the right car in the right pool with the right brand for the right customer.

We're going to get that next year, and that will be very helpful as we go forward. So, as we make these investments and continue to deliver on our cost takeouts, and they have time to settle in market and get the desired response from our customers and customers throughout the industry, I remain confident that we will get back on track through our margin aspiration as a result of this work.

So, with that, I'll turn it over to Leslie for any questions we may have.

Roxanne?

Thanks very much. Good morning.

First question was do any of the issues, particularly around the small- and mid-sized cars bleed into 2017? And then I know you gave a broad outline on 2017, but any update on negotiations with the OEMs for 2017 and any other additional color on expectations for fleet cost in 2017?

Thank you.

Hi, Chris. This is Tom.

What we do is we mark to market depreciation rates in our mid and compact size. As we carry those cars into 2017, there'll be some implications on higher multi-deep (29:19) rates on those vehicles that we still haven't serviced.

We clearly obviously are looking at that quarterly. We've assumed an additional $30 million adjustment in 4Q as I said in our guidance.

We expect there will be cost increases, residual cost pressures and cost increases next year. I think it's more of a macro effect because I think we're trying to rotate out of these compact and mid-sized more expeditiously to a more natural level on the 16% range versus where we were 22% earlier in the year, as I mentioned, I think after our first quarter call.

So there may be some implications into 2017, but we believe that we're working to try to get those addressed in this calendar year and not have that as a carryover risk. Our 2017 model year buy is around 90% of what we expect to buy, we bought some availability by design.

Our negotiations – our OEM partners have been very helpful in working with us and recognizing the residual pressures I think the industry has or will face in 2017. And I think as a result, we've negotiated on like-for-like cap cost reductions on the risk fleet.

Program cars continue to be I think difficult to obtain. As I've said previous calls, our current mix of buys, about 80 risk, 20 program.

Probably not optimal from a risk management perspective, but clearly if you were to look at the program, pricing relative to risk residuals, you'd have to assume a fairly significant decline greater than any third party source assuming in 2017 to justify going more heavy on program. But we're always looking to see whether we can optimize more program as well as looking at used cars as we understand others in the market may be doing as well which, I think, is a early sign that folks are cautious about next year's residuals.

So we're taking that very seriously. And we do believe that we probably were disproportionally impacted because of our compact and mid-sized mix.

But I'd also submit that it's a macro factor and, obviously, others can't be immune to this factor. And, obviously, we think we have actions in place to try to manage through the fleet costs.

And, clearly, the improved pricing environment we experienced in the third quarter, as I've said, we'd probably always see a lag effect as I think is positive and that the industry is rational, and that we'll recover, from an industry perspective, increase more input cost and fleet cost.

Thanks. And maybe a follow on to that.

Your fleet's a little bit larger than anticipated this year, and utilization was a little bit down in third quarter. What are your thoughts around fleet levels going in the fourth quarter and then going into 2017?

Part of our fleet levels will be a little higher than expected as will be out of service. That is about 60 basis points.

As we've tried to kind of explain, the entire utilization dropped year over year. So I think that has been a kind of a transitory effect in the third quarter.

We want to continue to keep fleet tight. We'd like to keep it below projected demand slightly.

We anticipate we'll be very conservative with our fleet planning in 2017, but we obviously want to position ourselves to have the flexibility to flex up as we believe we'll recover some of the lost share we've had over the last couple of years, but at the same time we don't want to over fleet on the anticipation of that. But we want to create flexibility in the fleet that'll allow us to when we see that to flex up our supply and capture that demand.

Thanks, everyone. A question on the fleet depreciation.

The $5 increase per month in depreciation, if I multiply that by the amount of fleet and by 12 months, I'm coming out with only about $30 million increase in costs, let's say, due to the change in the per month, per unit forecast, meaning like to the market. That's a pretty small increase.

That's like a 2% increase. And we're implying well below a 1% decline in used value through the market.

So just reading the text of the release, it seemed like you were blaming, let's say, movements in the compact car class affecting your total mix there. But I'm only coming out with $30 million at least on the per unit.

So I guess it seems to suggest the rest of the D&A creep is just from too many cars. Can you be specific on outlining how many in thousands, round number even, of how over-fleeted you are and, again, when we cycle out of that?

