Q4 2019 Earnings Call
Greetings and welcome to Avis budget groups fourth quarter and full year 2019 conference call.
At this time, all participants are in listen only mode.
Question answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the call conference over to your host David Calabria, Treasurer, and senior Vice President Corporate Finance. Please go ahead Sir.
Good morning.
Looking for joining us on the call with me are Joe for our interim Chief Executive Officer, John or our Chief Financial Officer before we begin I would like to remind everyone that we'll be discussing forward looking information that involves risks uncertainties assumptions that could cause actual results to differ materially such forward looking statements and information.
Such risks assumptions uncertainties and other factors are identified in our earnings release and our other periodic filings with the FCC as well as the Investor Relations section of our website.
Undertake no obligation to update or revise our forward looking statements or comments today will focus on or adjusted results. We believed that our financial performance is better demonstrate it using these non-GAAP financial measures, which are reconciled from the GAAP numbers in our press release ended our Investor presentation also available on our website with that I'd like to turn the call.
Over to the Avis budget groups interim Chief Executive Officer, Joe for our.
Thank you David and good morning, everyone.
It's been in into bigger rating seven weeks since I stepped into the role of interim CEO.
Three things I wanted to accomplish early in my tenure first I wanted to finish 2019 strong and we do just that.
Second I wanted to solid 2020 financial plan in place along with clear and strategic initiatives to push improved performance and finally I want it to minimize any distractions for operations. During this transition. So that we're all focused on the required targets I'm pleased to say that we finished the year strong with another record quarter in the Americas.
Stabilization in the International segment, we have a plan in place that will continue the momentum we ended 2019 and I'm excited by our results. So far this year.
We closed the year on another high no reporting record revenues for both the quarter end the year.
2019, now wants a decade of consecutive annual revenue growth.
Combination of increased volumes and improved pricing helped deliver a 9.2 billion in revenues for the year.
Our adjusted EBITDA was 788 million or 800 million when adjusting for currency exchange rate movements and at the high end of the range. We provided in October of last year.
The Americas delivered 94 million more of adjusted EBITDA in the prior year well the international team will be able to drive year over year pricing for the second consecutive quarter to help achieve higher revenue than last year, excluding currency exchange effects.
Also pleased to announce in December we were awarded the 2019 top rental car traveler, receiving the highest score in the JD power 2019, U.S. travel App satisfaction study.
I haven't tried to yet I would encourage you to download the app and see what thousands more customers have been excited about.
On the call. This morning, I will provide an overview of the caught up in the Americas and international segments and discuss ongoing progress with our innovation and strategic initiatives.
The Americas had exceptional fourth quarter delivering record revenue was 1.5 billion and generating a 9% what 21 billion more in adjusted EBITDA in the prior year.
We utilized a proprietary demand fleet pricing technologies to optimize our fleet to take advantage of yielding opportunities during the peak holiday season as a result revenue grew 9% in the quarter.
Ancillary revenues continue to show extra ordinary benefits with an increase of 11.5% over prior year walking the third consecutive quarter positive year over year pricing and higher revenue than prior year.
Outstanding revenue and EBITDA generated December was the best in our company's history, what the holiday seasons, delivering higher rate significantly higher utilization and increased rental lane.
Utilization increased by 140 basis points in the fourth quarter due the strategic optimization of our fleet as was from a bunch of truck package delivery at a REIT Hell business.
For the quarter leisure volume was up 6.5% over prior year with overall rental day growth up 8% driven by 6% growth in rental car, 1% and bright hill and 1% to budget truck.
I Wonder truck package delivery business was exceptionally strong this quarter generating a 39% increase from prior year, demonstrating the growing marketplace the last mile delivery.
Revenue per day for the Americas rental car grew sharply by 2.8% in the fourth quarter showing the healthy state of the market right Hill budget truck package delivery and Zipcar drive a longer length of rental but have a natural trade off with revenue per day, each accounting for approximately half a point drag.
The average length of rental also increased more than 3% in the quarter from prior year, reducing the frequency of manual processes, such as vehicle check ins cleaning and preparation, resulting in more profitable rentals and increased margins on a bus strategies during the quarter was to grow our airport business.
This business grew approximately 11% in volume and 3% in revenue per day, delivering revenue was approximately 40% higher than prior year.
In addition to the off airport organic rental car broke our REIT Hill strategy continues to deliver as well we exclusively use connected cars in our white helpfully, which provides visibility into the use of our assets, helping us maintain the vehicles residual values.
And a REIT he'll business continues to deliver positive results, we're continuing our strategy of future expansion and right here with the goal of ensuring maximum profit potential.
The commercial business was strong in the fourth quarter with a 4% increase in volume them all pricing remains competitive options like our prepaid fuels split my Bill and eat all continue to show strong penetration with our because commercial customers.
