Q2 2020 Avis Budget Group Inc Earnings Call
Operator assistance. Please press star zero under telephone Keypad, a question answer session will follow the pull a presentation.
As a reminder, this conference is being reported its all my pleasure control over to David <unk> Treasurer, and senior Vice President of corporate Finance David. Please go ahead.
Good morning, everyone and thank you for joining us on the call with me are Joe Ferrara, Our Chief Executive Officer, John Miller, 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 to such forward looking statements and information such risks assumptions uncertainties and other factors are identified in our earnings release and other periodic filings with the FCC as well as the Investor Relations section of our website, we undertake no obligation to update or revise our forward looking statements on this call we will discuss certain non.
GAAP financial measures. Please refer to our earnings press release, which is available on our web site for how we define these measures and reconciliations to the closest comparable GAAP measures with that I'd like to turn the call over to Jeff.
Thank you David Good morning, everyone and thank you for joining us today.
We'd like to start by saying that I could not be more proud of our team and I want to thank everyone for their leadership support and dedication to the organization during a very challenging time for both our company and our families.
We look back on the second quarter 2020.
Extraordinary three month period, so with the treatments that at the beginning of April we weren't sure where possible.
However, we had remarkable success in so many areas and as a result, I've never been more confident they will will not only make it through this crisis, but come out stronger on the other side.
This morning, I'll provide an update on the significant actions we took in the second quarter to respond to the pandemic.
Then I will share with you our commitments the cleanliness and safety through the EBIT safety pledge and the budget worry free promise additional protective actions, we've taken and our innovative touchless rental experience.
Finally, I will discuss business trends and our outlook for July and beyond.
After that John will discuss our liquidity and cash position, which is sufficient to take us through the balance of 2020 and into 2021.
The second quarter was clearly most difficult quarter in our history work clips and what we experienced during the 911 well the great financial crisis of 2008.
Total revenues were down 67% year over year, resulting in net loss of 481 million.
Adjusted EBITDA for the second quarter was a loss of 382 million, but was significantly better than our expectations heading into April.
In fact, we saw strong sequential improvement at EBITDA each month, as we right sized our fleet to market demand and remove substantial cost.
The quarter culminated with a small adjusted EBITDA loss of 28 million for June highlighted by positive adjusted EBITDA of 3 million put the Americas segment.
We believe this is a remarkable recovery and speaks to a flexibility and discipline in our organization, which allows us to quickly reduce expenses to match revenue changes.
In March we initially targeted 400 million a cost for more.
That's a pandemic unfold it became clear that we needed to do more.
As a result, we increased the magnitude about cost removal actions.
And we announced an annualized target of 2 billion in May.
Since then we've continued to increase our reference and are currently targeting more than 2.5 billion an annualized savings.
Because about decisive actions second quarter expenses finished 47% lower than prior year as removed over 1 billion of cost and just the last three months.
We're confident we can continue this momentum and find additional opportunities in the balance of the year.
We're able to achieve this magnitude of course for mobile in three areas first we significantly reduced the size of our workforce and the cost associated with our remaining staff.
We offer comprehensive separation packages and furloughed employees around the world totaling over 60% of our prepared dynamic workforce.
Reduced compensation for a senior leadership pros merit increases eliminated the foreign one chain match, the highly compensated employees had suspended hiring.
Well these actions on the most difficult as they affect our most important asset or people.
They were necessary ensure the future help with the organization.
Second we evaluated every expense globally challenged the team to eliminate any non a central spend.
Additionally, we collaborated with our vendors airports landlords and service providers the foreign creative solutions, and then are buying with significant revenue declines.
We're incredibly appreciative of all our partners for the overwhelming positive response, we received as we navigated through this disruption.
Finally, we took immediate action to shrink the size of our fleet.
We capitalize on a rapidly recovering used car market and sold nearly double the number of vehicles targeted in our second quarter operational plan at a significant gain on disposal per unit.
Well together, we disposed of over 100000 vehicles and canceled over 185000 incoming orders around the world.
These efforts demonstrated our ability to rapidly reduce our fleet to scale the business the current demand trends.
In the month of June our U.S. disposals, what 30% higher than the same month last year and they fleet size at the quarter rent was down 26% year over year exceeding the commitment we made on our last earnings call to be down 20% by June Thirtyth.
Per unit fleet costs were 220 to $1 per month, 17% reduction year over year as we deploy mileage optimization enhanced data analytics and increased use of alternative disposition channels beautiful cells.
We finished June with global utilization in the 50% range and maintain the ability to flex up woodside upward down, allowing us to react to increase demand.
Further travel disruptions.
Because of these dramatic actions, we able to significantly improve our expected cash burn for the quarter. We had initially targeted to burn up 900 million.