Yeah. Adam, I think your math, if you assume the midpoint of our previous guidance, is obviously indisputable.

What I would submit, if you go back and look through my texts, my remarks, we had expectations that we were going to beat our low-end of our original guidance of $290 million. So we had projections to achieve something less than that.

And we were frankly a little bit surprised by a third quarter rate review that happened really at the end of September and signed off on in the first week of August during our close process where we saw residual pressures on compact and mid-sized and frankly residual pressures on certain manufacturers that traditionally we had not seen or I had not seen in my years in industry have the kind of residual changes that we've seen. So, I think what you'll see is if you do that kind of math plus the utilization impact, that's how you kind of bridge to our estimated $100 million.

And again, we've assumed a $30 million adjustment in our fourth quarter review as well.

Okay. So, just to summarize, you're not calling out numbers of cars so much as just embedded in your assumptions was a better than $290 million.

And so the $5 a month maybe it was more appropriate to use like a $10 or $15 per month in terms of what you had implied. Is that correct?

That's correct.

Okay. And then can you just review here because you were going a bit fast on the covenants there and it's a pretty important issue.

My second question, given that you're over five times leveraged, and I know the definitions are different, obviously, as you point out, but over five times in a decent economic environment right now. Can you just review those corridors for 2017?

I think we all have confidence you're going to remain within the covenants this year. But next year there's not a lot of room for error on the senior revolver.

So review those corridors again, and then tell us clearly what happens again with the accelerated payments if you don't make those – if you do go above either the 4.5% or 5.25% on that other definition? Thanks.

Yeah. No problem.

So the corridors do adjust quarterly based on seasonality, so we go from a 5.25% level in September to 4.75% at 12/31 and 3/31 and then back up to 5.25% at 6/30. So the corridors do adjust leverage.

As I said earlier, this covenant relates to our revolving credit facility. And as I mentioned in my remarks, there is no cross defaults, they only contain cross-acceleration triggers.

And that would mean that if we breach leveraged covenant, and our relationship banks would need to accelerate the loan before it impacts the remainder of the capital structure. And that's obviously very unlikely relative to what our bank lenders have and obviously a lot of commitments to us on the fleet and the non-fleet areas.

Hey. Good morning, guys.

I wanted to ask as you're rebalancing and remixing the fleet in terms of model, is that going to be create any kind of I guess extra pressure next year as we think about fleet costs, or do you think a lot of that is going to be absorbed already in the second half of 2016?

Well, we have, Chris, shortened the life of the compacts and mid-sized this year, which had an acceleration of depreciation realized in 2016. That would be one of the kind of unusual impacts for 2016 that should not reoccur in 2017.

As I mentioned to Chris on Chris' question, while we carry those cars into 2017, some of the compacts in mix, we're going to have fewer of them, but clearly some of those will have a higher dep (37:33) rate. We are still working for a planning process for 2017.

And as I mentioned earlier, we have some mitigating factors to help address what we believe will be another 2.5%, 3% decline in residuals next year similar to this year's experience, which is probably more in the 3% level now relative to our fleet depreciation this year versus our original estimate of 2.5%. So we'll have things such as negotiating cap cost reductions on the risk fleet, things we're doing in the remarketing channel and, obviously, optimizing the mix in hold.

We're going to look at that relative to also our fleet mix having more compacts and mid-sized and looking at what's optimal relative to customer expectation and demand perspective. We may require to make some discretionary investments in the fleet.

But nonetheless, we expect the increase from 2016 to 2017 to be less than what we've experienced between 2015 and 2016 on a year-over-year basis.

Okay. Great.

That's helpful. And then also wanted to ask on costs, and I know you guys bucket out kind of savings versus inflationary pressure on other things.

But can you maybe give us a little bit more color there? Is there a normal kind of inflationary rate you look at for some of your direct OpEx that doesn't relate to fleet?

Labor it's usually in the 2% to 3% range. Labor is always the biggest – probably the bigger components of what the direct OpEx is.

