Q4 2020 Avis Budget Group Inc Earnings Call
Greetings and welcome to the Avis budget group fourth quarter, 'twenty and 'twenty conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded and sound my pleasure to turn the call over to David Calabria. Please go.
Ahead.
Good morning, everyone and thank you for joining us on the call with me are Joe Ferraro, Our Chief Executive Officer, and Brian Choy, Our Chief Financial Officer.
Before we begin I would like to remind everyone that we will be discussing forward looking information, including potential future financial performance, which is subject to risks uncertainties and assumptions that could cause actual results to differ materially from such forward looking statements and information.
Such risks and assumptions uncertainties and other factors are identified and our earnings release and other periodic filings with the SEC as well as the Investor Relations section of our website. Accordingly forward looking statements should not be relied upon as a prediction of actual results and any or all of our forward looking statements may prove to be inaccurate and we can make no guarantees about our.
Future performance, 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 release, which is available on our website 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 Joe.
Thank you David Good morning, everyone and thank you for joining us today.
It goes without saying that 2020 was the most difficult year and our company's history.
However, as I look back on a year and review I believe that 2020, while challenging will also prove to be one of the EBIT budget groups most formative years.
When faced with unprecedented adversity, we founded and ourselves not only to persevere, but to structurally improve our business. So that we exit this trial and more resilient and efficient company than when we entered it.
This wouldn't have been possible without the efforts of our entire organization.
And they came to work day in and day out throughout this pandemic and prove that no matter what the challenges we had avis still try harder.
I'm sincerely grateful for the amazing efforts of our employees it's.
It's been 40 years since I joined Avis and I've never been more proud to be a part of this team.
This morning, I will start by highlighting many of the accomplishments the team made during the year then provide an update on the actions, we took and both the Americas and international regions.
After that I will discuss our continued commitment to health and safety through the Avis safety pledge and budget worry free promise, including our innovative safety partnerships and touchless rental experience.
Finally, I will discuss business trends, and then hand, it off to Brian to discuss our liquidity and cash position, which illustrates the overall strength of our company.
Yesterday, we reported our fourth quarter and full year results closing the books on a year that certainly tested our resolve.
While 2020 was difficult and it also demonstrated the strength flexibility and future capabilities and our company.
When the pandemic first hit we acted quickly we immediately called our OEM partners to work with us to stop and coming new vehicles, we took quick and decisive actions with our property obligations and our vendors. We also made the hard decision to reduce staff and salaries.
We're also very proud of the safety protocols, we established.
And our exclusive partnership with RP and makers of lysol and to ensure the safety of our employees and our customers.
After our initial actions, we put out a release, stating that we removed approximately 400 million and expenses, but we quickly realized and it wasn't enough and challenge our team to do more by continuing to align our cost savings with that of our revenue declines. This was the key to our survival and they did not disappoint.
Ultimately, we removed over $2 8 billion of expenses and aligned our fleet to demand removing 31% of our fleet, while capitalizing on the strong demand and the off airport operations.
At the end of the third quarter, we showed our ability to take advantage of operating opportunities as travel returned with fleet utilization is picking back and the 70% area.
October continued that momentum and it was the lowest year over year revenue decline since this pandemic started.
Rates were positive and fleets with tight.
November look to continue that trend and Thanksgiving weekend was developing into a good revenue opportunity for us as well as with some strong bookings leading up to this week.
However, with the resurgence of the virus occurring at this time, we saw a dramatic spike and reservation cancellations and ultimately no shows.
To put this in perspective, we had more vehicles out on rent during the Saturday of Columbus Day weekend, and we did on the Saturday and Thanksgiving weekend, and something that has never happened before and the history of our company.
Christmas, although better than Thanksgiving was still challenged due to the virus transmission and government restrictions on travel.
As a result of our cost removal actions and the early alignment of fleet levels, we were able to remain agile and route react quickly to those demand changes.
We have talent and operators, who know what it will adapt to the challenges we face we continue to look for fine to remove additional costs and keep our fleet aligned with customer demand.
As a result, we achieved positive adjusted EBITDA for the second consecutive quarter since the pandemic began driven by significant cost reductions globally, and culminating and higher year over year margins and the Americas as a result of these diligent efforts.
As we stated previously we ended the third quarter with the Americas generated more adjusted EBITDA. This September and September of 2019.
October continued that trend delivering continued year over year improvements as mentioned October was the best month year over year since the pandemic began down only 28% year over year, but then the second wave of the virus came and brought reduced demand.
The Americas delivered just over 1 billion and revenue there.
Lowest fourth quarter total and our history.
But despite the reduction in revenue the team delivered their third best adjusted EBITDA of 113 million Ultra.
Ultimately the Americas finished the quarter with rental days down, 35% with a strong increase and pricing up three and helping to offset the reduction and allowing us to finished with revenue down 33%.
However, the impacts of the virus was certainly greater at West and states like California, and Hawaii, which saw the most severe travel reductions with rental day reductions of more than 50 per cent.
Volume is that local market stores continue to outperform airport volumes, but even with the reduced volumes on airport, we continue to see and over performance about volumes against TSA check and data.
Our strongest segments and the quarter, what the airport operations, including local market rental locations budget truck package delivery Zipcar and ride hail.
These areas performed especially well during the quarter a profitable whitehill business has doubled year over year.
Confirming our strategy to expand and grow this business.
Revenues from our local market operations exceeded prior year levels, and the quarter and our decision to optimize our business for last mile delivery has been outstanding.