An improved our results by 36%, resulting in a cash burn a 580 million for the quarter.
This provides additional liquidity and insulate us in the event the further disruptions or impacts to our business in the back half of the year.
We responded in the quarter by quickly identify and the impact of cobot would have on our business and taking immediate actions to reduce headcount cut expenses and shrink our fleet to improve utilization.
We believe our quick and targeted action has positioned us to both navigate the pandemic and capitalize on consumer demand when it returns.
Grab this crisis, we have never lost sight of the fact that our highest priority has and always will be the health and safety of our staff in our customers with this governing principle I'd like to share with you some of the industry, leading safety measures, we have implemented to protect everyone visiting our locations.
Early this month, we announced the launch of a coalition designed to enhance the cleanliness and disinfection over rental facilities and our vehicles.
This coalition includes RB which is the maker of lysol.
Medical professionals with expertise in public, helping cobot 19, and hip hop public health and National nonprofit organization that creates engaging content to drive behavioral change and supplements our employee training, but consistent responsible habits.
The team of scientists from Weisel, which manufactures the first products to receive EPA approval.
And validation as effective against cold in 19 is providing guidance to enhance the effectiveness of our cleaning protocols.
Furthermore, we are using lifestyle products to replace or supplement existing CDC recommended an EPA certified products. Currently in use this provides our customers peace of mind, knowing they getting into a clean safe and disinfected car, enabling control over their environment and superior safety experience compared to others.
Average of transportation.
The more on how we clean or vehicles, you can point videos on Airbus Dot com and budgets dot com.
Detailing how we clean the sanitized vehicles before and after every rental.
Utilizing input from both the medical professionals, we partnered with and hip hop public health to create training and communication materials for our team. We've also taken significant steps to enhance the cleanliness of our rental facilities and to encourage proper use of personal protective equipment and social distancing to protect our.
Step in our customers.
Some of the many improvements we have made include ensuring all facilities utilize plexiglass shields Wong with signage and walk ins to encourage distance and we provider a step with masks hand, Sanitizers think loves and are making that protective equipment available to all customers.
Our employees have received enhance safety protocols, we instituted daily help self assessment for each ship.
We encourage anyone who feels it'll to stay at home with enhanced security policy.
And then the U.S., we checked staff temperatures before beginning work and we offer free Kobin 19 testing for all employees.
Our commitment to safety goes beyond just cleaning our facilities of vehicles years of investment in technology and innovation put us at the forefront of contactless rentals or mobile select product allows our avis preferred customers upon arrival to select the specific car on the phone proceeding directly to their selection then.
Utilizing unique QR code to exit be an automated gate exit.
This process is fast simple most importantly, contactless customers are overwhelming positive on the experience and we are accelerating the installation of additional automated gate exits or facilities around the country.
Additionally for customers, who have not yet experienced our award winning.
We launched express digital checking brought dot com customers, allowing them to expedite transaction time, well picking up their sanitize vehicle, we look forward to further expanding unique and differentiated offerings using technology in the future.
Now, we'll provide an update on our business trends and our outlook for the summer.
Revenues for the second quarter showed sequential improvement from down 78% from prior year in April 68% in May and finished down 59% in June.
Well airport travel remains depressed our latest rental data shows even non point customers are coming to airports to rent vehicles.
For example in the U.S., we have seen consistent recovery approximately 10 percentage points above passenger screening data released by the Ts say.
Our local market business continues to provide stability driven by off airport operations light commercial vehicles, right Hill package delivery and zipcar.
These areas performed especially well during the quarter in many cases generating revenue in June at or near prior year levels of particular note a package delivery business in the U.S. is up double digits in the second quarter and we are increasing our fleet to match further demand.
Zipcar is seeing sequential improvement in both the Americas on the UK as urban customers seek private transportation to run errands vacation outside the city.
Internationally, we had success and reducing the lead to more closely matched the current demand the June fleet down 40% from prior year and are seeing utilization in the low 70 range in July.
In general rental patents have switched to higher leisure compared to corporate travel.
Skew towards local versus out of town customers and a primarily at all to airport location.
Reservation demand is closer to the date of travel surrounding weekend checkout days.
We have seen consistent sequential week over week rental volume increases since early April with both the Americas in international having the best volume to date last week due to increased leisure activity.
We expect the velocity of recovery to moderate in the third quarter, but expect utilization will continue to improve as we further match we will demand.
We anticipate both positive cash flow and adjusted EBITDA for the remainder of 2020.
I would be remiss if my comments on the second quarter did not address our stance on racial and justice given the tragic events that transpired in the spring and subsequent robust discourse in our nation.