So that's kind of how we look at it year-to-year both from management and field personnel perspective. Other costs, either we had some successes here in negotiating reductions in procurement, so we've managed to offset some of the initial inflationary expectation folks had by improving kind of our negotiated rates on certain things as parts of supplies.

We've been working at some of our outsourced vendors on renegotiating the rates there. So we're trying work things to mitigate inflationary pressures, but I think generally speaking, a 2% to 3% range is what we assume and we plan for and then we try to find initiatives to offset a portion of that.

Thank you. I guess following up on costs.

It does seem that you have this column of corporate, which was up a great deal this year. And it seems like it's headed that way in the future.

Maybe if you could talk about that. Also regarding compact cars, at least the industry, and I'm sure your people have realized that compact car residuals were weak.

(40:17) for a over a year has shown they're down 7% or 8%. So it's, I guess, a little surprising that it seems like you've got caught short.

On the revenue side, trying to reconcile some of the numbers that you ran through earlier, it does seem that you – I'll put it another way, that Avis performed far better in terms of volume, in terms of price, again, trying to adjust. Maybe you can talk about why you think that was happening or how you can get back to a better increase.

Yeah. Why don't I address the cost in the compacts and I'll let Jeff address the revenue.

So first, clearly, I think if you look at our GAAP financials, we did see increases in SG&A and obviously Supplemental Schedule II of our press release provides you the adjustments related to – we took a charge for impairment. For example, our numbered lot system (41:28) system as we moved to a more modernized system on navigation.

So I would point those to the adjusted items on Supplemental Schedule II that provides the three month and nine month SG&A and DOE costs on an adjusted basis. But nonetheless, we obviously had some surprise ongoing costs items that nonetheless we needed to address both in the SG&A and the DOE area.

On the compact mix, you might recall in the first quarter we did discuss them and in our financials it was disclosed. We had an adjustment to some compacts and mid-sized depreciation rates, and in the second quarter we further did some adjustments on hold period to accelerate.

So I wouldn't say we were caught off-guard. We do have a very robust process.

We use a third-party review. And then we, obviously – forecast, and then we, obviously, then take our own qualitative experience on our retail sales for which we have 80 retail lots and we have that real near-term experience and we need to incorporate the near-term experience on our own performance against that third-party forecast.

And so that can change from quarter to quarter. So I wouldn't necessarily characterize that we were caught short.

I think the market is changing. I think the benefit that we have with the 80 retail locations where we see real-time information and that helps us mark-to-market I think more quickly when things do change.

Michael, it's Jeff Foland. I'll address the revenue side you had referenced.

I'll start with the volume. From a volume standpoint in the third quarter, there were really four factors that put a drag on those volume results.

The first one that Tom mentioned earlier is that we did discontinue the Firefly brand. We expected to recapture some of that but not all of that business given it participates in the deep value segment.

That was about a point of volume. Our corporate portfolio performance has been soft.

It was certainly soft in the third quarter and we are taking actions to address that, also as Tom had mentioned. And then, from a recall standpoint, we were somewhat uniquely impacted by the recall given the brand and type of cars that were out of service, particularly during the July timeframe.

And when you look at the utilization for third quarter, actually July was the only month where we were lower on a year-over-year basis from a utilization standpoint as opposed to the other months. With respect to the pricing, I'll refer you to the slide in the deck that accompanied the call this morning.

You'll notice that the reported RPD decline was a negative three points on a year-over-year basis for the quarter. About two points of that dealt with the Dollar Thrifty days counting methodology change that we've been talking about for a while now due to the systems integration last year.

Another point that dealt with the non-rental revenue-related component such as fuel-related ancillary revenues. So when you adjust for those, the RPD was negative one point for the quarter.

And we had about a 1.5 point impact beyond that from a category that was broadly classified as mix. So, a change in mix from the length of the rentals, the change of mix from on- to off-airport business, and a little bit due to fleet mix.

So, from a retail pricing perspective, the retail pricing on a like-for-like product basis in the quarter was positive. We expect that to continue to be positive as we go forward.

It's really a mix standpoint that causes the RPD to be negative on a year-over-year basis, and we'll continue to work on that mix. A lot of that once again comes back to we need better quality of demand coming in the funnel, we need to strengthen the corporate contracted portfolio, and that will help us adjust the mix as we go forward.