And our last call, we announced that we had increased our package delivery fleet to capitalize on the additional demand from holiday peak package delivery season.
This business improved significantly over an already strong 2019, culminating in our best season on record.
ZIP car also improved sequentially delivering one of the strongest years as urban customers sought private transportation to run errands or vacation outside the city.
The strong recovery of these operations, resulting in us, finishing the year with 46% of our revenue coming from non airport activity and increase from 30% in 2019.
During the quarter, Australia as appose of more fleet through alternative channels paid dividends, we continue to capitalize our alternative channel strategy to take advantage of this used car market.
We sold more than 69% of our vehicle sales and the quarter, although alternative channels and a record 26% of those vehicles sold directly to consumers. In fact, we sold more than 22000 vehicles directly to consumers for the year significantly more than the 13000, we sold in 2019 capitalizing.
And our increasing capabilities and retail sales.
As you can see and our Investor presentation, we have a strong history of aligning our fleet with rental demand, which we demonstrated again this quarter and this year to achieve peak utilization rates of approximately 70% and the Americas.
The fact that our fleet is mostly risk enables us to dispose of vehicles profitably showing our strength and managing logistics on fleet and on utilization.
During the quarter, the Americas fleet was and a healthy position and utilization rates hold stable following similar trends from the third quarter, peaking on weekends with business travel recovering slower than leisure.
With the U S fleet down nearly 30% and utilization rates holding steadily in the 60 per cent range on average we started in fleet vehicles from our recently finished model 2021 fleet purchase.
This vehicle rotation uniquely positions ourselves with lower mileage refreshed fleet to serve our customers.
I would like to take a moment to address the semiconductor shortage that several Oems have recently mentioned.
We do believe this will have an impact on fleet deliveries and availability and our industry. We have always had strong relationships with the Oems and even in normal times, we work with them daily on any dynamics they are seeing from their production schedules.
Currently and based on our own and initial discussions we believe we have the logistics and sophistication within our team to manage our fleet size appropriately.
Keep in mind, a tightness of fleet and the industry, usually bodes well for not only the used car market, what's the yielding opportunities.
The aligning of our fleet. The demand has certainly improved our revenue per day, a 3% even with the continued increase and our monthly rentals.
As always we have been managing our revenue per day is a strong measurement of profitability and during the pandemic, we've been focused on longer length rentals as well.
As customers rent cars longer and there was a more significant drop through because of fewer touch points.
And longer term rentals, you clean a call once move a car once and refuel a car once driving out variable costs and increasing efficiency and this has been and integral part of our business. This year.
The international market continued to remain challenged constricted by renewed lockdowns and numerous countries in Europe and travel restrictions and the region.
The impact primarily in Peds cross border travel, resulting in a greater percentage of intercompany travel.
This domestic customer segment, usually has a lower ancillary attachment rates negatively impacting overall revenue per day.
Revenue per quarter declined to 326 million approximately 48% lower than prior year, driven mostly by volume decline and rate impacts from reduced ancillary take rates.
Volumes held generally stable at 44% below prior year. However, they were significantly better than the 65% declines we had seen in the first wave.
As in the Americas, Our international team continues to remove costs from the business with an average fleet and the quarter down 39% versus prior year.
We profitably disposed of nearly 14000 risk vehicles, while utilization peaked in the mid 70% range.
The team did a great job matching cost savings with revenue declines.
And with the change and business mix the international team had to overcome a greater decline than just the one related to volume by.
By proactive operational management and utilizing government furlough programs, they were able to reduce expenses by more than 42% to closely align with a 48% reduction and revenues.
Team is set themselves up to take advantage of opportunities as they arise during the recovery and both EMEA and Asia Pac.
When we first started reacting to this pandemic. The most important initiative for US was to ensure the safety of our employees and our customers.
We are proud of the way, we've been able to navigate through these uncertain times, but even prouder of our industry, leading efforts to protect our employees and our customers.
We established the Avis safety pledge and the budget worry free promised to set what we believe is the higher standard of safety and our industry. Additionally.
Additionally, we launched our AVG Medical Advisory Council with well established medical professionals from leading institutions charged with reviewing and advising on our COVID-19 protocols.
We continue to enhance these protocols and training while relying on our exclusive partnership with RB and proudly using their well known lysol products across our locations to benefit from their proven effectiveness against COVID-19.
In addition to our safety partnerships, we continue to innovate through our award winning App and mobile select product now available to our top airports, our avis preferred customers. Upon arrival can select their specific car and their phone proceed directly to the vehicle and then utilize our unique QR code to exit our automated express exit.
For a completely contactless experience.
And encourage all our members to sign up for Avis preferred, but if youre not in Avis preferred member you could still take advantage of our digital check in on our websites, reducing transaction times and lines at our counters to quickly and safely get you on the road.
Our employees are critical to our every success and I would like to thank them for keeping our customers families and each other safe throughout this pandemic.
In closing I'd like to highlight and achievement and the fourth quarter, then I'm, particularly proud of.
When a second wave of restrictions suddenly materialize before the key holidays, we were able to quickly flex our cost to the shock and demand and mitigate the impact of reduced revenue.
Last quarter, we told you that we were building a leaner more efficient organization.
Well, we made that statement and an environment of sequentially improving demand.
It's easy to be bold when the Windsor turning in your favor, but what happens when things go against you and.