To emphasize we take pride in our highly diverse workforce, we're committed to quality and inclusion and we're taking action within our company to meet our commitment.
In closing I'm extremely proud of our team and their performance I'd like to express my sincere gratitude to our frontline employees for their hard work. During these uncertain times their tireless efforts and sure our cars and locations are clean at sanitized and are ready to allow customers around the world to access see prosper.
Station.
With that I'll turn it over to John to discuss our liquidity and cash position.
Thank you Joe good morning, everyone.
Let me begin by saying how proud I am of what our team has accomplished over the last few months in the face of enough unprecedented reduction in demand back in April.
Well, we have a long road ahead of US we believe the $500 million of liquidity, we have raised since the start of the crisis, our dramatic cost ruble options and reduction in cash burn.
Set us up to not only weather the storm, but to emerge in a position of strength during the recovery.
For the second quarter, we estimated cash will be approximately 900 million, including 100 million and previously scheduled debt retirements, our second quarter cash burn was $580 million, an improvement of 36% or 320 million better than our estimate due to continued vigilance around expense control and stronger than anticipated vehicle fleet disposal.
Yes.
We are extremely proud of this result, as it was a product of efforts by our entire team around the world and was a focal point of our plan for the second quarter.
In the quarter, we obtained an amendment to our credit agreement approved by 97% of our lenders, which provided both the covenant waiver and increase the amount of our authorized that by $750 million.
Subsequently, we completed an offering a $500 million of senior secured notes provide additional liquidity and secured an inaugural 35 million dollar floor plan financing facility to accelerate direct to consumer vehicle sales.
As of June Thirtyth that available liquidity at 1.5 billion comprised approximately 1.3 billion in cash and equivalents and approximately 200 million and availability on our revolving credit facility.
We have no meaningful corporate debt maturities until 2023 and have no need to refinance any fleet debt this year.
I wanted to provide an update on our vehicle securitization debt, which is comprised of ABS term debt and bank condo facilities around the world.
We were in compliance officer Realty is at the end of the second quarter and did not require any additional equity injections.
Our largest structure you stop in the United States continues to have significant headroom on maintenance Covenant test as we met the monthly mark to market tests by more than 105%.
We met the disposition test by more than 111% at the end of June.
In fact, our mark to market test improved sequentially each month throughout the quarter.
I would refer you to our investor presentation for historical view of our maintenance Covenant test, which shows the strength of our structure.
Finally, I'd like to share our thinking for the remainder of the year.
Everyone has a view what the recovery will look like but will not pretend to be able to predict the path of the virus, we do expect that demand recovery, which moderated as hot spots flared up we'll begin to improve again when new cases start to fall quarantines are lifted in borders or reopened.
As we had experienced when states or countries reopened vehicle rental activity accelerates. Our however, we continue to believe afore cover is contingent upon effective therapeutics Anna vaccine.
Well I projection for the future remains difficult we have internally modeled numerous scenarios for how the recovery may play out and our operational case, we are anticipating to be cash flow and EBITDA positive in July and beyond we remain laser focused on further reducing expenses and we'll evaluate all liquidity options, including governmental programs around the world.
Okay.
In conclusion, we remain vigilant and are poised to come out on the other side of the current environment as a stronger organization.
We continue to emphasize safety trust in empathy and all of our actions as we protect our team and our customers.
And what that Joe and I are happy to take some questions.
Thank you would obviously you've got to your question answer session. We ask you. Please ask one question and one follow up they mature into the queue. If he'd like to be placed him to question Q. Please press star one of your telephone keypad, a confirmation tone wouldn't indicate your line is in the question Q you made press star to if you'd like to bigger question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing star Wars.
One moment, please what we pull for questions and once again, that's one question and one follow up the return to the Q.
First question is coming from Brian break from JP Morgan Your line is that lives.
Hi, Good morning, Thanks for taking my question I think you surprised a lot of people possible, even yourselves or what the degree of operating cost reduction you were able to affecting the quarter how should investors be thinking about this is it more that you know what investors and analysts maybe considered to be fixed costs are really semi variable and can be flex to a greater degree than previously thought.
Is it the case that Oh, you know as you were cutting costs and to kill you found some expenses that maybe don't need to be added back Oh, improving margin when volume does return or is it maybe that some costs were unsustainably reduced no definitely you got more cost unexpected, but what is the right way to interpret what that means for future performance.
Yes, hi, good morning. Thank you this is Joe.
We got off to a really quick start we announced that on the last earnings call. I think the thing that we sort quickly was the dramatic decline in our rental activity in our volume and thing around during 911 and the.
And the economic crisis, we knew we had to act fast and.
We did I think we centered on a couple you know I said it in our remarks.