Thank you.

Hi. Good morning.

Tom, can you just run through the covenant accounts again around what you can pull forward in terms of cost savings and how that works? I've heard some of your comments.

Just wanted to make sure that we have an understanding of what can be pulled forward over the next couple to three quarters?

Yeah, Rich, no problem. So, first, let me reiterate, we're not concerned about missing our covenant because it does allow for pro forma adjustments for cost savings.

We have those projections that go through very detailed review. There's definitions in the credit agreement of what's allowable and are not allowable.

They're primarily operating type cost savings or things that are already approved in-flight. We have cushioned based on what we've kind of included or assumed or forecasted.

We could avail ourselves to additional opportunity in that if we needed but we obviously don't think we did and we've done the projections based on the low end of this range and we're well below kind of where the covenant would be. And we have additional opportunity that we could adjust EBITDA for additional cost savings if we thought we had any additional risk and obviously there would have to be credible cost savings and reviewed with our credit agreement, allowable on our credit agreement.

So, that 5.5 quarter (47:13) leverage ratio declined to 4.75 times. We obviously did the review and expect to be below that and believe we'll be in compliance with our covenants.

And we've looked at it for early part of next year too because we stay at 4.75 times and believe we'll be below our covenants for the next year as well.

Okay. All right.

And then, can you just help us understand as we think about 2017. I know you gave some qualitative views but how much of this adjustment is really non-recurring.

I mean, $300 million adjustment seems like there's stuff in there that shouldn't happen next year, but then there's also some stuff that's either semi-structural or potentially permanent. And so, I'm just trying to understand how we should think about the walk into 2017.

It would be particularly helpful as we think about where you were at the beginning of the year with your guidance of, I think it was $1.1 billion, that was including Hertz. But if you backed that out, I mean, you're talking a pretty significant decline.

So how much of that ultimately gets recaptured and over kind of what timeframe you're thinking about?

Yeah I mean, I think, Rich, as we think about it, there's some macro factors that are – we're heading in the right trajectory clearly early in the part of year with the pricing decline that the industry experienced and the pricing gap we had relative to the industry. I think it was extremely unusual in nature and I've been kind of clear with that, the market – our expectations with that will continue to improve.

I'm not counting on that it coming back all the way, but we believe the industry's performance and management of fleet is rational and that will be continuing to be a favorable kind of improvement on a year-over-year basis. Clearly fleet costs have been higher than we expected.

Some of which is transitory as I mentioned. And we've accelerated the whole period of compacts and we've taken those – we're trying to sell those out.

We expect to see some additional residual pressures next year, but we also would expect our revenue execution model will continue to improve, and we will continue to close the gap what we did in second quarter through the third quarter of what the industry comparables are. So, closing that gap is obviously very important, I think important to our outlook and that's within our control and not a macro factor.

We've had macro factors that affected us and actually company-specific factors that affected us international, the terrorist events in March and subsequently in early July clearly had an impact on international inbound in Europe. I think our public calls also talked about that, the acceleration of that experience happened at the end of August.

And into the balance of the year, I think that largely historically has been our transitory (49:50) additional terrorist attacks, but I think we will see a recovery in our international portfolio as well as we experienced some very significant elevated insurance liability costs this year, we disclosed that in 2Q. That was just $20 million in 2Q alone as a one-time adjustment that we believe we have addressed the core issues behind that in the market in which we are experiencing that at aged cases that adversely developed and we've exited some of those lines of business.

And so, we are already seeing improvements in our insurance rates. We've done things in the U.S.

market to address our insurance by changing the portfolio of who we rent in lower risk parties. In our initial outlook for 2017 on our liability risk accruals in the U.S.

market, we will have an improvement year-over-year. We did have a number of one-time items as we've come out of the spin, as well as we give more visibility and get granular on our costs of cleaning up.

So, we had, I would say, and I think I've said in my script, around $30 million of unusual items in the third quarter somewhat into the fourth quarter. So, I think it's going to be a function of we've got some unusual items with Europe, which is transitory, some unusual cost items with depreciation likely disproportionally impacted us by an over index of compact in mix.