Slit my Bill is essential feature for our business customers that are looking to extend their travel into a long weekend and ancillary products or even upgrade to a larger car, allowing them to build the business portion of the rental to their employer and the personal portion of their own credit card. In addition, we now three states on the new told program or.
Right moving from a poor told me to a daily flat rate option customer feedback has been overwhelmingly positive bring it healthy benefit to this quarter.
The encouraging results keep us optimistic as we look to roll up these product offerings out into the northeast by the end of February incrementally throughout the rest of the business during 2020.
Our targeted marketing to our dotcom customers looking for bundled products along with other individual products like curbside delivery and rental counter bypass for the international customers continue to drive momentum.
On average we it was a 5% in the quarter as we saw an opportunity to capitalize on additional demand.
At the end of third quarter, we accelerated disposal of vehicles for earlier in the summer and take advantage of the strong residual values.
We had previously dispose of 85% of vehicles, we have plans to sell by the end of third quarter, allowing us to capitalize on the stronger residual market for the first nine months of the year and minimize the impact of normalization in the fourth quarter.
We reverse this trend in October and into early November boosting the size of the wait until the fourth quarter and leading to strong revenue growth are tight operational fleet management that strategic repositioning helped us deliver a significant 6% lower per unit, we cost in the quarter, an 8% lower per unit fleet costs for the year.
Alternative channel sales at another company record was 73% of vehicles sold non watching channels in the fourth quarter, peaking in December at 83%.
We are focused on growing the direct to consumer channel through expansion of our retail location footprint, which has doubled in the year to 14 locations and ultimate test drive our on light vehicle sales platform. You can try before you buy a direct to consumer channel sold approximately 13000 cars more than doubling their output for prior years.
Yes.
More than 200000 annual vehicle dispositions in the U.S. alone, we see a significant runway in the next few years to grow this channel ever do so overall, we close.
So to summarize the Americas had a terrific quarter delivering strong increases in volume revenue per day and utilization coupled with significantly lower per unit fleet costs, resulting from our strategic fleet management and a healthy market.
Before I talk internationally, let me talk briefly about the impact the krona virus, our team will be monitoring the situation to ensure we protect our employees their families and our customers.
The ration of the impact is largely uncertain, we are focusing on.
For Monday permits with mitigation plans designed to increase travel from other countries.
Outbound business from China is not significant to our total revenue with minimal impact in the first quarter well, we are continuously monitoring for any other travel related abnormalities, we will better understand the full year impact once the viruses contain and travel normalizes.
On the international front the team was able to achieve revenue per day growth for the second quarter in a row.
It was helped US finished the quarter was 632 million a reported revenue.
Despite the continued uncertainty unfolding from Brexit and a continued reduction in Pan European travel trends, we were able to generate more revenue year over year, excluding exchange effects. The operating environment remains highly competitive keep pressure on rates and slightly elevated fleet levels in the market.
The team continues to navigate these challenges extremely well.
As a result of more stringent emission regulations coming into effect from European legislation, we accelerated the in bleeding of new vehicles to minimize operational impacts all this created a slight increase in wheat costs in the fourth quarter and will provide a healthy benefit in 2020 by allowing us to evenly spread out emissions comply.
I have purchases throughout the year the team was able to mitigate the EBITDA impact of the economic pressures and fleet costs.
Overall, the team has been focused on stabilizing their performance and that we plan to improve it by taking lessons learned in the Americas and incorporating them globally.
We plan to utilize thought demand fleet pricing technology, our fleet optimization initiatives, along with more stringent supply and demand strategies. We will also be performing more diligent detailed performance reviews on a country level as well as ensuring more efficient integration of our prior recent acquisitions keep frankly president of international in Iowa.
Focus and completely aligned on achieving these results.
[noise] at yearend, we exceeded our goal of more than 200000 connected vehicles not continuing our plans towards a fully connected fleet continuing to connect our fleet magnifies. The numerous early benefits were seeing which include enhancing the renters experience through our award winning mobile App grouping.
Asset control like fast the vehicle recoveries and improvements in fuel billings, which we have discussed in previous calls. Additionally, connected cars are allowing us to implement new and automated business processes streamline operations improved the overall level of service a little bit to our customers and help maximize management of our fleet.
Thinking you know mileage optimization initiatives Weve connectivity will allow us to balance mileage consumption across the fleet warring wheat costs through higher residual values.
Additionally, our Kansas City mobility lab allows us a test and rollout new mobility products like our new mobile select product, which allows our avis preferred customers pawn lending to select their car on their phone via the Eva SAP go directly to their vehicle bypassing the counter then drive through a new automated.