We looked at our fleet that's the one that's.
So most variable that we could kind of move around and we took really big action in March the a as you know the environment change steadily in April everything was shut down we could do very little and then we saw that kind of pick up as we went into a probably mid may and then in June as I said, we we saw.
More cars than we did in the U.S. Prior June so I think that was a pretty big determining factor of how we try to align our fleet or align our fleet size with our volume in demand that we have historically.
Been pretty good at that even with changes in.
Program, and ER and risk relationships of cars and we did that you know around the world. We then took a look at it you know all the expenses associated with the day to day running of the business you know the.
On cost the direct operating in the Gionee and we made some significant moves there as well.
It's not easy taking cost out of that that significant amount of costs out of a business and then we since the beginning of April.
We're very much inclined to look at our revenues and the changes in revenues and how we can augment our expenses to meet those those those those declines and we and we as the obviously as the quarter unfolded, we were able to get better and better about that there was some cost associated with tell you know that we would consider fixed.
That we were able to move on because of relationships, we have with vendors and importance and things of that nature and some of those obviously as time goes on will come back but.
Like I said it was very difficult taking cost out it's not easy compensations, our armed and we will be certainly I'm.
Very pragmatic about how we let cost back in we're all looking right now about how that looks as we as we go forward. There's a lot of still uncertainty out there. That's why we upped our cost removal and as time goes on will be better able to comment on how that looks going forward.
Okay, Great. Thanks, and then my follow up is relative to the new Floorplan facility could this pretend the beginnings of a possibly large shift toward ramping your direct to retail dispositions I think that was being looked at seriously as a driver materially higher profits prior to the downturn, but would speculate or not on her own part that you know some of those longer term strategic initiatives requiring cap.
Well to implement could take Oh backseat during krona virus, but I remember how you ramped your direct to dealer dispositions during the last downturn in auto nine a in the Floorplan facility helps you I don't know do this in a little bit more capital light weight or what's your latest thoughts on the direct to retail.
Opportunity.
Turning to start off and then I'll turn it over to John.
Yeah, you know we've been we've been pretty public about our our our stance on selling costs through alternative disposition channels, whether that be direct to dealer or or or retail environment. We opens up I think our 15th retail store earlier this year and we've had some some really good.
Yes about selling cars.
Selling cars, a direct to consumer as a matter of fact enough in the fourth quarter of last year on our best alternative channel month was a quarter was that it was no like 73% of our fleet sold and in the month. The June were kind of the same range as a as the buying change. So we will continue to look at that as a opportunity whether.
I'd say, it's certainly a short term benefit for us as well as a long term opportunity as we grow how we dispose of our vehicles.
I'm, just going to say about about disposal cars or if you look at our per unit fleet costs.
Over the last.
I think it was 10 quarters, we had positive improvement and in how we manage the discipline surrounding.
Our fleet awfully purchases in our priests leaves us with that I'll turn it over to John.
Yeah, I think you know from our perspective. The question is how do we do this and the most capital efficient way.
I think we're really pleased with the relationships that we have all of our lenders and obviously, we've had tremendous support from them as evidenced by all the financial the transactions and concessions. We were given that we've discussed and from my perspective, I mean 35 million isn't a huge amount of money, but I think it's a pretty big vodacom.
Buttons to put a facility in place and to get credit in an area that historically, we haven't probably been as robust in terms or activity and we appreciate the lenders that are getting a sport to do that to Joe's point, we've got 15 retail locations open.
We have aspirations here to do more you know and I think we can do it in a way that doesn't require huge amounts of capital that's kind of our our focus than if we can find ways to continue to move the ball even in an environment, where we're trying to can conserve capital or we can we think that thats. The proverbial win win pretty proud of that [noise].
Very helpful. Thank you.
Thank you. My next question is coming from Hamzah Mazari from Jefferies. Your line is alive.
Good morning. Thank you My my first question is.
Just around margins clearly you took out a lot of cost sort of the system.
Used car pricing is getting better you're selling cars better prior to call. There you know the company hard at 13% to 15% EBITDA margin target that was back in 2016, you guys had revealed that number do you think that that's still realistic. It can you get there on a.
Much smaller cost space, but also just a structurally smaller revenue base any thoughts as to how you're thinking about you know the margin profile of this business. We we realize revenues will be smaller because of travel taking longer to come back.
Yeah. This is John I think.
As Joe mentioned, we've been laser focused on taking cost out and what that means longer term as we think about you know 2021 and beyond.
Well have to see how things come back there are certainly things we've done that are going to be permanent.
There are things that are variable and associated with volume coming back and then there are there other semi fixed things that are kind of in the middle and.
