Q1 2021 Avis Budget Group Inc Earnings Call
Greetings and welcome to the Avis budget group first quarter 2021 conference call.
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A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It's now my pleasure to introduce David Calabria, Treasurer, and senior Vice President of corporate Finance.
You may begin.
Good morning, everyone and thank you for joining us on the call with me are Joe Ferraro, Chief Executive Officer, and Brian Choi of 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 are subject to risks uncertainties and.
And assumptions that could cause the 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 the other periodic filings with the SEC as well as the Investor Relations section of our website and accordingly forward looking statements should not be relied upon as the prediction of actual results and to any of our all forward looking statements may prove to be inaccurate and we can make no guarantees about are for you.
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 press 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 the.
The past two earnings calls we've been consistent with our message that Avis budget group would not be content with simply surviving this crisis, our entire organization rallied around the mission to do the hard things necessary during the adversity of 2020 to best position ourselves for a potential recovery and 2021.
While the full recovery and rental days, it's still further wrong with commercial and air travel is still not back to historic levels of first quarter results illustrate what could be when that day occurs.
In the Americas rental days were down 23% year over year and down 27% versus 2019 for context. This level of decline is still significantly higher than the disruption we face during the great recession of 2009 yet.
Yet despite that headwind due to the structural cost reductions we've implemented all of the benefits of of healthy pricing environment and improved vehicle costs through our fleet disposition strategy all fell directly to the bottom line.
The results being that for the first time since this pandemic I can tell you that the Americas segment achieved the higher adjusted EBITDA this quarter than in the first quarter of 2019, and the best first quarter, adjusted EBITDA margin and our company's history.
Today I'll review, how we delivered those results and why I believe this is just the beginning of a recovery.
Let's start with the Americas segment.
As you recall and the third quarter of 2020, we sold the green shoots of demand recovery and sequential revenue improvement during the summer travel season.
Firstly in the fourth quarter of 2020, we saw a sharp pullback in demand with the emergence of the second wave.
Now in the first quarter of 2021, we confronted both of these demand scenarios and the span of just three months.
When we last spoke in the middle of February the Americas had just gone through one of the worst January which frankly was more like what we saw in November and December revenue was obviously down year over year, but with no major holiday like Thanksgiving or Christmas revenue in January of 2021 was significantly lower than any month and the previous.
And two quarters booking windows were incredibly short and we had little visibility going forward. So that's the bad news. The good news is that our entire team was ready for this we concentrated our efforts around what we could control which was cost. We continued our game plan of offsetting revenue declines by staying as lean as possible.
And the rally and cried throughout the organization with stringent cost control.
Isn't easy and it definitely wasn't fun.
For our team sport tirelessly against the macro headwinds we faced as an aside I got on the internal call, but some of our key leaders after the earnings call in February.
And I acknowledge how exhausting this has been and how difficult. It is when you don't see and end in sight, but I said hold the line because things are going to change now maybe not next month, maybe not the month. After one of these months demand will come back and you'll see what all of this hard work was for.
Starting at the end of February and now that's exactly what happened. The March started to see the convergence of pent up demand tight fleet and stronger pricing and was sudden and with the velocity across the U S seemingly overnight, where the transition from defense to offense, we invested and our people and our fleet.
And of our organization reacted quickly to do what we do best which is getting cars to consumers, who need them and I have to say it feels good to be back to doing this.
However, I want to be clear that despite this change and demand we did not forget the hard learned lessons around costs.
And that discipline around staying efficient, there's now etch and at the foundation of our company.
Which is why despite revenue and the first quarter of being down nearly 20% versus 2019 and the Americas. The adjusted EBITDA for the first quarter of 2021 was triple that of the first quarter of 2019 and delivered the best first quarter adjusted EBITDA margin and our history, one of the incredible way to close.
What started and extremely challenging quarter.
And while we're not getting into specific guidance on this call I will tell you that the momentum we saw in the back half of the first quarter and the Americas as carried over into the start of the second and both rental day demand and our PD.