Good to exit simply by use of your phone without ever interfacing with an agent. It's fast it's simple and we're getting great initial reviews. Our NPS scores are almost 40% higher in Kansas City as compared to the rest of the company since rolling out mobile slick, we expect to expand the rollout of this new service in 2020, so anyway.
Our top 40 rental locations.
Overall book, the Americas and international teams have done a fantastic job delivering results maintaining focus finishing the year strong and we've seen the significant momentum in the Americas continue from the fourth quarter into 2020.
January and February to date have seen a continuation of our fourth quarter trends, which leads me to believe we'll have another strong quarter to kick off the year.
John take you through some of the numbers we are forecasting for from an operational standpoint, we're expecting another strong year for revenue growth and improved performance I've challenged the team to define this success by how much the overachieve on their goals, which will help drive overall performance and better customer experience with that I'll hand, the call over to John.
Take you through the financial results and our outlook.
Thanks, Joe and good morning, everyone.
Our comments today discussing changes in revenue per day and per unit fleet costs will refer to changes excluding exchange rate effects. My comments will also focus on our adjusted results, which are reconciled from our GAAP numbers about our press release and Investor presentation.
As Joe said, we had a great quarter in the Americas International tracked in line with our expectations and we finished the year at the high end of the guidance or go out in October.
We finished the quarter with a record revenue of approximately 2.2 billion up 112 million from prior year on 5% higher volume, 1% higher rate and a 100 basis point increasing utilization.
Despite facing tougher year over year comparisons in our fleet costs and used vehicle markets normalizing per unit fleet costs still improved 3% year over year on the quarter. This resulted in our adjusted EBITDA being 143 million for the quarter and 788 million for the year, excluding 12 million of currency exchange rate movements, adjusted EBITDA was $800 million.
For the full year, a 19 million dollar improvement from the prior year.
Net income in diluted earnings per share for the quarter was up 32% and 38% respectively. Due to the outstanding earnings performance as part of our programmatic approach for our share repurchase program for the full year 2019, we repurchased just over 2.2 million shares at an average price of $27.38 returning over $62 million.
Our shareholders.
We continue to take an aggressive approach to share repurchases whenever your view it as an attractive opportunity.
Overall, we remain committed to allocate capital to drive the highest return possible.
Our adjusted free cash flow is $277 million for the full year, primarily due to the timing of vehicle programs for the occurred at the end of 2018.
Our 2019 free cash flow is impacted by approximately $36 million and higher cash taxes due to the accelerated state income tax payments and impacts associated with tax reform, our financial position remained strong with approximately $4.3 billion available liquidity.
The quarter was $686 million, a cash $719 million of unused capacity now revolving credit facility and $2.9 billion availability under our vehicle programs.
Our treasury team has done a fantastic job optimizing our debt profile by Laddering, our maturities to ensure we didnt have significant debt due in any particular year by refinancing it opportunistic times in January we increase the size of our term loan b by 100 million to $1.2 billion extending its maturity by two and a half years and reduced the right.
By 25 basis points, they're using $100 million to pay down high rate that generating further savings. We also issued a new five year Aesop tram transaction at 2.42%, which is slightly inside of the maturing debt it's replacing.
We are committed to keeping our corporate net leverage ratio and the range of three to four times with a preference over time for being in the lower half of that range as we continue to execute our capital allocation plan. Accordingly, we will look for ways to reduce our net corporate leverage such as EBITDA growth for debt repayment at the ended the year, our net corporate leverage is 3.5 times.
And the midpoint of our targeted range. It is also approximately three tenths of a turn lower than the 3.8 times that was at the same time last year.
As we began the 2020 year with positive trends, we're optimistic about our performance, resulting in US right raising our revenue guidance from last year to be between 9.4 9.6 billion driving the topline revenue target for the Americas will be a combination of volume growth between two and 5% as well as pricing growth between flat to up 2%.
Turning to an exceptionally his car market in 2019, we forecasted per unit fleet costs rise slightly for the Americas inline with market expectations, but not enough to offset last year's performance our direct to consumer efforts will help us offset a portion of the increase bringing us to our guidance range of flat to up 3%.
Our international team has done a great job the past two quarters, turning the corner on negative pricing trends, we are expecting a continuation of recent trends of pricing growth between flat and up 2% with volume up between flat and 3%. We're also expecting per unit fleet costs to be up 1% to 4% year over year due to more stringent emission regulations around w. LTP as it.
Overall, we believe we'll be able to deliver adjusted EBITDA between 715 $850 million.
Finally, we believe we can generate an adjusted free cash flow to be between 275, and 325 million for the year. The rest of our guidance. We refer you to the Alex asking a press release, we've simplified from prior years to summarize the Americas had an exceptional year delevering, 17% growth in adjusted EBITDA. Our international team continues to show resilience in a challenging environment.