The overall enough time, you can take any cost out right. I mean, it's just a question how quickly you can get there.
I don't think we're going to talk a lot about we think the long term margin profile as.
I do think that we believe there's an opportunity to see.
Improve drop through in terms of EBITDA as revenue comes back of the question is what does that look like.
And how quickly does that comment I think we're in a good spot with where our utilization is in our fleet is today. It's really go either way I mean, if revenue comes back you know what will be able to to keep some cars in and will pick up some days that way and we'll see probably good good recovery and then Conversely, if it if it doesn't recover as quickly we can do more to exit vehicles as we demonstrated and.
I think that's that's the game plan for the next six months and we'll we'll talk about 2021 is a little more clarity.
Yeah, I just jump in here and say.
There's there's many things that determine overall margin right. It's a.
Price in the marketplace sleek costs, which we do the over the last two and a half years have done a really good job reducing fleet costs and the last as you know how do you deal with your operating expenses I think the thing is that the thing that we look at his you know how to all those three hold those.
Different.
Areas come into play and.
Like I said earlier we.
We moved a lot of cost this quarter tend to remove through quite a bit more as a as we continue.
And we'll see how that plays out as we move forward, but.
We have to be protective of what the uncertainty whatever whatever the uncertainty unfolds whether be revenue challenges are alike. So more to come on that.
Great and just my follow up question is just around.
You know expectations around revenue per day, maybe you could talk about July trends as well.
As part of that.
It looks like you know you you've got the flu Dillard Hertz has forced pick up the fleet sector looks like its de fleeting pretty quickly.
Do you expect improvement in revenue per day, and the second half as you think of our positive free cash flow. Thank you.
No.
You know.
Right now what we're seeing a what we what I mentioned earlier is.
As long away business, right and with won't away business and it's not just want to lay business. That's at an all in all the local markets storage.
It's running through our entire book of business people were keeping the cars longer whether it be due to safety and security concerns about having mobility choices or using it whether they're going back and forth work, but people are keeping the cars longer we saw that in the month of April immediately and still till today not to the Dick.
Agree that it wasn't April frankly, but still to today and when you do that there are some benefits to that right because you clean the car once you move at once you gasoline Johnson at a time like this where there is significant challenges. It helps us to have long term business. The drop through has become a little bit more apparent that it would be during normal times. So.
I think thats been a that's been an interesting factor and actually pretty positive on the other side.
I think the industry did a really good job about trying to get out of cars and deeply whether it be selling but predominantly we announced we canceled over 185000 orders during the during this quarter. If you look at the public.
What's available publicly for our these that the Oems are selling the industry. It's down over 50, some odd percent right in the last two months being down pretty much in the mid Ninetys. So I think the whole industry has managed to cancel enough orders, which should tighten which should create an environment on the supply demand.
Environment, and and we see that right as you know our our rate per day has improved but the majority of what we see as people are keeping the cars longer how long that transpires.
I'm not totally sure, but it seems like its a.
It's a trend that we see currently today.
Great. Thank you.
Thanks.
Our next question today is coming from Michael Millman Research.
Research Associates your line is not a lot.
Thank you sort of following up.
Maybe you could talk about what you're seeing particularly from hearts and terms of.
Their pricing.
Both corporate and airport.
And also recording Eric Hi Airport.
What what you're seeing on what to expect to see.
From I think were very profitable.
Bound.
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Whereas that's where that's now and we're in that may be calling.
And generally when you look at.
Next year 22.
Two silent what two years out.
What kind of operating rate aren't relative rate.
Once you had a 19 you see.
Okay.
So.
From the first part about the competitive said.
It's Jim.
I thought July 4th pricing was was pretty pretty good.
Well I everything changes with the dynamic of the velocity of the virus rate and where supply and demand takes place like I said a lot of the a lot of the demand we see as much longer term, which when you look at it.
As it has a material effect because of cars out many more days on rate per day, but like I said I think there's enough profit opportunity in there for that.
As far as inbound business, the borders or kind of shot right. The borders between here in Europe or between to us in Canada.
They're shot so inbound business has been a particular.
Drag and it's not going to come back onto the degree that we would have expected.
Until those until that changes and one that is it wouldn't be very hard for me to predict.
And.
But it is it is it is a lucrative part of the business and unfortunately, the border closure so prevented that.
Yeah. This is John I'll, just jump in on kind of our longer term outlook I think.
It seems like a age ago now, but back in February Joe and I were pretty excited about the opportunities we had from strategic perspective for the business and.
Weve laid those out in our investor presentation.
I think those remain obviously, we're doing things like direct to consumer.
And looking for the wins, we can keep at creating even during a time of unprecedented declines in revenue.