Now, let's shift gears now to our international segment, while the narrative abroad is certainly different from the Americas My opinion on the results. They delivered are just the same I'm incredibly proud of what our international team has been able to accomplish and the pace of unrelenting headwinds I'll get into more detail, but let me start with the high level takeaway.
Our international segment has not yet seen the pickup and demand that our Americas segment as the Lockdowns of the fourth quarter continued throughout the first quarter and cross border travel as effectively non existent.
Due to COVID-19 and country restrictions there are still very much living and a COVID-19 world International first quarter revenues in 2000 of 21 are down over 40% year over year, yet despite a revenue decline of over the $200 million adjusted EBITDA for the international segment was down less than 10 million versus the <unk>.
First quarter of 2020 on a reported basis and essentially flat on a constant currency basis.
Tremendous cost discipline was required to do both of those results. It's still all of you predict when that uptick will occur, but we will be ready.
Moving onto the topic relevant to both of our operating segments fleet.
We manage and is at the heart of what we do how we acquire maintain and disposable of vehicles is critical to discuss of our business in any given quarter.
Due to recent macroeconomic events, we realize and optimizing fleet will have an outsized impact on our business over the coming months on.
One of our last call, we mentioned that semiconductor shortages would affect our company and our industry and while those challenges have not yet been resolved.
And are having an impact on fleet deliveries and the availability of fleet throughout our entire industry. We've been working hard to make sure of fleet is properly maintained and effectively utilized.
So what are we doing about it for.
First off we're working hand in hand, with our OEM partners and have daily conversations around how to manage the situation.
We have deep relationships with our key manufacturers that have been built over decades through both highs and lows we haven't forgotten how helpful. The world when we faced challenges last year and we will do everything we can to be as helpful as ever as they face the semiconductor challenge this year.
Because that's where the real partnership is about it's not about optimizing this year of that year, it's about making each of the better year. After year, we have full confidence that our OEM partners will be able to navigate these disruptions and we'll work with them to maximize our deliveries of being flexible with the production schedules.
Availability of New fleet is clearly something we are laser focused on but I want to assure you that we at avis of a long history of being able to navigate through tight fleets.
We are getting and new cars daily and we've seen our current expected schedule being satisfied as we saw demand pick up and the Americas, we became surgical with our fleet dispositions. Additionally, one of the silver linings of this pandemic is that our vehicles just didn't have as many miles put on that and allowing us the flexibility the hold them slightly longer.
And we're also taking.
<unk> proactive measures to invest heavily and preventive maintenance to ensure we get the most out of our usable fleet.
Lastly, our connected fleet is paying dividends by alerting us the potential issues real time, so they can be addressed and we keep our out of service vehicles to a minimum.
I know you all of questions about fleet I wish I had all the answers, but it's a very fluid situation. We're dealing with right now what I can guarantee you is that we are doing everything within our power to ensure we of the available fleet to meet both current and future demand.
Finally, I'd like to close with Avis commitment to safety.
Even prior to the pandemic our customers wanted of contact what's the experience was a nice to have pre pandemic has become a real differentiator factor and this post pandemic world with our mobile select product.
Our avis preferred customers of upon arrival and select the specific car and their phone proceed directly to the vehicle and then utilize of unique QR code to exit the Euro automated express exit for a completely contactless experience a day.
<unk> of this customer journey spiked during the pandemic and its been extremely well received and its a process that not only save for but more convenient as well I would strongly encourage all of our members to sign up for Avis preferred, but if youre not of any of his preferred member you can still take advantage of our digital checking on our websites reducing transaction times.
To quickly and safely get you on the road.
In addition to our mobile select product our exclusive partnership with RB enables our industry, leading efforts to protect our employees and our customers through the Avis safety pledge and the budget worry free promise, we'll continue to invest and the safety measures even as the world normalizes.
Okay.
So where do we go from here.
The strategy around cost disciplined work during the pandemic and we will continue to work during the recovery.