The company isn't a healthy standard consistent growth generating significant cash flows, enabling us to invest in ourselves for the future.
With that Joe and I'd be happy to take some questions.
Thank you.
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One moment, please while we pull for questions.
The first question today comes from John Healy of North Coast Research. Please go ahead.
Thank you.
Joe I wanted to talk a little bit more about the ride hailing opportunities for you guys.
I apologize if I missed some of it but.
Can you maybe talk to how much of your fleet until mid 2019 domestically isn't right now.
And where are you thinking number might go on 2020 and as you guys.
It's for that for that offering how do you think the march to that business compared to kind of the corporate levels today.
Hi, John This Joe.
You know.
The first part of your question was how many cars. We we haven't it I'd say, it's probably we finished 19 with probably 1% of the fleet.
You know a associated with right now I.
I know there's been a lot of questions about ride hailing ride Hell profitability and.
I'd tell you we pro forma this for a for a good period of time.
We probably the last last group in on this saw right Hill business, because we did tested for a bit.
Right now.
And I'll tell you. This honestly, we won't participate in anything that we don't think is accretive to earnings and and right now it is.
You know a core competency of ours is running cars and running cars, whether it be at the airport or in the local market is what we do well.
Things that we were we looked into when the questions that we all had were what are the residual value is going to be like what are the mileage is going to be on the cars how's the maintenance and damage going to run.
What's the rate liability et cetera, and.
Like I said, our early findings that it's accretive to earnings.
And we're pretty pleased with that and we have great partners, Oh, and there's certainly a significant amount of demand and this and this book of business.
We separated the fleet.
So we know what cars, we have and you guys know we also a.
Part of devices in them that can that are connected and we get readings on mileage. So we know outliers and quite frankly, we're pretty pleased with the mileage that we've seen it's on a it's on target to what we what we anticipated.
We've sold some cars so far we honest with testing mileage bands or when's the best a.
Time to sell the comp there was for the residual value life and Kirk.
And.
So far all of them every one of them that we sold whether it'd be.
North of 30000 or in the or or in the 70 plus have been pretty much right on and what we anticipated we're selling them through many different channels, a retail direct to dealer et cetera, and so far it's been successful and we look to grow this going forward.
Great and then just a follow up question.
[laughter] it was a rather.
Encouraging statement you guys had to date in the press release about your comments John about the month of December and your history in the business.
And on a call today, you guys, indicating that you know that momentum is carried forward into January or February.
Can you explain why it's happened.
I know this business has always one that's a little bit on even an unpredictable, but maybe one or the tenants that are taking place right. Now that you think of caused the business too.
Got a turn for the better and how sustainable do you think that is as we moved into.
The big part of the or the middle part of year for you guys.
Yeah. This is Joe.
I think in order to understand where we are it's best to look backward a minute and see what happened.
In the quarter in December volume was up significantly for us and.
When you when you one packet it was a combination of both commercial and leisure.
And it was both at the airport and the local market. We saw good growth in commercial as we said rental days were up you know when the range of 4%.
And that was on our exclusive accounts and our shared accounts as well and really strong business and the in our small business segment.
On the leisure side you know.
The holidays were terrific.
We saw early I think on the last call. We commented that the holidays look good we saw early that the holidays look favorable though as you know you know in our industry. The close you get a better understanding that you have a bit but further out they look pretty good encouraging about enough for us to start thinking about fleet.
Situations by city.
And that was important to us to understand where the demand was not only where it was but where it was best suited for us to participate in that demand whether it be longer length, the rental or quite frankly better rate.
And we are we did just that the I think the Christmas holiday.
We talked about it being one day later, but that one day later change the whole dynamic and created a a holiday that that you know influence January little bit because many people didn't return.
No one in December they kept the cars out into January, especially international travelers. So we thought that was that was a that was interesting and it gave us a good start to the quarter and local market you know I talked about it into prepared commentary was really strong.
We rolled out our DSP, our demand fleet pricing technology to our local market stores and it has a meaningful impact on on revenue and contribution rate.
And then add to it you know that the package delivery business that we had which you know this last mile delivery and our and our business largely on Carbavance et cetera was really strong.
Beautiful thing about that business. It's you know partners that that we currently have in the car side as well as new ones and though that worked out really well for us and like I talked about your first question right right Hell started to on matriculate. So I think when you think about all those things that's what led us to where we are in the first quarter and the only other insight I'll give you into the core.
Order outside of Christmas being weight, which helps what's helped January.
Quite frankly.
The weather.
Has been has been better than prior year last year, we had that polar vortex and there was there was a government shutdown and things like that but that really I think influence travel.
And my early reads on on the holidays in the quarter, where was similar to what we saw on the floor.
Great. Thank you guys and congrats.
Thanks, John.