And those are structural things that over time can make a difference in terms of what that means in 2022, I mean, I think it's hard enough for us understand what August is going to look like.
You know just given how volatile on dynamic things are changing.
But I think what we're focused on is really simple whatever the revenue trends are we're going to get expenses in line.
And we're going to continue to look for opportunities to improve the business, where we can.
Structurally we'll talk about what that might mean long retirements, we get just a little more visibility instability down the road.
Thank you. My next question is coming from Adam Jonas from Morgan Stanley. Your line is.
Oh. Thanks. Thanks, everybody first question is on the on fleet, specifically, the North American fleet, great job, reducing it to under 4000 units can you can you tell us as we look into Threeq, you or maybe if we didn't now and you ran can you help us with our modeling of.
You know again, obviously, depending on market conditions, but maybe a range of where we can think about.
We are going sequentially for the next couple of quarters that would be extremely helpful. We wont wont hold you to it because we understand it's a super Super volatile environment, just kind of where your head is there and then I have a follow up.
Sure.
I'll take them so we.
We do believe that there is utilization opportunities.
To manage the feed wheat further as we go and we.
We wanted to get out of course quickly we did that in March we utilize some program cars that we had as well it's kind of get a good headstart as you know we went into that we went into the second quarter with more fleet because our business in January and February was up double digits in the in in the U.S. As you know you you asked about so getting out.
Likely was very very important to us at an April it didn't go away and then June has.
The July selling is still pretty good how long that goes is.
As anyone's guess, but I think what you'll see us do because right now I think we're at a great inflection point that we can either.
Keep the fleet.
To match demand it becomes back or reduce it further but the key was trying to get to this position that we are today. So I think going forward to answer your question and then thank you for not.
Having us commit but what I would say is that we're going to match, we're going to match further our demand with our fleet I think there's still opportunity.
Okay, and and as a follow up really outstanding job.
Righting the ship being opportunistic during some pretty pretty dark dark days and weeks and into Q I mean I was just.
I'm looking at some of the words, you're saying on the call. It I'm just I'm just I know your pension yourself to like how do we how do we know how do we get here, it's it's <unk> and <unk> and again, a lot of hard work and your team.
Deserves an enormous amount of credit but.
Many people on this call are left with the message of you have sufficient equity in the business.
And I want to give you a chance to kinda confirm that message or that belief because there may be how does that take a view of luck. Your stocks you know bouts quite a bit there may be more room to go but it's bounced a lot you're out of the you know in some ways out of the danger zone, but there's still a lot of uncertainty isn't this a good time to tap the equity markets and add some equity to right size.
The balance sheet could you could you kind of weighing on that.
'cause it yeah. This kind of puts and takes to both of that but we just it is it is important for the narrative to kind of understand where you guys are thinking all that I appreciate it.
Yeah. This is John.
Yeah. Thanks, I appreciate the kind words, it's certainly been.
Along three months and as we talked about we're really proud of the team.
Yeah, I'd be remiss, if I didnt put a hat tipped our treasury team, we've done a phenomenal job of understanding where the markets are getting the banks comfortable around the world.
We were able to raise 500 million, albeit at a at.
At a rate that was a little higher than we would've liked but you know we needed the money and we took it.
We still have room.
We got 750 million intentionally.
We're opportunistic work where capital us at heart, if there is something that looks good and attractive and we think that there's a market that makes sense whether it's.
On the fleet side or or or elsewhere in the business will take it but at the same time, we think we have enough liquidity.
Make it through the balance of the year, we anticipate being cash flow positive and Theres a lot of uncertainty, but as we see it today, that's kind of our heads are but we're going to remain really flexible the other thing I'd say as.
The market is changing and if there are opportunities that are attractive.
Whatever those may be that that may be another reason for us to consider certain things and so.
I think from our perspective, we feel like we've done a lot we're in good shape.
In our backyard against the law right now, which is good we've got some room to navigate but if there are things that look compelling, we're certainly going avail ourselves of those opportunities.
Appreciate it.
Thank you next question today is coming from Brian Johnson from Barclays. Your line is that a lot.
Thank you just wanted to drill down on the fleet costs as you kind of walk from last year's fleet costs to this years, we cost in North America.
About what $60 per unit per car.
Can you break that down in terms of gains on sale versus hold period assumption versus any change, which I don't think you can do under accounting and the estimated residual value of the cars.
Yeah, I'll take a shot at that.
You know when it when we look at fleet costs and and as I said earlier, it's been.
10, 10 quarters, I think of reduction in fleet costs and it doesn't just happened by chance rated says a lot of effort a lot of work that goes into into play to make that I was a result, when I think about fleet.