But I also caution folks that we do intend to invest in fleet next year and invest in product and service. We'll be managing that investment relative to our earnings outlook, but we believe investment is critical to continue to build on this company.

So, Rich, I would say, we're still in the process of building that plan. We're going to be more conservative as we guide to the plan, as I mentioned in my remarks because we need to get to a position where we can deliver on what we say we're going to deliver and not be aspirational and miss what the aspiration is.

So, I think we'll be cautious in setting expectations for 2017. But we also believe there are number of items in 2016 that kind of add to a – not an insignificant amount of money that can be addressed as we go into 2017.

Hi. Thanks for taking my questions.

First off, I wanted to follow up on an earlier question on the fleet costs. As one of the other guys had pointed out, residual values for sedans in general have been softer for quite some time now.

So, I guess, could you speak to a little more as to why your internal forecast diverged so materially from the third-party forecast? Were you not seeing the softer residuals in your real-time sales?

Then I guess more importantly, what sort of checks and measures are you putting in place to avoid these issues going forward? Is it simply a matter of experience as you were alluding to earlier, or is there something else that you need to do here?

On the residual value perspective, we had originally expected around 2.5% decline for the year. That has been under pressure.

Our forward outlook has stepped that up, and the third-party sources we use have a kind of a step up in that number. We're seeing that more in the 3% range, and then there is some disproportionate impact on our own experience relative to the compact and midsized cars and the shortening of that whole period by design, by our desire to rotate those out and really to recalibrate it to a more appropriate mix of those units we had into 2017.

So, I think we have a – clearly, any kind of estimation process can be continuously improved. I think we have a very robust process we go through to establish what our residual outlook should be every quarter.

As I mentioned in my comments, we do this four times a year; and unfortunately, 3Q and 1Q are the quarters in which the forecast from the third party comes out at near the end of the quarter and it really isn't something we can update till the quarter is nearly at the end. But we do have an obligation from a board perspective to update our outlook on residuals.

We also have our own retail experience. Again, and as I mentioned earlier in a comment that we have that experience (53:53) which we're selling cars daily, and that's the performance that must be incorporated in our own third-party forecasts to adjust our residuals accordingly.

So, I do think we have a unique insight into what is going on in the retail market. Maybe it's unique to us.

I would suspect it's probably more not because our retail locations are located all throughout the country, so we have a very good distribution of what the market might be feeling. So, I do believe that we have a very robust process, but I don't disagree that we should continuously try to look how we are refining it to make it more accurate.

As far as our overall forecast process, as I think I mentioned in my comments in the script, clearly we've had some surprises. We've had really kind of an aspirational agenda, and we were making progress in our take-off plan, the first half of the year way ahead of our goals and expectations of our externally committed $350 million.

And by design, we had included that whole $425 million in our last guidance update and going forward, I think we're going to be more conservative and less aspirational in citing our expectations externally but still setting pretty relative expectations internally. So, we'll probably recalibrate how we build out setting our forecasts and setting an expectation outlook that is achievable externally but one that will have more stretch internally as opposed to both.

Okay. Got it.

That's helpful. And then on the volume side, could you speak to why this Firefly exit had such a big impact on your volumes at 3Q?

Why is the transitioning of customers to the Thrifty brand not working as you had expected? And if you could just talk about your airport business versus off-airport with regards to how they drove volume at 3Q and their market shares?

Yeah, this is Jeff. I'll address that.

So, we didn't expect to recapture all of the Firefly business. It competed in a different category.

It was in the deep value category. In the U.S., we didn't think the economics and margins associated with that business made sense.

So, we decided to discontinue it, and we did that at the tail end of the second quarter. So, it wasn't a surprise that we had some volume gap associated with that.

Now, all of that being said in building on the earlier question as we look into the fourth quarter, we see reasonable volume. I think it will be somewhat better than we saw in the second quarter really for the other reason that we mentioned, and that had more to do with the recall activity and out of service that we had during the quarter.

From an overall volume standpoint, on-airport volume was flat for the third quarter, largely impacted by all of the elements that I just mentioned as we discussed earlier. The leisure transaction days in particular were impacted by the Firefly, the recall.