The next question is from Adam Jonas Morgan Stanley. Please go ahead.
Hi, this is the ability of honest dialing in for Adam Jonas Congrats on the solid quota just following up on the early question on TNC I have a two part question.
The first what is the plan for Teensy business in the long time, and do you see the TNC business, becoming more incrementally margin accretive.
Second can you. Please describe how the causes cycle out of the TNC fleet high mileage at 80000 miles dispose off in terms of the tunnel mix and if there any risks disposing. These vehicles. Thanks guys.
Yes, Joe.
As I mentioned earlier, we are we are starting to sell cars out of our TNC fleet.
Now they are fully connected.
And we and we do operate them are isolated from the regular car. So there's no intent intermingling up fleet.
You know our six our process of selling them as both in retail channels and you know all our channels actually where you don't we tested in and as I said earlier, we but we've seen no no no change and what we anticipated in the residual values. So we're actually holding to what we thought we checked many different mileage bands to just.
To ensure that we were making the right choices. So so far we're comfortable with that as far as margin you know it's been accretive for US we wouldn't participate in something that we didn't believe that would be non accretive and Ben you know I happened to believe.
After after a number of different test that this is a good book of business again involvement there's plenty of demand as you as youre well aware and you know we have good partners, which we are participating with and.
Like I said, it's a core competency of ours to rent cars right. We've been doing it for 70 years and.
And we're good at it quite frankly.
So our guys look at it by month, if there any changes to the trends or abnormalities, We act on it.
And so far so good.
Thanks for the call appreciate it.
The next question is from Michael Millman, and Millman Research Associates. Please go ahead.
Thank you can can you talk about what you're saying.
In the marketplace from you and your competition regarding refleeting, given the strength that presumably others.
Enjoyed at the end of year and into this year.
Yes, Joe I could tell you that you know from from where I sit.
There is a rationalization on the fleet right.
I think I think it appears to me at least early on that the basic principles of supply and demand our solid.
What did you say.
Sorry, I'm not sure.
How is the define that meaning that.
Huh.
There's not been.
[noise] too much of an increase.
And fleet or fleet has been moving along with just demand.
Well I mean.
I guess the way I would I would say, there's that I don't see any over fleeting.
In the industry.
Right now.
Okay. I think that you have to think about how the quarter after quarter end. The right. There was that there was a on OEM or disruption right. There was a strike and a you know so that that pushed orders back. So you know, it's it's hard to say, what what the future looks like but from where I sit today it looks right.
No.
The next question is from Hamzah Mazari of Jefferies. Please go ahead.
Hi, This is merial portal actually on for Hamzah.
Just regarding the volume got any Americas, you guys are guiding up 2% to 5% just.
I'm wondering what kind of confidence or gives you confidence in that guide.
Is it just being that there's longer length of rentals and I think you might have given some break down on what the contributions where from a volume perspective from traditional rack and then from T. N C. And then from from budget, but I guess what are your expectations for the year in terms of the breakdown.
I've got 2% to 5% front from each of those contributors.
Yeah, I think we said in the in the this Joe again, sorry, I think we said in the fourth in the fourth quarter and pad marks the breakdown was.
We were it to the number was aided was 6% car rental 1% ride Hell of a 1% you know.
The last mile delivery stuff.
I would think I would I would kind of use utilize that as a proxy.
Yeah, we and the in the release, we talked a lot about the.
The off at portable local market, we think theres a lot of growth in that and that opportunity. So.
There is longer life, our proprietary demand fleet pricing system.
Really allows us to grow contribution and ER and you could tell our linked the rental was was up in the quarter as well and we see that trend moving forward.
Great and then maybe you could get also comment on why pricing in this sector seems to always be in this two to zero to 2% range space is highly consolidated 90% or so if not more I mean is there a price feeling here are there any other of out.
Variables that we're not seeing or something that has to do what the supply demand.
Balance that you just mentioned.
Yeah, I think Thats, where I would I would lean towards its it's about supply and demand right, we had or we had in the fourth quarter.
And it's about it's about travel trends right in the fourth quarter, we had a 2.8% improvement in a in breed per day and you know is highly leveraged towards leisure side and that was on top of a 2.8% improvement in the prior December so.
So in the fourth quarter, which is highly leveraged towards leisure. There was a you know for US you know almost 6% improvement in our in rate per day.
I think the other thing that we think about are we talk about that influences rate per day outside of supply and demand is really our ancillary products. We mentioned that in our remarks, we've had a good run of ancillary revenue.
In the in the last three quarters, we see that continuing.
That's accretive to a tour the overall rate that you would charger on our rental agreement and that's been improving with a lot of great initiatives and a lot of products that we've been selling of late not just a traditional you know insurance related products, but yeah. We came out with a with a split my bill product, which is.