I think about it in three ways. One is how we buy the cars right. That's that's part of the analysis that goes into your overall fleet costs.
The trim levels, you put on the cars therapy the.
Mix of program and risk.
The type of vehicles, you buy right those all all play a part than theirs.
How you use the vehicle, we talked a lot about or mileage optimization strategy, how we evenly or we would put put.
Process into evenly distributed the mileage across the fleet.
Could sell a car would you know certain amount of months unless mileage out as a benefit for you and then the last is how you sell the car and the alternative distribution channels that we use we talked a lot about the retail program and how that generates higher higher return or better gains. So all those three things combined.
Create this opportunity I think the overlaying one is.
What is what is your fleet size compared to demand and we've always taken an approach. However, a fleet size slightly less than the van So we don't get put into December situation.
Having to try to sell cars at a reduced value and that was.
You know when parent and how we manage through this this second quarter.
Anything else to add John.
No I don't think so now that we're going to get into specifics of.
You know deconstructing.
Where it where the changes came because there are obviously things that fluctuate from quarter to quarter, but you're correct. I mean, you don't get to to true stuff up.
Based on some change in assumption, that's not the way that gap work. So you're correct in the in the third statement that you made but I don't think we're going to get to the specifics around how much came from gains versus a assumption changes or the benefits of mix or anything like that.
Okay with that that will be in the queue I assume.
Yep.
Okay. So started a follow up if we look at the 600 million cash inflow from vehicle programs is.
You know and then getting to the the fleet equity.
Could you maybe also maybe how much of that was due to the gain on sales versus just the existing equity cushion and structures.
So the way I would answer that has [noise] that the amount is very minimal from the gains on sale right. That's our ability to Vance rate, that's our ability from the de fleeting. It's the equity that we had put in that portion of the fleet. Originally right. If you have an 80% advance rate we supplied 20%.
So that's our ability to access that and if you remember at the end of Q1, we had done given a pro forma of what cash we can have and instead of doing that and causing that confusion again, we wanted to make sure everyone saw what our liquidity truly was and we were able to do that for the ended the quarter.
Okay, and then final question of the what you've excluded for co bad you, it's like 30 billion.
Airport minimum airport guaranteed is that coming back is that just sort of a one time I mean, how do we think about that in terms of lower volumes likely through some period at the airports.
Yeah. This is John.
If you think about our concessions work.
It's a percentage of revenue with a minimum and so as we approach trying to describe the business for everybody, we want to everybody and accurate depiction of where things were.
So where we had airports that required us to make those minimum payments that exceeded the the revenue that we would have permitted under the concession percentages. That's the amount that we put down into that 30 million. We didn't get other airports that have given US you know waivers. So it's been a mixed bag.
But certainly there are components that did not and that reflects that and those are ongoing costs and once the Davis waivers I mean, those aren't indefinite obviously, so at some point in the future.
There will be expense that comes back and that.
Ties into what Joe talked about earlier, which is.
You know taken a herculean efforts here to take cost out.
Some of those things are going to be permanent others are going to come back either due to volume more or just due to.
The concessions are able to get expiring. Thanks.
Thank you next question today is coming from definitely from Northcoast Research Your line is.
I think you congrats on the progress this quarter guys and.
When I when I hear the message <unk> very surprised that things have bounced back as fast and I'm surprised I'm gonna be asking this question, but when I hear about kind of.
The the level of recovery that where you're at the comfort you're at in terms of liquidity and things like that you've got one of your competitors into bankruptcy process.
Do you see yourself or could you see yourself in a situation, where you could potentially pursue a brand to pursue a country or region.
Or maybe some assets out of the hurts hurt bankruptcy and do you think that you know you could do something sizeable or you know that would move the needle from a regulatory standpoint, and and and even just from a governance standpoint on a comfortability standpoint.
Hey, John good good to hear from you. This is John.
You know obviously were.
Paying attention to what's happening in the marketplace and there's a lot of different dynamics.
We are pretty focused on sticking to our knitting right now.
You got a lot of work to continue to do.
At the same time, we're always opportunistic we made a lot of acquisitions in Europe over the last number of years.
We think there there are things and pieces of the businesses that could be augmented depending on when there's a lot of different things that could potentially happen in the marketplace, but.
As it pertains to specific things around your question I mean, I think well have to wait and see but but I wouldn't expect there to be you know a huge focus just given what we're working on kind of internally today.
Fair enough and then once we comment you made the kind of out it was interesting I thought was about the 10% higher take rates and rental car attachment at airports.
Is there where you could help us kind of understand that number a little bit more kind of what that number is maybe where that number was I'm, saying, maybe five years ago or so before Uber and lyft I'm kind of emerged on the seating and.