And in addition to that, we significantly pulled down our lower yielding opaque distribution channel as well. That was purposeful as we're driving to balance weight versus volume out in the marketplace, particularly given the capacity we had available during the recall situation.

Off-airport business continues to grow well. It grew 4% from a volume standpoint.

That was really fueled by the insurance replacement business, a significant increase in that business. But keep in mind that insurance replacement volume is really just trending back to 2014 levels after we had a significant drop in insurance replacement during the third quarter of 2015.

So it's not that different from a trend standpoint than we would've seen in the second quarter. It just happened to be flying over a valley on a year-over-year comparison standpoint relative to 2015.

Hi. Thanks for taking my questions here.

Gentlemen, just thinking about what you outlined a year ago and where we are today, I think you mentioned in your prepared remarks the three to five-year time line. Are we still looking at that three to five-year time line as being pretty well within your grasp, thinking about the cost takeout and the turnaround?

Or are we potentially at the five-year-plus at this point? And then, just my second question on corporate volumes.

I know you mentioned that they were weak during the quarter. I'm wondering how much that was company-specific versus what you're seeing from a demand perspective within the market.

Yeah. So, I think in terms of the three- to five-year timeline, one of the caveats we mentioned all along, was it didn't account for the possibility of a down cycle within one of the three years.

So, I think that obviously affects our view around timing, and we don't really know what the answer is. I think having a year like this arguably puts you further behind than where you'd like to be.

Having said that, I do believe that as we fix these customer experience investments, fix the execution on the revenue side, improve and invest in how we go to market, it's only a matter of time before you should expect a year or two of above industry performance on the revenue side simply as the – and affect the other side of the flip-flop that we experienced as we were under executing. So, clearly for us to meet those objectives within those timeframes, we can't see a down cycle year.

And we're going to have to see – we're going to have to see some revenue performance kick in in effect that corrects off this unexpected base degradation that we had in 2016.

From the quarter volume question, whether it's market versus company specific, it's actually both. From a market standpoint, I would characterize it as there is modest growth in the market at best, perhaps even stagnation as we go forward.

But frankly, it's been more company specific with respect to the corporate contracted portfolio volumes we've been achieving. And as John said, we have much work to do and we have much work underway to win back those customers, grow that share intelligently and ensure that we are the preferred provider in this marketplace.

Thank you. That's very helpful.

And just one last one for me. As we think about the covenants moving into the end of the year and into early next year, does that mean that share buybacks are off the table in the near term?

Yeah. As I said in our remarks, we intend to use our liquidity to deleverage the business until such time we get to our leverage targeted range.

Understood. Thank you very much for the time.

Hi. Yes.

This is Dan Levy on. Thank you.

Just wanted to ask if you could probably give us a sense of the visibility that you have to the different components to your business. And what I mean by that is, look, you obviously don't have a macro crystal ball, and macro will move around quite a bit.

But it just seems like over the course of the year there have been a number of issues whether it be business mix or fleet mix or different cost components which sort of caught us by surprise. So, I was wondering if we should just anticipate that there should be a core level of variability versus forecast moving forward on those items.

Well, I think there is an element of getting to the other side of the technology transformation that clearly would help tighten the business and tighten up the visibility that we have around fleet and demand movements. I wouldn't suggest to you that there's nothing we can do until then.

We are working around an interim forecasting improvement process right now to take the data and the systems we have and try and get them calibrated to a better outcome than they have been. I think the final answer is probably within the systems, but you can expect that we feel accountable for making improvements between here and there, but also acknowledging there is volatility as we go through this because we're really not rolling forward a constancy of outcome.

We're transforming the company, be it the systems, the value proposition, the leadership, how we go to market, all of those things and you get into – when you have that many variables moving in constant, it's hard to understand the second and third effect. So, we can get better.

We will be better. We will ultimately get it fixed.

But I think some degree of skepticism in the meantime has obviously unfortunately been well earned.

Understood. And then just a question on the cost outs.

You talked about not getting the additional $75 million stretch goal in 2016. As we're heading into 2017, is that stretch goal achievable at this point and is it possible that you'll be able to maintain all of the $350 million you think you'll achieve in 2016, or is there possibly a step back as you increase your investments?