Some pretty good early success, which allows a corporate customer to pay for their contracted.
Business in price and then if they want they can extend their rental even even rent of larger car or maybe add a service like XM radio on their own credit card and we think that could be a you know that's taken.
Can take advantage of that im good accretive to a two hour to our overall rate per day. So it's it's.
It's it's our ancillary products that we have a lot of confidence in that have been growing of late we have a great great team who.
Who runs that for us.
We created a new incentive program that helps our agents better understand what and how to sell and we've done a terrific job and selling or selling these products online for the customer even arrives at our at our counters.
Great. Thank you.
The next question is from Brian Johnson of Barclays. Please go ahead.
Mr. Johnson your line is open.
Hi.
Well move onto the next question, it's from Derek Glynn of consumer Edge Research. Please go ahead.
Good morning, <unk> can you speak to the strength you're seeing in ancillary I think you mentioned up loving and half percent during the quarter. What are the drivers there and how sustainable do you think that momentum is as you think about 2020.
[laughter].
Yes, I as I as I mentioned this Joe we've had three solid quarters of ancillary revenue performance and the last quarter being up pretty significantly.
North of all 11%.
So we we feel pretty good about it right. It's not just of traditional products that we're selling like the insurance related products, but still you know our growing quite frankly, but it's the other ones that that that we've we've that we put out that have a lot of interest you know we have.
This new toll product that we have developed where in the past we would charger usage day for everyday that you've had to vehicle as and gone through tolls and now we have a ill or it's probably an all in package that we've rolled out to two states I think we've thought three or three or so more to come in the in the first quarter and then throughout the rest.
The business this year and customers like it, especially think about commercial customers, who have an all in one bill now that they cut up at that he can expense.
We have a.
Split my Bill that I, just talked about that allows a a travel it to a pay there a corporate weigh on their own on the corporate card and then you know maybe take a larger car a car they drive at home and take it for the four or five days a they havent on the road, which has created some excitement as well as maybe XM radio or something along those lines.
The people that people seem to seem to enjoy we.
We have curbside delivery, where you want to get dropped off at the terminal you can do that and we have counter bypass switches kinda like a up for international travelers, which which usually by packages and our all in that we're testing that allows them to bypass the counter praying for a nominal fee. So there were a number of initiatives there many more that will work.
Working on that we're thinking through.
And the beauty of ancillary revenue it has traded had as tradition.
Terrific dropped or is.
Okay, Great and Joe I think you touched on this as well and there is slide in the deck, but what kind of opportunity do you see to get more efficient and optimize the cost structure on the international side can you speak to any.
Initiatives underway or what is the timeframe look like on that potential opportunity.
Yeah, you know a listen I've I've, just started to get involved with the international team and and.
There are good group there they want to win and the worse way they've had some challenges I think all all all the companies have Chuck I pad challenges you know, what maybe a bit of over fleeting you know.
Pan European travel hasn't been so great.
You know the economy and Brexit.
As an this pricing pressure on price.
Yes, the environment that we're in and you know so so what are we going to do about it and I think you know where there are some things that we do in the in the Americas that we can that we can move over there a demand fleet pricing strategy I think as one.
Theres no way that someone can come up with the algorithms are required to suggest what's the right car to rent at this time to this customer and we have that the U.S. and it's worked very favorably for us we need to continue to roll that out that'll that'll go through this year and then some maybe this this whole supply and demand as a rigor around.
Supply and demand you know when the U.S., we look at our fleets virtually every week.
52 weeks here by city to determine whether needs are and what the strength this and and we do that in.
In international but.
Yeah, a little more rigor I think would certainly help us as far as making the right decisions and.
There are a number of things that we're looking at with the with the footprint and country profitability and then integrating our new businesses that we put in so we believe we have a path.
And I'm excited to work with the gang them or would it be going out there in a couple of weeks and but the great part is that both the president of.
I've International Keith ranking and I are completely aligned so.
More to come.
Okay, great and if I could just squeeze one more and just on the fleet cost guidance in the Americas, what's the underlying residual value assumption there just trying to parse that out from.
Potentially some some expected impact from other initiatives like direct to consumer or whatnot.
Yes, Joe.
You know we've had great success in our per unit fleet costs over the last two years right Weve I think if you add in both together, it's probably somewhere in the range of about 15% improvement.
In the last two years. So yeah, we came out with guidance at zero to three there's some there's some used car industry experts that are that are suggesting residual values.
Due to the pressures of us of the return of maybe smaller mid size issue these and to put pressure on residual values I've heard in some cases appointed a half.
For us we've taken that into consideration a bit but I think when I think about you know fleet cost in general to me. It's always a three part solution. It's how you by the cars how to utilize the cars and then really how you dispose of the cars. So I think all three of them. We've gotten you know efficient in over the years.