We're not done here and I buy a long shot every day, our organization challenge itself the find ways to increase productivity drive efficiency and capture opportunities the grit and determination. We demonstrated in 2020 proved how resilient and this team is throughout 2021, we will now prove what this team is.
Capable of as this recovery continues with that I'll turn it over to Brian to discuss our liquidity and our outlook.
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 of our press release and earnings call presentation.
I'd like to start off by addressing domestic revenue per day. The topic that has received increased attention from the media recently.
Be very clear, we had avis do not rental car prices, we discover price as determined by consumer demand and the availability of supply and the industry.
At this time, but we're seeing and increased consumer demand due to people sheltering in place for a year and tight inventories across the industry due to one the keep waiting necessary to survive the pandemic and to delayed access to new vehicles due to the semiconductor shortage.
Put those two things together and it's understandable that prices will be impacted upwards.
So let me put this in some context and at least from the Avis budget group's perspective.
Whereas the seasonal business, so instead of picking one quarter or another let's look at things annually.
So we're currently and a very unusual period were outsized and macroeconomic influences are affecting our business. So let's look at the normalized period.
We went back and looked at one of America's RPT has done across the span of the last normalized economic cycle. We define this as the nine year period from 2010 to 2019.
Post great recession and pre pandemic.
For the full year of 'twenty time, the Americas segment achieved and RP D of $57.
For the full year 2019, the Americas segment achieved and RPT of roughly $57 and increase of zero percent over the past nine years.
In the same 2010 for 2019 period, the average hotel room night as measured by Bloomberg and S. T. R is up over 30%.
PRASM and this period as measured by reported metrics of the public airline carriers is up 40%.
The fact that the price of and Avis rental day is flat over all of these years and even more remarkable given the significant increase we've seen and the price of new cars, our largest input cost.
Now for competitive reasons, we're not going to disclose how much that's gone up for Avis, specifically, but as a proxy for the magnitude of increase look at what's happened to the average transaction price of new cars as measured by Truecar.
A T P, which isn't MSRP and this is where consumers actually cleared the purchase has gone from roughly $29000 to over $35000 in this period and increase of over 20 per cent.
Given all of this data I firmly believe that of rental car from the Avis is one of the best value propositions offered for the American consumer in the travel sector. So.
So yes, we are seeing some upward movement and price today, but this is a bit of catch up given the previous decade and even at higher levels. This is an amazing bargain for the consumer.
Let's move on to liquidity and financings as of March 31, we had available liquidity of $1 $2 billion comprised of approximately $600 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 $4 $8 billion and our ABS facilities.
We issued $600 million of five and three eight senior notes due March 2029 to redeem all of our outstanding 10, and a half senior notes due 2025.
We also issued $500 million of four and three quarter of senior notes due March 2028 used to redeem all of our outstanding six and three eight senior notes due 2024, and a portion of our five and a quarter senior notes due 2025.
We took advantage of historically low interest rates in fact, our four and three quarter of issuance is the best interest rate on any senior notes offering we have made and our company's history.
Our corporate debt is well ladder with 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 covenants tests as of the end of March.
Moving on to outlook as we mentioned in our press release due to the continued macro uncertainties around vaccine rollout and the semiconductor shortage, we are not providing annual guidance at this time.
What I will say is that we expect the trends we saw in the back half of the first quarter to continue into the second quarter.
So despite overall rental days being down significantly versus 2019, we expect our focused on cost to capture the benefits of a stronger rate environment in the Americas.
International adjusted EBITDA for the second quarter will continue to be lower and then the second quarter of 2019, but we believe the Americas will be able to offset this.
Therefore at this point, we believe on a consolidated basis, we will deliver a higher adjusted EBITDA and the second quarter of 2021 versus the second quarter of 2019.
With that let's open it up for questions.
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Our first question is come from the line of John Healy with Northcoast Research. Please proceed with your questions.
I think you and Ken and congratulations on truly are.
The fast and amazing turnaround that you guys have been able to put together over the last 12 months.
Wanted to ask just a little bit about the summer.