Really going to be sort of a net of three things. So, we have good visibility on what I call the step-off effect of the $350 million and how it will stick next year.

We have good visibility on what the initiative yield will be, at a conservatism we'll discount that a bit. But those two numbers will have to go, one, to inflation and two, to these investments we've been talking about around enhancing the Choice product, investing in go-to-market to really get at some of the long-term fixes because in order for this business to perform the way you and I think it has to, it's got to end up being the preferred brand getting there with the competitive cost structure and having real customer advocacy and the revenue performance that goes along with it.

We're going to have to make those investments to realize that reality, and so that's going to put pressure on what we can produce for you in the next year or two from an earnings perspective. But that's what's going to give us the breakout we need to get to that full potential trajectory.

Again, I hope that we have a little bit more tailwind headed to with it and a little less headwind as we went through this sort of going through the awkwardness of that process wouldn't be something we were sharing on a quarterly basis. But it still is the right thing to do.

We need to take these non-value costs out of the business, but we need to invest in transforming this company and getting it back to the top of industry position and the associated returns and customer loyalty that come along with it.

Thank you. John, I wanted to ask, I mean clearly the numbers this year are going to not be what we all hoped for, but when you look at the transformation that you're working on behind the scenes and look at the base of the business, from a technology and from a system standpoint, how much are you behind where you thought you'd be at this point?

And if you kind of had to put a mile-marker down in terms of where you thought you'd be, where are you today in terms of putting the practices, putting the technology and putting the right people into place to make this company what it used to be?

I suppose if I look to the peak of my naïveté, the first day I walked through the door, I thought we could get the revenue systems up and done within a year, it's taken two. And I'll also point out with those systems they've got to be in market both in terms of analyst learnings, but also the data that causes the system to learn, so I don't really expect full effectivity – I expect benefit but not full effectivity for 6 to 12 months.

So, I'm a year behind in that regard. The fleeting system will come in next spring.

That's probably six months behind what I had hoped, not what Tyler had promised me. But before I met Tyler, I had a hope that didn't involve him.

That's probably six months behind. That will have real value for us.

The ultimate value will be a multiplier once we get Res Rent (1:06:56) and we get interconnectivity between sales force, the import fleeting system, the new CMS revenue management systems and the Res Rent (1:07:06) system then it becomes a multiplier. We think we are on to ahead of schedule on the Res Rent (1:07:13) system.

And I would tell you the first day I walked in here, I thought we would need new tools but not an entirely new platform. I learned in the coming months that this was going to be end to end and it goes back even to, I'd say, original understanding that the company "installed Oracle".

But really all we'd done is made Oracle middleware. We're going through in the next 12 to 18 months at a cost of over $50 million of finance transformation alone to get Oracle fully embedded and get all the benefit of that system.

So, I didn't think I was going to face literally everywhere every corner system. And frankly, I wouldn't choose an everywhere every corner system if they weren't in the space they're in.

The space they're in simply leaves us with no choice. So, I think we underestimated how much it was going to cost and the time it was going to take to work our way through this.

I'll also tell you that my own hypothesis is when we plug all the last wires together between all these systems, we've probably vastly underestimated how it can change the effectiveness of the company and it cannot come in a moment too soon.

I appreciate that. I appreciate the candor.

The question I want ask for Tom was just when you look at the $75 million shortfall in the cost savings goal, can you help us understand what types of items kind of were not within your reach this year? What type of initiatives those were?

What area of the business those might be in?

Yeah. So, some of the areas which are timing related, so we did initiate a back-office process a little delayed this year, which put some pressure of finding new initiatives to offset that.

That was delayed from what we originally assumed early in the year to April, and then we had assumed we would find other initiatives to make up for that timing delay and stayed with our internal and external guidance and our commitment of $425 million that was incorporated in our guidance. So, there was a timing issue that was pivoting to unidentified initiatives to go pursue to offset that.

And we had made great progress earlier in the year of continuing to find unidentified initiatives, identified and then pocket it and those kind of started to slow down in the third quarter. There were some timing delays and some issues related to all the personnel costs that we continue to get savings out of.