I'm proud to say that when we were tested and this fourth quarter, we deliver and fact, the Americas achieved their highest fourth quarter margins and the company's history.
<unk> revenue being down 33 per cent.
I view this and not just a proof point validating our early assertions, but a stepping stone for what I believe will come when the impacts of this pandemic subsides.
Because of this I feel even more confident saying today that as the economy continues to recover.
We will continually see meaningful improvements and our earnings and margins now I know, you're all asking right now what exactly does that mean at this time, Brian and I and not ready to fully lay out our exact path. There are still significant uncertainties around when revenue normalizes and we are still in the process of refining our steady state.
Cost structure.
What I can tell you today is this.
And whenever the economy does normalize and went back to the 2019 revenue levels. We believe we will be at or above 1 billion and adjusted EBITDA.
With that I turn it over to Brian to discuss our liquidity and cash positions.
Thank you Joe and good morning, everyone I will now discuss our liquidity and near term outlook. My comments today will focus on our adjusted results, which are reconciled from our GAAP numbers and both our press release and earnings call presentation.
As of December 31, we had available liquidity of $1 $3 billion comprised of approximately $700 million and cash and cash equivalents and approximately $600 million and availability on our revolving credit facility.
Additionally, we had cash and available borrowing capacity of $6 8 billion and our ABS facilities.
Our proactive management of our corporate debt insurance, we have no meaningful corporate debt maturities until 2023 and no need to refinance any of our ABS conduit facilities. This year.
We are in compliance with all of our secured financing facilities around the world with significant headroom on our maintenance covenant tests as of the end of December.
Because of this strong liquidity position, we felt confident enough to return more than $600 million into our ABS facilities, giving us the flexibility to fund fleet levels higher than 2019 when necessary.
<unk>.
Given continued macro uncertainties, we are not providing guidance for the year. At this time, we will provide further clarity as travel demand normalizes and visibility of returns. However.
However, I would like to make a few comments regarding the first quarter of 'twenty and 'twenty one.
Even in a healthy year like 2019 first quarter EBITDA is slightly negative given the lower revenue base and reliance on corporate travel and the quarter.
In 2020 with only one month of Covid impacting the business first quarter EBITDA fell to a negative $87 million.
In 2021 will be facing three full months of a depressed travel environment. So the comparisons will be difficult and noisy.
As we learned last quarter things can change quickly, but as of right now here's what I feel comfortable saying.
Due to our efforts around cost rationalization, we have been able to continuously improve on mitigating the adjusted EBITDA impact of significant revenue declines.
And the second quarter of 2020, our first full quarter and a COVID-19 world consolidated adjusted EBITDA was 557 million worse than prior year.
By the third quarter of 'twenty and 'twenty, the decline narrowed to be 252 million worse and consolidated adjusted EBITDA versus prior year.
And the fourth quarter of 2020 this decline reduced further so that our absolute adjusted EBITDA decline was now only $69 million worse versus prior year.
For the first quarter of 2021, I expect this improving trend and narrowing our absolute adjusted EBITDA decline to continue.
Beginning the second quarter of 2021, when we start comping full quarters with the coronavirus impact those declines will clearly shift to significant improvements year over year.
This is what gives me Joe and the team here and the conviction to state and when our revenue base does returned to 2019 levels, we expect to be at or above 1 billion and adjusted EBITDA with that let's open it up for questions.
Thank you and ill be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press star two if you'd like to move your question from the queue for participants using speaker equipment may be necessary to pick up your handset.
Before pressing and star one one moment, please while we poll for questions.
Our first question today is coming from Christopher <unk> from Deutsche Bank. Your line is now live.
Hey, good morning, guys. Thanks.
Thanks for all the helpful data points.
Thus far I was hoping first question maybe you can just talk a little bit about your outlook for a fleet costs theres going to be a lot of moving parts, you're going to be and bleeding from new cars and used car prices might move around and we have the chip shortage, just any high level thoughts on how those might trend.
Okay and good morning, Chris we did try to be as transparent as we could and on her prepared remarks.
Yeah.
And the fleet situation is ever evolving if you think back to last year. It was really about removal of fleet. We cancelled orders, we had the best selling month and the history of our company and the month of August and traditionally if you think about how we manage our business day to day, we don't normally do that right because the peak period starts and the summer and then <unk>.
The cars and you try to leverage that volume.
Volume and revenue opportunity and this year, it's a bit different and.
And we came off of you know probably the one of the better per unit fleet costs, and our company's history, largely due to the Covid shutdowns on some of the Oems had and the delay and inventories on on both the dealership launch and used cars and we took advantage of that I would say that going out. This year, we still see is as we saw and.
The fourth quarter and pretty good used car market.
It seems.
Accretion really strong and I will say that.
And.
But we are getting our new Carson and the new cars are are important when you think about fleet and fleet cost.
It's not just how you buy them, but it's and you know and how you sell them and we've talked a lot about those and the past buying cars with the right trim levels and people want to drive and also they want to buy and when we're done and I think it's also becoming more increasingly important, especially this year as we cycle and new vehicles and we keep our rotation saw.
All it because what ends up happening there one other key indicators of our residual values as the mileage on course, and as we get new cars in that debt.
And of tends to normalize.
I see going forward the opportunity to sell a car a solid but youre right. The semiconductor thing, which I mentioned earlier is going to have an impact on our on on just new cars in general as well as I believe our industry and we're working hard to mitigate any potential oh.
Issues, we might have.