Our Oh, we do a lot of data analytics to suggest what cars to buy where to buy them with what trim levels.
And ER and what's the percentage should be of risk in program. So we think we have that down and utilize to utilize them. We came out with a mileage optimization activity, which is basically smoothing the mileage out along all are all the older cars in the fleet. So we don't have really any out layers. There we think thats an.
Opportunity for Us and lastly, it's how we dispose of cars and you know we had 73% of our vehicles disposed in the fourth quarter through alternative channels December was probably a record for us at 83, we're going to continue to do those things to help offset whatever residual value headwinds.
We may see and and so.
So we had a good run of it and we are we think that that will continue for us.
Great. Thank you.
The next question is from Roger Gupta of JP Morgan. Please go ahead.
Hi, good morning, thank for taking my questions.
Roger upon for Ryan Brinkman.
Just a question on the 2020 EBITDA guidance.
Not only slightly at the midpoint.
Based on the comments on the call I'll walk you started me, albeit that seasonally light, but then.
You went seems to be holding steady international pricing is getting better.
DNC opportunity expanding their thoughts would be to see opportunity.
They also have highlighted some you know international integration and organizational efficiency opportunities so well.
Just guessing or just trying to get a sense of you know why wouldn't the guidance to be higher before joining you know what are the puts and takes there in terms of like the headwinds.
That it might seem to offset some of the benefits.
I'm going to ongoing I'd have a follow up thanks.
Okay. Great. This job I think we're going to tag team. This one I'll start off and then I'll turn it over to John.
And we talked a lot about our about this subject here's here's what I would say.
We generated $788 million worth of EBITDA last year right on a reported basis and the first quarter regenerated I think zero or negative one.
So.
The road is long, while I am excited about the first quarter.
The large a portion of our of our profit opportunity.
Comes really back half of the second and into the third.
I think it would be prudent for us to get out of the get out of the box quickly, which I think we will in the quarter.
But get a better Reid.
What what business looks like as we get closer in to the next earnings call, which will be closer into the.
Back into the second and into the third I think that that's really the underlying assumption of what we have what we looked at so you know Oh I'll turn it over to John but at the way I see it is yeah I think the trends we saw in the fourth continue but the height of the of our business cycle occurs in the.
In the last part of the second in the third.
Yeah. This is John I think.
Great to finish the year as strong as we did.
Obviously, we we had a road to navigate to get there and I went well we've got a great plan in place for 2020.
I think the one other thing I'd point out is we do have headwinds that that exist outside of our operations and things like currency.
You know the euros down.
Now has an effect where that ends and where the volatility is up in the air.
So to Joe's point, the first quarter is traditionally the smallest I think we're excited about what we're seeing we think that there's opportunity to hopefully continue to find areas, where we can outperform.
But what we do you want to make sure that we do that incrementally and continue the momentum that we finished 2019 Wes.
We as we can it afterwards.
Got it got it that's helpful.
And just gets on the on the capital allocation plans going forward here based on.
We are leveraging and you know what you're targeting.
Could we could we expect some some pickup in activity down here in interchange rate you know, what's your thought process on buyback again.
Some potential M&A probably internationally.
Thanks.
Yeah. This is John you know the beauty of this business is the cash flow.
It's something that I appreciate it before I came here and and I come to appreciate even more since I spent more time in the business I'm coming up in about a year with the company.
I think we've got to a great team. Our goal is always to prioritize capital allocation to the best return.
If you look at last year, we did buyback some stock.
No we retired a little bit at that when we did some acquisitions as well as invest in the core business.
Those are the four pillars.
I think we obviously believe that directing to the highest returning a category is the most important thing and so you know I think I think we're gonna be somewhat flexible in terms of that but I think Joe and I certainly see a path for the company to do to do better over time, and I think 2020 as a great foundational start to that.
So I think that you'll continue to see us take a balanced approach, but certainly there's opportunities for us to love to repurchase shares.
Got it.
Thank you so much.
The next question is from Chris Woronka of Deutsche Bank. Please go ahead.
Hey, good morning, guys.
Wanted to ask you about the your comments about growing the off airport business and also the retail operation retail resale operation, which I think you said doubled in the quarter I guess the question is what what kind of or there are there are lot of upfront or ongoing investments you need to make.
So seed with those and what's kind of the.
If there is one what's kind of the algo or the step function of profitability for those.
For those outlets.
Yeah. This is John.
You know in terms of the of the off airport or you know one of the things that that Joe really pointed out to me is that this is an area, where we can grow in excess of what you're going to see on airport and on airports growing gdps, because it's a function of planes and runways.