And no qualitatively you've described the fleet situation.
But.
Wanted to natively.
And what what are the realistic scenarios in terms of what the fleet could get to.
And kind of at peak you know.
Especially in the Americas and.
And really what sort of utilization levels can the business.
And you Max out at largely so it sort of.
And have some color on those items.
Yes, Hi, good morning, John It's Joe.
The.
Listen the first thing I want to say about fleet is a very fluid situation as you know.
And when you take a look at all of our overall fleet, where we finished the.
Quarter here, it's about averages and sometimes those averages and can.
It can be misleading. So if you think about last quarter.
And we had a pretty good October and then the challenges came in November and December. So we've held onto the cores of the early part of the quarter and got rid of them late and.
This quarter was about the same store at all the kind of kind of down and then finish with and as I said with the velocity of that that was just a really terrific in the month of March if you would look at our overall fleet situation right now we have more cars and then we did you know at the end of at the end of last quarter and more cars and those averages show.
I would say this all of our deliveries were what we expected in the month of March.
Most of our deliveries and the quarter during that period of time and you know April was pretty much of where we were we thought what we thought back then when you think about where we were last year. We were sitting on this call last year during the during the pandemic and there were questions from from all of the all of you as well as investors. How are you going to get out of the of course.
And we did just that we got out of our fleet and we rightsize the business and enabled us to be in the position that we are today. So you.
And I'm not apologizing for the fact that we are that we sold some cars at the end of the fall of last year and maybe even earlier in January when things were and what can sort of grade, but we believe that we have the ability to flex our fleet as far as utilization goes.
We invested very much and the last quarter, and our and our and our fleet and Gunnar out of service down to really.
Truly historic levels for our company, we believe that that will give us the ability to have significant improvements and utilization you saw some of that and certainly in March and the.
We'll see that as we go forward. So I will say, it's very fluid and we're working hard with the Oems every day to understand where we are and what they could do whether that means you and what's getting canceled of what's getting delayed or whats getting substituted and.
Well, we'll deal with that we will deal with those situations as they develop.
Great and then just the one kind of a capital allocation question. It says on the question I thought I'd be asking for another two years, but the.
You know given how you've started the year of what you guys did in Q4 and and how Youre talking about Q2, I would think this business should be able to generate some decent free cash flow. This year and you know as <unk>.
As you kind of look out to the $1 billion target that you guys have put out there obviously the.
And at some point and the future, but how should we think about cash flow usage and maybe how you dot earmark kind of and maybe how you deal like the utilize some of that cash flow as it comes through the doors over the next you know for.
For the six quarters.
Yeah, Hey, John its Brian here I'll I'll take that one so.
And I think we've historically said the three to four times leverage is where we're comfortable with and I think that makes sense today.
We're gonna get there primarily by expanding our EBITDA, but we will also use of free cash flow opportunistically.
And to pay down stub tranches of debt, where it makes sense.
I also believe that despite the recent stock movement upwards Avis remains of great investment.
And Youll see during this relief period, and we were only allowed to purchase $10 million of stock under our restricted payments basket and we took advantage of that this quarter. So I think we're undervalued and I would like to resume our share buyback program funded by free cash flow of obviously when permitted so kind of going back to what we have done historically.
Great. Thank you guys.
Thank you. Our next question comes from the line of habits of Missouri with Jefferies. Please proceed with your questions.
Hi, This is Mario court of law <unk> filling in for Hamzah.
And just wanted to talk about pricing and I guess the question is just how sustainable do you think these prices are going forward and and.
Do you think the pricing dynamic and the industry now has structurally changed post COVID-19 and some of the industry has warrants and lessens throughout the past year.
Hey, Mario Let me, let me start off with this one and and Joe will add his comments.
So I was and investor during the last couple of round of this pricing scrutiny and.
And I don't want the discussions to devolve into you know what's pricing during this quarter or this month and then this week and and so on.