We'll circle back to one touch points. However.
If you go back to 2014, or maybe even 2017 our industry.
Was hit with a tremendous amount of recall's hundreds of thousands of cars a third if I recall and maybe in the third quarter of 2017 of our entire fleet was under recall hold and we're able to and we were able to manage through that so I have confidence and our team. So I think there might be disruption due to this travel due to the semiconductor thing, yes, but as it stands.
Right now and I'm comfortable with our fleet levels to book.
So if we need to maximize our volume and Bob at the comps.
Hey, Chris It's Brian here.
And I just think it's a little early to be giving guidance on that we're comfortable with where we are in terms of the 2021 model year buy we're just getting into negotiations for 'twenty and 'twenty two model hereby. So we'll see how that shakes out and like you said there are things going on with the semiconductor shortage and.
We have the impact of normal tax returns coming in but we also have a potential stimulus coming in.
And Theres a lot of moving pieces, so we'll update as as things.
And settle down the one thing that I will say is that I think what we proved in 2020 was that when the market is there for US we were able to move the metal and sell the cars, we need to quickly and efficiently so and we'll be ready for that and if that materializes this year as well.
Okay.
Very helpful. Thanks, Thanks for that just a quick follow up.
As we think about hopefully a much better kind of summer season and.
And a lot of a lot of folks planning ahead, and maybe a little bit to what you saw in the fourth quarter.
Is there any you know any concern around kind of this.
Increased cancellation rate as people, just making a ton of reservations and I know that's something that's industry dealt with over time does that give you any pause to maybe consider new initiatives to maybe even if temporarily just drive down this.
Multiple reservation and cancellation kind of trend.
Yeah, I'll take that as we saw and.
And we started this pandemic and March and April Unfortunately, the cancellation rates were.
Pretty.
Pretty large and as we got into the summer season last year. They started to come down to a more normalized level I think what we saw in the fourth quarter and if you recall.
The government actions around Thanksgiving and only only congregate with 10 people. They came quicker and that was very public and people chose to cancel and what I see now is the same level of close in bookings, so close and bookings deter.
And the large large cancellation factors that we have I really don't see that changing and the near term people tend to book closer and.
We have a prepaid product that that people tend to use which which removes a little bit of a cancellation.
Factor, but we do tend to give.
And give that back like most of the other travel companies should there be.
Situation that warrants that but the close and booking is not going to change for a while and I think that you know.
It puts a little pressure on the business because we have to anticipate things closer in but I will say this that our demand fleet pricing system now and year three as learning as well as our operators on the ground and we're able to anticipate and where the potential opportunities might be whether that be and cities or locations. So yes, I think the clue.
And my protect us a little bit from the large ones, but that Thanksgiving deal like I said, we came off a pretty pretty good October all things considered down 28% with having what I thought to be very good activity around Thanksgiving and three days closer and when the when the governmental actions and Cds CDC announcements came in at <unk>.
Range things quite a bit and carry through a little bit through December.
As we see it now.
Okay very good thanks, guys.
Yeah.
Thank you. Our next question is coming from Brian Johnson of Barclays. Your line is now live.
Hi, guys. This is Jason <unk> on for Brian.
Just two quick questions and I was hoping and I. Appreciate you know, we're not giving guidance right now, but as we think about some of the cash flow dynamics for 'twenty and 'twenty. One I was hoping you could talk on just a few things I mean, firstly, firstly fleet costs, where the vehicle programs, which was a bit of a tailwind in 2020 of around 200 million or so should we.
We expect that to reverse in 2021 as you size up the fleet and what the potential impact there could be and secondly on COVID-19 related costs, which are excluded from EBITDA and I think around you know we're around $120 million and the year do those do those go away or at least fade next year and then.
Third there seem to be kind of a working capital headwind in the fourth quarter is that also is heading up our tailwind next year. So just those three dynamics and any anything else you wanted to call out for cash flow next year would be helpful. Thank you.
Yes sure.
I'll take that and in reverse order I guess.
Working capital issues, and the fourth quarter and.
And that was just us catching up on some bills that we had been delaying when the coronavirus pandemic was happening a preservation of cash was kind of first and foremost as we felt comfortable enough to.
And you know.
Put money back into our ABS facilities and that we've taken out and felt more comfortable and our cash positions. We did the same thing with our vendors and and Counterparties as well.
And which I guess dovetails into the second portion and vehicle programs was especially noisy this year money coming in money coming out I think we took care of all of that in the fourth quarter and and I was a conscious decision because we wanted to as clean a 'twenty 'twenty one as possible with <unk>.
Funded over 600 million back in there and the fourth quarter. So I don't view that as having kind of any big swings.
For 2021.
Sorry, Jason remind me what was your third question again.
And just the COVID-19 related costs.
And related high herself, yeah, so that will be normalizing this year as well, we don't expect that to be as big and <unk>.
And charges that we had taken and.
'twenty 'twenty we're.
We're not going to be taken and 'twenty 'twenty one there are certain things in there that.
Well we'll.
We'll still be taken below the line, but and that will be normalizing this year.
Understood. Thank you and then and maybe if I could just try on the first quarter.
As you alluded to is usually a heavy commercial travel months, we know that your split usually on a full year basis is kind of like 60, 40 leisure versus commercial and is there any way to understand what that is specifically in Q1 and and the reason I ask is because ever since the second quarter trough, we've seen sort of a.
<unk> of improvement.