How how much of a long term trend or do you think this is a short term phenomenon.
With all the guesswork at this point, but how do you think about that attachment rate potentially changing in years to come.
Yes. This is Joe.
We've always.
[noise] rented cars to people, who live close to airport environments and that that's more apparent today than it than it's ever been we think about where some of these importance of geographically located closer to communities than others, and we've seen that increase in and out in those imports make no bones about at the aired the airline traffic is.
Now for agency TSC volume is down 74%. It's like the last couple of weeks. It's shown I think the first time at shown actually.
It's been growing since the beginning in the last couple of weeks. It's it showed no basically flattish or even a decline where that ends up is anyone's guess and I think that's why we have to be flexible.
With our with our cost structures because it is it is extremely uncertain.
And its and its while these dependent right now on the velocity of the virus right.
If you just think about it you know there with Brian to July before there was a you know Miami was opened in two days two days closer to it and shutdown changed a lot of People's habits.
The trend lines change you know the Tri State Governors in the New York, New Jersey, Connecticut area.
34 States that you leave you got to be quarantine. They think that affect some of that we will always have our ability to to rent course locally to people, who live close by and that's kind of what we're seeing whether that Neil is growing or or gets reduced overtime. I think a lot of that has to do with a with airline traffic. So.
Yeah. This is John I just hop in in say the other dynamics here is that this is all leisure business for the most part I mean, there's not a lot of corporate travel happening.
And as it pertains to to ride hailing. The question is gonna be what a travel policies look like coming out of this is there an opportunity for us to pick up some share going forward. If you know.
If corporate travelers are moving around are they more likely to rent a car than then take flight are they more likely to run a car when they get somewhere versus hopping in a ride l. vehicle I mean, those are things, we've certainly thought about.
Great. Thank you guys.
Yes.
Thank you. My next question is coming from Chris Woronka from Deutsche Bank. Your line is that a lot.
Hey, good morning, guys.
Wanted to ask you about the the RPD and I noted that a big chunk of the Delta in second quarter was just kind of mix shift with longer rentals have you'd be have you seen as your ended July now have you seen kind of a like for like pricing getting better as industry fleets tighten up and.
So should we should we actually see that RPD decline narrow in the in the third quarter.
Yes, Joe so.
Yes, you're right the as I said earlier the other war has a tremendous impact on the on the rate per day.
And we've seen the LR being at its high in April and come down as the as the quarter changed since and the reverse happen to the RPD RPD, which was down most in April gets better as the quarter as a quarter moves forward.
In July.
You know the to the rate per day of things are are you know its gets kind of going that direction as the other war comes down the rate per day time. So what we see going forward is hard to predict because everything is close in right. So you know a good deal of our reservations occur as I mentioned close to the weekend periods. It's a lot of.
It's leisure and as as the environment and the velocity of the virus changes so changes you know.
People's habits, and whether or not they show or cancel and things of that nature, so kind of hard to predict but I do agree with the overriding principle is as fleets.
As fleets get more aligned with the activity so to the general principles of supply and demand, which equates to price.
Okay, Great and then a follow up was.
Yeah, I know you don't want to getting specific numbers for backup which is totally understandable, but just directionally you guys have a view on selling more fleet.
As we wind down the summer and get a little bit seasonally slower on leisure demand and if you are going to be selling cars through August.
Let's say or September you, probably have some kind of internal assumptions about the just the direction of residual values. So any color you can you give us on very high level thinking there would be great. Thanks.
I mean, we did a lot of work to get us to this point in time, well, we now can decide what we need to do with our fleet. There there in the right places. So when you we canceled a lot of orders that I think that's very important to this equation right. The pressure to do the fleet is not as great on.
Because we don't have as many cars coming in obviously.
We depleted a whole lot through the month of the through the month in June we saw a robust environment in July and we will determine what level of velocity, we decide to take cars out based on volume.
But the but I think the key the key in this equation is the fact that pressure of course coming in isn't there.
Okay very good thanks, guys.
Yes.
Thank you every share of our question answer session, Oh, it's sort of pull back over for any further closing comments.
[noise] yeah. Thank you. So thanks for joining us today summarize I'm incredibly proud of the teams resiliency and ability to navigate our company through these unprecedented times, we never lost sight of our first priority, which is the safety of our employees and our customers and entered an innovative partnership to further our efforts in this area.
We've taken decisive actions to remove 2.5 billion, an annualized cost and shrunk our fleet size by 26% or into the quarter. We'll continue to adjust our actions to respond to further demand we sufficient liquidity to see us through 2020, well capitalize on the recovery is travel demand returns I want to thank you all for your interest in our company.
And I look forward to speaking to you soon please stay safe.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.