That's really not the focus of this team. So obviously our pricing team Optimizes, our demand fleet pricing model, we do the hand to hand combat necessary to capture of what's out there in terms of price.
But we as the team were focused around cost discipline and executing operationally like that's the meat and potatoes of this business the price is gravy.
So we're not going to be providing percentage commentary on pricing dynamics outside of what we normally state and our reported financials, but listen like.
And I understand where you're coming from.
We are reading out there isn't wrong.
And technical terms I'd categorize the pricing environment right now is strong the quite strong, but I'm going to let Joe fill in.
Thanks Mary.
So if you take a look at where we were and we finished the fourth quarter with price of thing and the Americas of three and this month, we and this quarter. We finished up 12, if you dissect the quarter not going month by month, we started off at a much lower base and finished all of frankly higher and we've seen that translate you know as we move for.
A word into into the you know.
Early signs of the second quarter I think what Youre seeing now is a lot of pent up demand right and what we saw and March and particular with some of the key destinations travel destinations of people wanted to go to whether those would be beach vacations or or for mountain vacations has been very very strong and.
And that Hasnt changed there or are there is there is still demand out there and I will.
Say this about about the Easter holiday. It happened. This year was kind of the tail end of March and if you think about Easter and general it happened in 2019 like and the second week of March maybe even later and Easter and more and I'm sorry, the second week of April and Easter in April is always much better than Easter in March because you have more states debt.
That will get be active in that as people as people plan around it and Easter in March is really about traveling to a specific destination and I will say this we were really pleased with our results over Easter that's in the indication of holidays as a matter of fact, it was not only better than prior year of.
Obviously, the better than 2019, so we think that you know this.
The significant demand surrounding the vacation destinations and vacation periods and the summer breaks.
That will certainly continue.
Great. Thank you and just one follow up.
And the cost take out and I guess could you just update us on how much of the cost take out and you think will be permanent.
And how much will come back or maybe asked a different way you guys have talked about the 1 billion and EBITDA as we reach pre COVID-19 revenue levels.
Much of Perm.
The net cost takeout the does that imply.
Yeah and Mario.
We're not going to get into specifics around that and and as Joe mentioned in the prepared remarks, we're continuing our efforts around the cost rationalization, but this isn't something where we've run some numbers and then say okay. Here. It is we're done like this is now of just a continuous ongoing exercise its just how we live now and so the entire team both operations and finance.
We're aligned and getting more visibility around cost so that we can manage and optimize the results.
And instead of like telling you what we're gonna do I would rather deliver on our initiatives and show you what the quarterly numbers, we print it's what we've done during the pandemic and we'll continue to do that going forward.
Great. Thank you very much.
Yeah.
Thank you our next questions come from the line of Michael Millman with Melbourne and Research Associates. Please proceed with your questions.
Thank you.
So the touch on something you didn't want to touch on but I enterprises and I'm sure. You remember was the weak reputed to have margins in the 17% even 18% area.
And the days before there are a lot of cost takeouts. So put it looking at that and looking at where you are with kind of suggest.
There is a lot more upside.
Other than.
You are hinting at.
Thanks.
And I don't know if you want to comment on that or not.
The enterprise and numbers the wrong.
No.
Sorry, it's Brian here I'll I'll comment on that by not commenting on that but.
What I'll say is that listen the the upside that you're seeing right. Now is based on a stronger RPT that we're seeing right and when we gave that $1 billion target that outlook was given under the assumption that revenue was back to 2019 levels not just in absolute dollars of the roughly $9 2 billion, but the construction of that revenue in terms of days and rate.
I still stand by that previous comment and we're not offering updated targets based on new assumptions to RPT at this time I'm just going to jump in here and just say this Michael I think what we've what we've tried to show both the U and our investment community is that over the last three quarters now all three of bin.
And.
Kind of COVID-19.
Weighted quarters, but if you look at the last three of the Americas segment has had record margin both in the.
The third the fourth and now the first and that doesn't happen by chance. So there are things that we've done internally with our business and are on our processes to gain some efficiency and we're pretty proud of that.