Year over year declines and we saw that in Q4 as well and is there any reason to think that maybe hall and that that improvement and year over year decline kind of faults and Q1, because it's such a big business travel months per quarter.
Yep, Okay. This strength.
You know what I will say about the first quarter is.
And the.
November and December was challenging us.
And as they appeared to be after the second wave.
And what we have seen is and our business still is really centering in on leisure leisure customers travel.
Traveling and like.
On weekends or leisure periods and mostly in the off airport versus the airport that doesn't mean that we haven't seen improvement.
I will say this what we saw for around peak holiday MLK as and traditionally a very big travel holiday, especially this year.
But we did see increased activity and what I can tell you the velocity of reservations that we see closer in or have improved compared to what we saw and the third quarter.
Specially around this Presidents' day holiday.
Our us commercial goes.
I will say this our commercial business has been transacting better than what you see is and the TSA stats that are generally published.
So we do see that we see growth and some of the some of the some of the account types that you would you would imagine defense contracting.
Logistics and distribution and aerospace given some health care and.
And that regard and what we've seen is that our commercial clients are keeping the cars a whole lot longer.
Hmm.
And you look at our fourth quarter.
Our commercial customers kept the car a pool, almost 80% longer than they did and the previous year.
No.
And so let me I'm under clarify I'm sorry, Jason.
Some of what I said in the prepared remarks.
So we.
We actually we do expect the improving trends to continue into the first quarter.
Just go back to the prepared remarks, what I said was if you look at the second quarter of 2020.
We've put up.
A loss of negative $382 million and EBITDA and the second quarter 2020, if you compare that said the year before and it was positive $1 75, and that's a delta of over $550 million right.
And that was that was it.
That is it got.
For the third quarter that Delta improved to 250 ish million right, we did $220 million of EBITDA and the third quarter.
<unk> versus 471.
And the third quarter of 2019.
Again that decline narrowed in the fourth quarter, we did positive 74 million and EBITDA this quarter versus one.
$143 million and the fourth quarter of 19. So that's a decline of 70. So the trend is going minus $5 50 to minus $2 50 to minus 70 versus the EBITDA of the prior year, we do expect that to continue and in the first quarter.
I appreciate it thank you.
Thank you as a reminder, and the interest of time, we ask you. Please ask one question and one follow up then return to the queue. Our next question is coming from Billy Covance from Morgan Stanley. Your line is now live.
Hi, guys appreciate the disclosure and the coal around and travel trends and you haven't done so to help us segment, where the strengths and weaknesses are coming from on the travel demand from thus far and 2021 and I know you alluded to a few of those but if you could summarize that'd be helpful and just how bookings are looking going forward and then finally I know that commercial and.
2020th still around 40% of your revenue exposure was this driven by the law of small business or a few of the other things you mentioned like defense logistics Aerospace healthcare and I have one follow up thank you.
Yes sure.
Joe.
Yeah like I said.
We've seen.
Our activities around more of a leisure oriented approach right at the moment and the holidays that we had and the first quarter were considerably better than what we had anticipated on both from a.
I think that volume and.
And potentially price.
The channel and a this quarter the month and launches highly highly commercial.
Look at our 12 months is probably the most commercial month, we've had in the past and so the challenges are there and I'm not quite sure what spring break and usually March event is going to be like I, just heard airlines talking about not expecting so much. So I think we have to we have to look at that I think that's going in and out of favor.
Fortunately and unfortunately, the weather has been pretty dynamically bad throughout the throughout the country, which allows people to think about maybe wanted to get some place warmer and in my opinion, it's all going to come down to virus transmissions vaccine distribution and things of that nature that will establish some level of confidence.
And the traveling public and those are really very hard to predict right. We hear different messages. We listened to the same things you do we're very encouraged by the amount of the vaccines that are getting administratively but changes we heard April everybody and now we're here and maybe July and August it it's hard to predict I think the thing that we want to leave you with this.
The fact that we will be ready.
Ready for business to rebound or ready for us to take potential actions like and the fourth quarter when it did not.
As far as commercial alright.
We're seeing now is that.
Pretty pleased with our commercial business. If you if you look at it we have a very high retention rate. So our corporate accounts are still signing up with us somewhere in the area of 98% to 99%, which is very good but not traveling as much I think for the commercial market to to come back is going to have to be a couple of things that are going to happen one is there.
And I have to you know everyone's going to have to go back to their offices, which right now and good deal of our accounts that were dealing with are not there yet and then and I have to let people into their offices to see if they want and travel and that of course isn't there.
Is it happening yet and then.
It's whether or not there'll be a willingness I did hear the other day debt.
<unk>, which is a large travel group is having in person meetings this year.
That.
This disconnection, that's probably felt and the commercial companies.
Companies feel working remotely and working from home is going to have to be remedied and.
And whenever that is I don't know, but I do we will tell you. This we will be ready.
Helpful. Thank you and then just a question on the long term here I think one area of unlocked potential is the real world miles data. That's collected from your vehicles could you remind us what percentage of your fleet is currently connected and is there any plan contemplated around how you could potentially.
Monetize these miles to capitalized players like and the Tech World, who are investing and autonomy efforts. Thank you.
Yeah.
Joe.
And to answer your first question about 60% of our fleet and the U S is currently connected maybe a little higher.
Sure.
What I will talk about is how we utilize some strategies as it pertains to mileage within our company.