Off airport is a place where our network has opportunity to expand and we've done some really interesting things you know we have a partnership with Lowe's The hotel company or we've been able to go into some of their locations, which minimizes our capex, it's not a significant amount of money. If we're going to our own facility. You know historically, we've looked for leases that don't require a lot of upfront investment.
And so I don't I don't think there's a big step function. There we're going to we're going to look at that we have plans to open a number of locations I think we're excited about it but I don't think it's going to be a significant amount of capital.
In terms of the retail business you know we doubled our vehicle sales last year were up over 100% and I think the operational team.
There's been a phenomenal job of I've really getting some good positive traction I business, we have big plans for next year.
Historically weve used existing locations, where we have excess capacity.
Extra extra lots those kind of things.
As we kind of try this and get our feet wet I think more recently rep to 15 locations now the last few have been really a dedicated sort of offsite location. That's more of a retail specific you know opportunity for us and nearby close proximity with other with other retail stores that are selling vehicles and we.
Seem better results I think initially out of the gate there we've talked a little bit about the profitability of the vehicles in other about $1000, even a better and that's a fully loaded cost. So while there would be potentially some facility costs of investment there are factoring that into the uplift that we expect to see from the retail vehicle sales, which is kind of how I.
Think about unlike the company thinks about vehicle profitability is is a loaded costs with your facility. So I don't think you'll see significant investment there and I don't think that that over time is going to change the algorithm of of the incremental unit profitability that that exists. If we can grow to grow the retail operations. So.
Will be some investment, but I don't think significant enough that we feel like we need to call anything out and both of those are totally within our control. So we have the ability to modulate them based on how they're going and we can accelerate or we can slow down as appropriate set so I think it should be pretty manageable.
Okay. That's a that's great color John just just a follow up is on the.
On the Rideshare fleet as you Yeah, I hear you said you're going to expanded.
Judiciously as you see profitability that meets the requirements, but as you do data I guess with some of the.
The truck delivery.
Vehicles does that does that change in any way the way that you're buying vehicles in terms of are you.
Dip into the used car market to to actually buy cars for those fleets or do you plan to do that are you just going to keep everything kind of on the on the same same way that you've been for the core core fleet.
Hi, This is Joe.
You know I think.
Just as a general business, we we buy our cars to serves two purposes. One is to a two the you know the rental car customer certainly, but also with an eye on sales so that could be different trim levels are different packages in different parts of the country et cetera.
I think the beauty of Oh, the two businesses that that you're talking about where the right hell or for the last mile delivery.
It's a it's it's it's a different car that's not a car that we utilized in the regular fleet, but we can utilize the channels that we have in our businesses to remote them. So you.
You know cargo bands were very big excellent rate, you're not going to get a commercial customer per se you know renting them. The same way, but you will get a commercial customer to rent them at their facilities and things of that nature. So we think you know that while they are ins and different businesses and different objectives. We we you know can have dual part.
Yes, if there's if theres a need and.
It doesn't take away from the core competency of the core day to day rental so that's why I like it right. It's a it's accretive so when you think about you know what the question is if you know was it at port were off airport.
John talked about you know your encumbered by runways and Enplanements. These other businesses don't have any of that.
Okay very good understood. Thanks, guys.
The next question is from John Healy of Northcoast Research. Please go ahead.
I think you just wanted to ask a follow up do you guys about some of the changes as the board level just maybe some some comments there in terms of on there where are you might stand with Srs as well as where are you guys might be at in terms of the finalizing the CEO Simon Thank you.
Yes, Thanks, Jon This is Joe.
So I I don't really want to speculate on the timing of the outcome of the search you know the board is conducting I think we've said this last time, a diligent process slipped.
Lets suitable candidate.
You know what I will say this is.
Yeah, we have a terrific strategy to grow our business, both near and long term.
And we have some really good well thought out initiatives.
Well, let's say driven by experienced and scope of leaders and the good news is there's a lot of energy within our company. So while this talk about board and other things as a lot of energy and our company people are really proud of 2019, especially how we finished that say really excited about 2020. So you know I try to keep this stuff.
A separate you know we we are focused laser focused on driving our initiatives and our performance.
And Oh I happened to meet the new trim and.
Bernardo last week I spent two days with them.
It was great meeting.
So a lot of questions. It's very engaging I think very insightful when he could help us will help us and I look forward to working with him in a in the weeks and months to come so.
Thank you.
Thank you guys.
There are no additional questions at this time I would like to turn the call back over to Joe Ferraro for closing remarks.
Yeah. So thank you just to summarize we had a strong fourth quarter with record earnings in the Americas and positive price and international achieving the first goal. We set. In addition, we developed a business plan with goals and targets in 2020 and in my opinion or entirely achievable. Thank you for your interest in our company and I look forward to speaking to you again soon thank you.
And have a nice day.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.
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