Uh huh.
Somewhat related question.
Indeed.
Production of auto production increases and presumably this will have an adverse effect on used car prices.
And there are some direct relationship.
Between what happens with new autos and what happens.
The used car prices, which.
And in all kinds of records and as you're aware.
Yeah, you're right our used car used car values are are really high right now you know of.
Last year.
If you just think about what's going on with the in general there is the <unk>.
Manufacturers had.
And rightfully so issues as it related to supply chain and COVID-19 and.
And building, and Maine, and Maine, and manufacturing vehicles and that that continued pretty much throughout and as new cars throughout throughout 2020, and then early on and <unk> and 'twenty, one and we got hit with the.
The semiconductor issues and inclement weather in Texas, which builds a lot of parts and and <unk>.
Fortunately the.
New car inventories.
And I have been challenged and same thing goes for used cars used cars of our are also and high demand. When you think about our industry in general and what we do we really provide a one year old used car to a consumer and the fact that the industry bought less cars in 2020 and and.
And we'll see what shakes out in 'twenty, one we think the the values that we've seen in the U car the used car arena will continue.
And just to add to that of course, there is a relationship between new car production and used car values, but I'd just like to remind you that you know of.
All throughout 2011 to 2019 before the pandemic there was a very healthy Saar environment and still record used car prices.
Okay.
Thank you.
Thank you our next questions come from the line of belly of Covalence with Morgan Stanley. Please proceed with your questions.
Hi, guys. Thank you for taking the question and congrats and the strong quarter I'm. Just wondering if you could provide any more color around some of the demand trends, especially and some of the high level of vacation destinations like Florida, Hawaii and anything.
On the sort of forward booking bookings here and yes, any commentary around how the trends of sort of changed from early Q1 into sort of may now. Thank you very much.
Thanks, Billy and clinic this Joe.
You're right on about that the trends that we've seen have changed a bit when you think about us and the scheme of things car rental and general you know the first thing people book or Airlines, followed by hotels, and then and then and then cars. So we're always kind of last on that on that chain, which is the reason why.
Our bookings are.
Historically predominantly closer in and that was much more evident during pandemic during the pandemic of the height of it because people were uncertain about what was going to be open and what was not going to be open as far as states and travel.
And that still is the case I mean, you could still see our close in bookings, especially around you know.
And those are those the travel destinations being close and but what I will say is this.
Over the last month, probably towards like you know maybe middle of of margin and some part of April we've seen a definite ship and the booking patterns in that people are now booking further out so in other words, if someone was going to rental car for on a Friday, they might book and on a Wednesday et cetera, We're seeing people now book if you will.
Look at over 30 days out into the future and a much greater clip than obviously, they did last year and of <unk>.
Greater clip than they did in 2019, which just kind of shows you that the demand.
Curbs of starting to change of it and you can see it just about everywhere.
Got it thank you.
Thank you. Our next question comes from the line of Brian Johnson with Barclays. Please proceed with your questions.
Yes. Good morning, I have one quick question the follow up on that last comment and then.
The kind of mid term industry dynamics question of prompted by Brian.
The Street, which I agreed with him.
Just short term do you have any metrics around how much of your summer.
<unk> is already booked looking and kind of the July August period.
Versus a not.
2020, obviously by the typical summer.
You know, it's not really as meaningful right now since we sit here and the beginning of the Mei.
What I will tell you is that what we've seen is an improvement and bookings around further out around the around the holiday season, which gives you those are always a precursor to what normally happens.
And.
June and July and August so.
I will say that but not.
And that is meaningful right now as you would imagine, but but definitely some improvement and we've seen around those traditional travel periods and traditional travel destinations.
Okay, and then following up and Brian on your comment about.
Car rental prices being stuck forever of around $42 per day, which are P. D. You know very little CPI over time compared to other travel categories.
And that's obviously this summer.
Our unique supply demand imbalance, but when we go out a year or two and things perhaps.
And normalize at least from the automaker supply.