And we have three we have three kind of initiatives and I look at and one of them involves fleet cost right as we were able to lower our fleet costs over the past couple of years, one and I'm certainly centers around our ability to manage mileage and we've talked about on previous earning calls mileage optimization and basically that's just making sure that we spread on mileage evenly over.
The entire fleet. So cars are served up to our rental sales agents and a way that we understand based on.
History and segments, how many miles and potential customer might drive we believe if we can lower this universally across our fleet and would give us a big benefit and internally.
Our fleet cost that's one we've looked at and mileage and one other things that we established and our company is cascading of course, so we have a payless brand that we set course to people who rent from Payless and don't rent is often nearly as often maybe once a year of that or or.
Sure.
Or shorter and so we have cars there that we've cascaded mileage and we've done that also and a ride hail business and we found that that gives us a benefit was lead cost and and when we go to sell the cars and lastly, this connected car situation.
There are certain opportunities.
Opportunities and connected cars that deal with customer experience customer returns and one of our cars crosses over a geofence, although the mileage is accurate and they get built without without any guesswork and I think that has helped not only our customer experience, but our adjustments we have many many initiatives that dealing with our connected cars.
From <unk>.
Something as simple as a tire that comes in that might be under and played instead of AR and employee going around to all four of checking and knowing that the left front and goes to that and one that has to happen. We have monthly rentals that got rolled over automatically without having to reach out to anyone and say, what's the mileage on that vehicle and we know that when a car.
And as overdue, we have the opportunity to get that car back a full two days prior to what we've done in the past and reducing our overall fleet costs and our and are on damage and bodily damage and situation.
Situation that might occur with cars that are that are a bit overdue and we do and we have inventory that allows us to upload our inventories right.
Right now without having going on to connect cars I think we're kind of scratching. The surface 2020 was all hands on deck to figure out a ways and remove cost as you see us going into 'twenty, one and the situation normalizes, we'll be excited to talk about more things that we're doing and the connected space.
And I believe and you bring up and interesting point, though.
And in a normal year like 2019, just in the Americas alone.
We're doing over $100 million rental days and our average customer is putting on 100 miles per day and that vehicle at 10 billion miles of data. We're collecting every year once our fleet is fully connected.
We think that's extremely valuable asset that is incredibly difficult to replicate but.
But to Joe's point at this time, we're figuring out how to use that data to kind of lower our cost and deliver a better experience from our customers versus kind of monetize it with a third party.
Perfect. Thank you Brian.
Thank you. The next question today is coming from Hamzah <unk> from Jefferies. Your line is now live.
Hey, good morning. Thank you. My first question is just on the 1 billion EBIT figure on our 2019 revenue base could you maybe talk about your confidence level in that and then as part of that you know has your mix between variable and fixed cost <unk>.
<unk> just given you.
You have a clean slate to add back costs, where you want and the cost take out has been very impressive during COVID-19.
Yes, thank you stroke.
I have to say this we are a more efficient company today.
And we were in the past and we believe that will continue to improve as time goes on.
And the $2 $8 billion of cost removal that I talked about earlier this morning.
It's both fixed and variable I should say and we took a look at the fixed cost.
And we looked at.
A different ways, one was reorganizing the work and maybe restructuring some of it and even re looking at our spans of control I mean, the whole goal there was to create a sustainable environment that all this hard work.
Cost removal allows us to continue forward.
More expense reduction and biggest drop throughs variable cost is all about you know.
Operational.
Improvements I think the last two quarters.
Of 19 show very different paths to very similar.
Our results first and third quarter was revenue was growing September was better.
From an EBITDA standpoint, and prior year, and we had margin improvement.
And fourth quarter was distinctly different.
Started out really well and October and then all of a sudden there was a shock to the system when the restrictions and the second wave of Covid hit and we added and react differently I think both those scenarios show our ability.
To manage our cost basis, if you think about the fourth quarter and was a third best fourth quarter from an EBITDA basis, and the Americas business unit and the best from a margin perspective and a.
And I think youre going to see the same thing in Europe.
Our ability to remove costs there as revenue returns and the mix of business changes to be more or less what it used to be and 19 inbound versus.
The kind of the local stuff youll see a much improved opportunity in Europe, as well I'll turn it over to Brian for ROE from mix changes of that magnitude, Brian yes sure onto theirs.
I wouldn't say that there are significant changes in terms of the mix.
Fixed versus variable we are still today going through mapping exercises of where exact line item chip.
And I should say it but generally I would think kind of three quarters variable debt to.
Two thirds.
<unk> is the right number to think about which is consistent with kind of what we've said in the past.
And the one thing that gives us a lot of confidence to come out with that target now is that in any given like major restructuring that a company like undergoes I think the hardest part is actually taking the costs out like that and.
Involves a lot of difficult decisions a lot of difficult conversations.
We've already gone through that.
It's a very started hanging pandemic and we've been able to keep the costs out.
And keeping the cost out which is what we need to do right now like that and Bosch discipline and the reason why I have confidence is that we've shown month. After month that we can continue to do that.
Yeah.
Got it very very helpful and just my follow up question.
Is it sort of just a clarification question.
And I did you sort of give more January and February trends look like relative to their Dom <unk> 41 per center in December and then also Brian maybe when you talk about Q1 'twenty one moderating EBIT declined is that versus the Q1, 'twenty baseline or Q1 19.
Baseline thank you.
Sure and why don't I started that and I'm talking about Inc.
Q1 'twenty baseline.