We've been cautious on executing some of our outsourcing initiatives, so some of our – and again, I think this is largely timing but some of our back office outsourcing were making good progress on. But we've been cautious because we got to get out.

We got to be careful that as we go through quarter closes and things of that nature offshore outsourcing things has where still we've got to manage the risk, kind of, longer term relative to the near term cost savings. So, relative to some of our back office and fleet in our back office and accounting, we're making progress and we've had some delays in some of our initiatives there that we initially expected we're going to deliver this year and then moving into 2017.

So, those are few examples. Again, I think as we said in our remarks, it's more of a timing factor than it is an absolute, and we don't think we're going to achieve the cost savings.

We believe we appropriately derisked ultimately the full potential plan to achieve cost savings that were worth the risk of the nature (1:10:32). We are having risks of timing and we continuously try to look at that.

And as I said earlier in my remarks, we have had a need to refocus some of our efforts on some of the core issues that we're addressing such as the fleet mix, corporate business and some of our product rollouts. It does take management bandwidth to repivot to those areas.

And those cost savings, although important, do take secondary to ensure we're getting the revenue top line go in the right direction, the product go in the right direction.

Good morning. I just wanted to ask – sorry – one more clarification on the covenant and this is in terms of what you can add back to EBITDA.

So, I know that you said it was based on cost cuts, but is it internally that we should basically be adding $100 million to whatever our corporate EBITDA forecast is to get to what your covenant EBITDA is unless you guys go and I guess change that definition? Is that $100 million the right number?

It's 25%. The cap is 25% of the LTM EBITDA.

So, whatever the LTM EBITDA, you cap at that and it's based on operating cost savings. It's not what you've achieved, but what you have prospective, forward looking that have tangible approved and then slight cost savings opportunities there are in that.

It allows you or affords you a fairly significant cushion in our forecast and projections that allow us to reflect and represent that we don't believe we're going to be in a breach of any covenant anytime obviously this year in our filings. As a result of that, we obviously have cost savings based on our full potential plan that are prospective value in nature and that have been reviewed and documented very thoroughly for both our internal purposes and our auditors' purposes to represent the fact that we don't believe will be in breach of our covenant.

Okay. But the 25% of EBITDA, let's say at the midpoint of your guidance is $150 million and so, are the cost savings that you're assuming at the – are they up to that cap already or is it something lower than that, I mean is it – are you taking advantage of the full amount of that cap, let's say?

No, we're not taking full advantage of the amount of the cap to represent and that we believe will be sufficiently under our leverage level at yearend. We're not taking full advantage of that.

Okay. But there's no number that you can give us just as we build our models going forward, a rough number to just see if we think that the compliance will continue through next year.

So that $100 million is not – we shouldn't use that as just a number to add back?

Yeah. I mean, again, it's going to change based on the LTM EBITDA, so that's going to move.

So, it's the projections of what you think LTM EBITDA and the 25% cap. But at year-end, we have to build ourself with something less than the cap and LTM EBITDA using $600 million and you kind of do the math to figure out that's what it is at 12/31.

Okay. And so then can you just remind us what is the exact add back for this quarter's calculation that you used?

We did not disclose the add back. Again, we were under the required leverage target on a reported basis of 5.2 times versus 5.25 times.

So, it's not necessary to avail ourselves of the add back for this quarter. But from a forecast perspective, assuming the midpoint guidance, we have a inventory of cost savings and we do reflect those cost savings in our forecasted leverage target to ensure that we obviously are in compliance to our leverage ratios.

Thanks, everybody. We appreciate you joining us in the call today.

We certainly will make mistakes. When we make them, we'll be candid about them and what we intend to do to correct them.

We don't expect that solution as a result of that. We know that we have to deliver over time.

We are no less convicted in our ability to realize the full potential of this business. All of the underlying math, strategies and approaches to the market to do that exist.

I think today is more evident that road is going to be a whole lot bumpier than we thought. And that we may have communicated in terms of an expectation.

But we will get there. When this brand is restored to a leading position within the industry, it will obtain revenue performance that is consistent with that and it will benefit from the cost and the system's work we've done along the way to set the foundation.

So, I look forward to speaking to you on the other side of that and along the way and between. Thank you.