Do you see the industry going back towards the old ways of.
For Radick price wars, Oem's dumping of sedans aren't until now onto whichever it and car rental companies desperate enough to take it.
And travel.
Shopping shop.
Shopping apps, pushing price town and the very efficient market or is there some kind of meaningful change that could come out of this period back to one of the earlier questions would make the some more of it.
The industry with the better return and more consistent return on capital.
Sure.
Well, Brian and I can't speak for the entire industry, but I'll tell you kind of how we're looking at it and what we're and at least what we're hoping for.
And I do think that well actually let's go back to the the when you said the Oems who are using this kind of the rental car industry of a dumping ground I think maybe that was true.
More than 10 years ago, maybe even more than five years ago, but there's been a real concerted effort by the OEM to be more rational around and kind of their fleet sales and we feel like that's.
And to a much much better place and in fact, you'll see even from the prior years kind of the the allocated and inventory towards the rental car industry. The fleet industry has been kind of structurally shrinking over the last few years, even pre pandemic.
For us at least what we've realized that avis is back.
You can do a lot more with less and so we want to be disciplined going forward around the things, we can control, which is like I said around price.
And operating efficiently in terms of how we use our fleet and to capture some of those nato's rate benefits that we're seeing today I would like to think that the industry as a whole, which has gone through and near death experience some of more than others.
<unk> had realized this overall so I am hopeful I think that's what's going to happen and that's what we see right now, but like you said only time will tell.
Thank you. Our next question is coming from the line of Aileen Smith with Bank of America. Please proceed with your questions.
Good morning, guys.
And I think some of us on the call and seeing the the headlines yesterday with comments from some of them close to the industry talking about how range of car companies are actually going into the auction market and purchasing used vehicles and an effort to match supply and demand.
From my understanding this is something that you guys have done in the past to manage appropriate for heat levels. So from your perspective would you say that you are being more aggressive on the front and then you've been in the past or does it appear to the more so coming from your competitors and can you walk us through how you got comfortable on purchasing and using and depreciating. These vehicles.
And your fleet, particularly in comparison to how disciplined do you guys are and doing that for new vehicles.
Yeah, Hi, I'll take that and we thank you.
Yeah Theres been a lot of written of late about used car purchases. Let me say this historically at our at our company.
We've always purchased used cars I think our strategy is.
And in general our strategy has been.
Can we use them and a specific area.
Do they make sense on a certain make model basis can they cover over may be of peak period that we werent that we saw some some close and demand but in general it's not of a large part of our of our purchased by any stretch.
And and and I think the reason why is we always look at the at the at the fundamentals of.
And what is it going to cost us how many mileage and what the kind of whats. The mileage is on the vehicles et cetera. So we've used the more or less as of filling and they're not at the knot.
A big part of our of our strategic purchase by any stretch, but you know there's a place for them. If we could take the car in let's say has a certain amount of miles on it and we can extend the life by a couple of months and.
And and take it over of peak period of time or of a certain area and that's what we're going to be something that we would do but very mindful of what the residual value of that vehicle is going to be when we exited and.
Oh, that's very important to us and if you looked at our per unit fleet costs and over the years.
We've shown you that that's how we would operate in that regard.
And just going to take one step further because theres always you know theres a lot of questions on fleet and certainly there is uncertainty here, but.
I just want to say this.
We've been operating.
Fleet and supply and demand here for a long period of time, we of decades worth of experience doing this.
And are in and when our headquarters building and in and in the field itself, we have great systems, and our demand fleet pricing that gives us the ability of you anticipate where demand is going to be.
You know and cities and states and we use that we put that in the number of years ago. We've had some great success.
Great success, and doing that and I think you asked me. This on the last one we deal with 15 or so manufacturers and over 100 make models and we do that for a couple of reasons. The first is it gives us the opportunity to supply cars to customers that actually want to rent them and potentially buy them and.
And just as important and Insulates us against changes in dynamics of the supply whether the.
That'd be recalls that we saw in 2014 and 15, one third of our fleet was put on hold we were able to get through that and.