And I think that's important because in Q1 of 'twenty just to talk about the monthly trends at <unk>.
And in February were actually very strong months for us pre COVID-19 and in 2020, we only had one month of a full kind of COVID-19 impact full months in international and probably half a month.
And in 'twenty versus this year, we're going to have three full months of depressed travel environment. So the comp will be against the <unk>, 20th but and.
And in terms of the kind of debt the trends in net debt.
Mix changes I'll turn it back over to Jill.
And just add to what Bryan said you know we had we had double digit growth last year and January and February and plus there was a leap year. So you have to take that and consideration I think what we see now is that.
Compared to Christmas and Thanksgiving and if you just look at the peak periods, which were the these holidays, we have seen and increase velocity of reservations close and sounds like they're coming and a week or two and advance, but we haven't seen that improved and that that's helpful.
And said I'm not sure March as it stands right now highly commercial and the past years and.
Not totally sure spring break and things of that nature, which would drive.
And your business I am I am hopeful that that people so.
And as the vaccine distributions increase will still Wanna get away and and potentially vacation and warmer climates.
Got it thank you so much.
Yeah.
Thank you. Your next question today is coming from Michael Millman from Millman Research Associates. Your line is now live.
Joseph sort of touching on what you just talked about the airlines seem to be talking about how they're seeing reservations.
Increasing and increasing.
And in line with.
Vaccinations increasing.
And that connection.
Do you see.
Some of that if indeed.
True.
And you will lose some of.
Mileage and terms of rentals.
And now.
Please.
You say is that lots of people have switched to renting and driving distances rather than and lining.
And question is what are you seeing in terms of pricing.
From.
Hey, Mac and from March.
Okay Alright.
Alright, Michael I'll take that this channel.
And <unk>.
As I said earlier, we do see an improvement compared to the TSA stats that come out and.
And when you think about that airport environment, I think thats important and.
We do see and improvement as it pertains to that and maybe.
And if you look at the and made a comment.
And in my prepared remarks, if you look at what happened and the fourth quarter.
There were parts of the country that were very robust and.
And over performed compared to what we had thought and we see some of that and the first quarter, but it's regionalized silver Lockdowns in California for example of Hawaii.
And we're pretty substantial and it was a big and those are big.
Markets for Us and.
And they would just challenged by.
And our actions and quarantines and I wouldn't lose sight of that.
The quarantine situation that occurs if someone has to go somewhere and then and then stay home for five or so or days I mean that debt.
That does is that as an impediment, but as I said earlier I have seen some good some good velocity of opportunity and second question on price.
I think.
Fleet, a lot of times fleet dictates that and.
And the fleets have been rationalized and so best as I can tell you.
Okay, great. Thank you.
Yeah.
Right.
Yeah.
Thank you and next question is coming from Ryan Brinkman from Jpmorgan. Your line is now live.
Oh, Hey, good morning, and obviously the Rajat Gupta on for Ryan. Thanks for taking my question I just had one follow up from you I appreciate the color on the fixed versus variable structure.
Could you give us any puts and takes on 'twenty and 'twenty, one specifically any kind of.
Scenario analysis or something you know your overall opex to sales was roughly 65% and 2000 1972 per cent and training and training.
It looks like it might shake out somewhere between that and 'twenty and 'twenty, one, but could you give us from Samsung you know what it might look like and are down 25% year over year and scenario, where she was like down 30 or like down 20, and any color on that.
And would be helpful and just do you know.
Just to frame our models. Thank you.
Yes, I'll take that.
We're not going to provide further clarity around kind of the fixed variable and and the different scenarios.
I think.
And when you look at it as a percentage of sales kind of how that contribution of revenue materializes moves that in terms of whether it comes from price and from that comes from volume and we just don't want to get into that level of detail at this time.
Yeah.
Yeah.
Got it but is it safe to say that.
No.
It's going to be more closer to the 2019 level versus 'twenty and 'twenty, just because of the fixed costs are a disappointment and cost reduction.
And then I'll come out from the business.
I do expect it to improve kind of coming off of 2020, and kind of where that shakes out and it's not something that we're providing clarity on at this time.
The next question is coming from Aileen Smith from Bank of America. Your line is now live.
Good morning, everyone and.
Following up on an earlier question and and not to beat a dead horse here, so perhaps asking other way.
And the incremental amount and cost savings that you guys achieved in 'twenty and 'twenty versus your projections through the air flow specifically the increased from 2 billion to two and a half way into that and $2 8 billion and ultimately at the end of the year how much of debt would you estimate and you had changed or more structural in nature versus more variable as you saw demand pressure of return and <unk>.
And with wave two outbreaks.
Sure.
And the numbers that you're quoting a $2 5 billion to $2 8 billion and that's a GAAP number right. We're just taking opex and.
Depreciation costs and subtracting it from the year before.
To meet true cost savings is like what are the fixed cost that you've structurally taken out of the business that are never coming back.
And how much more productive are you on a variable basis that you can.
Service, the same amount of rental days with fewer costs associated with that and.
So I think.
Those costs a lot of those costs are going to come back as the revenue scales right in terms of we need more cars.
But in terms of the true cost savings.
That's what's allowing us to get to.
The EBITDA estimates that we're providing at this time.
And.
And maybe put a little more context the.
And <unk>.
We're still.
Coming.
We're still working through exactly what the right structure cost structure should look like which is why we can't provide kind of like point by point more detailed guidance right now and to be perfectly honest when this happened.
At the start of 2020.
