Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Avis Budget Group Inc (CAR, Financial) reported quarterly revenue of over $3 billion and adjusted EBITDA of $214 million.
- The company achieved record-setting second quarter volume in the Americas, with rental days up 1% compared to the same quarter in 2023.
- Sequential pricing improvement was noted, with a 7% quarter-over-quarter increase in the Americas.
- The company successfully sold a record number of vehicles in the first half of the year, improving fleet utilization.
- International operations showed strong performance with nearly $700 million in revenue and $48 million in adjusted EBITDA, driven by a 5% increase in rental days.
Negative Points
- Pricing was down 3% compared to the second quarter of 2023, despite sequential improvements.
- The company experienced a $40 million loss from vehicle sales in the quarter, compared to over $200 million in gains last year.
- Straight-line depreciation increased significantly, resulting in a $115 million incremental expense year-over-year.
- Vehicle interest expenses rose by $72 million in the second quarter compared to the same period in 2023.
- Operating and SG&A expenses as a percentage of revenue grew by less than two points in the quarter compared to the prior year.
Q & A Highlights
Q: Joe, do you think there's any kind of size of shift in the industry landscape in terms of where some of the lower price volume is going? And maybe that's a competitor fleet action because you've talked about fleet being down year over year in July. Your public competitors said the same thing, yet the industry volume is clearly growing a lot faster than that. So is there -- has there been some seismic shifts in other competitors, what they're doing with fleet and who is willing to take lower price demand in your opinion?
A: Joseph Ferraro, CEO: We clearly preference price in the quarter due to inflationary effects on products and services, interest costs, and inflated vehicle costs. Our systems allow us to take one type of margin business over the other. We had a record demand quarter in the second quarter. The calendar had a significant effect, with Easter falling in March this year and not April. As far as competitors' fleets, I haven't seen anything out of line. We wanted to get our fleet size down and believe we can achieve better utilization.
Q: Can you maybe tell us roughly what percentage of your model '25 buys you've already done? And does the timing shift at all?
A: Joseph Ferraro, CEO: We're about halfway done with our buy and have seen significant improvement in our holding costs. We have flexibility to sell more cars and rotate out older cars if we see increased buying opportunities at favorable prices. We've taken a significant approach early on to rotate some of the fleet out.
Q: I wanted to ask on liquidity, including as it relates to the equity that you might have in a soft or some of the other fleet securitization facilities around the world, above and beyond that which you are required to maintain by your lenders. How much cash could you theoretically extract if you wanted to?
A: Izilda Martins, CFO: We have equity in our fleet of nearly $3.8 billion. We have the ability to issue more than $1 billion of debt out of our financing structures, representing further liquidity cushion. We have been paying in our minimum depreciation, further enhancing our cushion.
Q: What are the key benefits of this liquidity cushion? Does it mean stronger free cash flow, protection in a downside scenario, or flexibility to return capital to shareholders?
A: Izilda Martins, CFO: The key benefits are protection and ultimate flexibility. It allows us to in-fleet our model year '25 and maintain the appropriate mix of fleet. Our financing structures give us the flexibility to manage our fleet size and capital allocation effectively.
Q: Are you done rightsizing the fleet? And will there be any shift in mix as you refresh the fleet?
A: Joseph Ferraro, CEO: We buy cars that people want to drive based on reservation data. There hasn't been a seismic shift in the mix. We have both core and non-core cars, with non-core cars being popular people movers. We took significant action to reduce fleet size early in the year and will continue to adjust based on vehicle buy and deliveries.
Q: What is your view on the ideal level for utilization? And can you discuss the supply-demand balance in the market?
A: Joseph Ferraro, CEO: Utilization has been stable for decades, but we see opportunities for improvement through machine learning and analytics. We have systems to optimize car placement based on demand and pricing. We believe we can achieve better utilization outcomes with enhanced vehicle movement and timely repairs.
Q: You mentioned losses being better than expected despite Mannheim declining 6% sequentially in June. Can you explain the moving pieces and changes in DPU guidance?
A: Izilda Martins, CFO: We disposed of 70% of our full-year estimated dispositions in the first half. Losses were nominal on a per-unit basis. Given the results, we now expect net depreciation per unit per month to be around $350 for the remainder of the year.
Q: How are you evaluating capital allocation, especially regarding share buybacks?
A: Izilda Martins, CFO: Our strategy for capital allocation remains unchanged. We invest in our core business and time share buybacks with cash generation, which typically comes in the second half of the year. We believe our stock is undervalued and buybacks represent a compelling opportunity. However, we remain prudent and patient in deploying capital.
Q: Can you provide any color on forward bookings and the demand environment in light of potential recessionary fears?
A: Joseph Ferraro, CEO: We haven't seen any significant downturn in demand. European bookings are strong, and commercial business remains robust. We are prepared to handle economic challenges based on our experience during past recessions and the pandemic. We have a good playbook for managing costs and fleet size.
Q: How are you protecting DPU in the event of a recessionary environment and potential decline in used vehicle values?
A: Izilda Martins, CFO: In a recessionary environment, lower interest rates typically benefit used car prices. We have substantial cushion within our vehicle programs, with more than $1 billion to ride out short-term shocks. We are well-positioned to manage depreciation and protect DPU.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