The cost takeout wasn't done surgically and we took a machete to this.
And we took all the cost out that we could and the good news is at this point we are at a very very lean days.
And we're trying to figure out right now the team and Joe.
And he got how do we add cost back Mike there are some areas of the other business that absolutely need relief certain of those costs are going to come back.
And there are certain areas that we need to invest and to provide the customers the best possible experience and get and ROI from that and so we're looking through it and see where we.
Where are we investing that so from this base, we're taking an approach where every line item of cost that comes back and we're making sure.
As thoughtful hasnt ROI attached to it and now we're adding kind of muscle versus fat as these costs come back.
Okay.
Okay understood. That's helpful and then touching around one of the questions on fleet purchases and the Oregon insulation that you guys very necessarily executed in 2020, and as you already treating and paired your relationships with the automakers at all in terms of pricing for vehicles that you are trying to and quiet acquire per fleet and 2021 and it sounds like.
And implications for free cost per unit, and then as a follow up to that specifically around and semiconductor shortage, obviously, what we're seeing and the industry is that a lot of these chips are fungible in nature, and automakers are choosing where to prioritize production maintenance around higher mix and price vehicles and retail category less sales fleet I know you touched upon the vehicles and south but.
That impacting acquisition price for you in any way as you make sure you're trying to have a fresh fleet.
And I'll take that first question about our relationship with the Oems I can honestly say it hasnt been better.
We reached out to our OEM counterparts, we've been doing business with.
And with many of these.
Companies and manufacturers for a long long period of time and our relationships with them are solid if you think about just our overall fleet.
We talked to at least 15 or 16 manufacturers, we have 100 different makes and models and we've.
We've been we've been and high level discussions with them last year and I would say there isn't a week that goes by that we don't communicate with them. This year. So I have to say the relationship is fine and.
And very much appreciative of what they did and we've always worked with our OEM partners window when the when we needed to implement when they've asked us too so.
And I'm very confident of that.
I'm sorry, the second part of your question. Please.
And the second part of my question around the semiconductor shortages.
Yep Yep.
And the semiconductor like I said.
And we first saw about it through through the press there and a number of companies that talked about how theyre going to change makes and models to try and get to the more productive ones from there I think that's going to be evident I think book.
Confident and right now as I think we have the.
The expertise and logistics to deal with whatever comes our way we have been speaking to them about potential disruption. So we are well aware of that.
But like I said, we faced some of these challenges and the password.
Many many many recalls that come up the day before that you'd have to put them down as we as we do and our industry and I'm confident in the index.
The conversations are very collaborative with the OEM partners that we could find a way through this.
But like anything else, it's a very iterative process and things might change, but I'm confident and our ability to kind of get us through this.
And one last question that's helpful and my last question, if I may I wanted to touch upon the 8-K that you guys issued last night in conjunction with the results specifically the amendment and your credit agreement can you talk about some of the flexibility that that covenant headroom provide deal and what you expect to execute upon and through 'twenty and 'twenty. One that you might not have been able to do like not secure that amendment.
And yet for US we always this is David we always want to make sure we have the flexibility and opportunity to manage our balance sheet as effectively as we could which we did all during the pandemic. So so for US. This was just another step for us to work with our banking partners to make sure that we have the flexibility to do what we need to do as well.
Go forward so.
It is a really important amendment for us we did get the.
And the cushions that we need it and we're ready to move forward and take action as I went through volume.
Thank you. Our next question is coming from John Healy from Northcoast. Your line is now live.
I think you wanted.
Wanted to ask kind of a big picture question, Joe competitively from a market share standpoint, either looking at the U S or Europe.
Some of your some of your your biggest competitors are somewhat impaired these days.
So when you look at kind of the issues, they're facing do you see this as a long term share gain opportunity for the company either on the corporate side or on working with mobility partners or or what do you view kind of you know.
Share gain potential over the next couple of years is largely.
Ill largely unchanged because of the pandemic.
Yeah.
And.
So.
I'm not really going to comment about some of our competitors I will say this we are and a very competitive industry, but very much aware of the public documents that are out there talking about.
And one of our one of our public competitors.
I would rather I would rather say this.
And hope that our company I.
I would tend to concentrate on the things, we do and do them really really well and.
And I think if we do that.
And we would see the opportunity for growth and things of that nature as you discussed.
We have a good product that our consumers have come to expect and want and.
And that's and that's why we have a good.
Employee base, that's empathetic and dealing with our with our travelers and our customers. We managed supply and demand I think really well, we have DSP and technology, both on the car rental side and the core sales side to work with proprietary channels to manage that.
And that very large expense item that debt.
And managing our fleet.
And we provided that.
And safety protocols. This past year that we believe allow confidence to our customers and employees to do business and slots.
And we've run a really efficient business I think if we do that and we do it well then I think we see sustainability and a go forward basis, why the comment about $1 billion as we get to 2019 levels.
Thank you.
Thank you we reached end of our question and answer session I'd like to turn the floor back over to Joe for any further closing comments.
Yeah. So thanks for joining us today summarize I'm incredibly proud of our team's resiliency and ability to navigate our company through these unprecedented times, we will remain flexible and adjust our actions to respond to future market conditions.
<unk> financial position remains strong and we will continue to capitalize on any level of recovery as travel demand returns I want to thank you for your interest and our company and I want to thank oral employees around the world to really working hard this past year and look forward to speaking to you guys again soon.
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.
Okay.