And additionally for something like this with this uncertainty around semiconductors.
Hi, Helane I'll I'll add to that just a bit just going back to your that article that you had mentioned.
And so.
The way that I read the article is that there's a lot of demand out there for rental cars and certain of our sort of certain players and the industry are kind of go into the auction to match supply and demand right and of course, that's what we try and do but the overarching principle and whether we in fleet of vehicle is the cash on cash unit economic returns and if that makes sense we will.
And keep the vehicle so when it does we do but we see like whats happening and the used car market that's increased dramatically as well so like Joe said this isn't something that we're gonna be cavalier about in terms of like going out and purchasing a bunch of used cars. We will do it like in pockets, where it makes sense on like more of a one off basis.
Alright.
Great. That's very helpful commentary and then the fall.
The question to that around for the cost per unit and one of the dynamics. That's clearly hopefully cost per unit over the past several quarters has been significant gains on vehicles and you're selling into the auction channel and we've made efforts to the fleet and I'm sure we'll get some of them as detailed in the Q, but if we think about the dynamic and the first quarter and future quarters for this year, where you.
Our deep leading lots of aggressively are actually increasing the size of your fleet are you still recording meaningful gain on sale of vehicles and capitalizing on record used vehicle pricing or is what we're seeing and the fleet cost car for unit more a structural the depreciation number.
Yeah, I mean, I think if you look at the Q, we separate that out between what are they kind of book depreciation NUCYNTA net and the gain.
What you'll notice is that we havent made.
Any significant changes at all in terms of debt like how we're depreciating the vehicles the swings that youre seeing is basically just the the realized price on the vehicles that we sell so you're right as we start kind of decreasing the the volume of fleet sales, because we need those vehicles to ramp you'll see that normalize.
I wouldn't say back to kind of historic levels, where we are at 2019 and before them.
But maybe slightly higher but and what you're seeing right now.
Okay, Great. That's very helpful. Thanks for taking the questions.
Thank you.
Thank you our next questions come from the lineup, Chris Walker with Deutsche Bank. Please proceed with your questions.
Hey, good morning, guys. Thanks for taking the questions.
Maybe we could talk a little bit about buckets of demand I mean leisure has obviously been well covered but as you think about <unk>.
Summer and Youre thinking about fleet decisions for the fall and even into early next year do you have a view on what happens with some of the various buckets of commercial demand.
On the corporate side and then the the related question to that is kind of.
Maybe on Rideshare, obviously, we read about the shortage of drivers that was the segment I think you were beginning to tap more into pre COVID-19.
Where do you see opportunities on all of that shaking out on the other rideshare rentals.
Yeah.
One of the Chris.
You're right, we've seen pockets of demand quite frankly, and the month of March and and surrounded by and as I said most of the leisure locations that you would think of.
And that being Florida, and Arizona and.
And the Carolinas.
And as well as the ski destinations of.
Utah and Denver and the.
And Hawaii kind of opened up kind of tail end of the quarter and we saw that there as well those places are still very popular going out as leisure demand.
It's been very very strong.
You're right as we exit the summer season, what is demand is going to be like and that involves here of some of the other segments, which most likely as commercial and <unk>.
What's the what do we anticipate there that's really hard to read right now.
I will say this our commercial business has sequentially improved month over month as more people get back to their offices and start.
The start traveling a bit the length of rental that we have on commercial businesses.
Is seemingly still pretty high so that's and.
And so that's been bin bin of positive and I think it's Brett it really much predicated on.
When will our commercial clients get back to their offices and then how do they feel about travel and the back half we do our own internal polling of the accounts that we do business with and they're all kind of in that range you know.
After the summer, we think we're getting people back to the buildings and the offices and then we'll start thinking about travel and maybe in the latter part latter part of the year. So there was probably some anticipation of that.
For us inbound business, which is of glitches from long leaf business pretty good as far as you know of profitability. That's been all but basically shut down we've seen some growth and some of the south American countries coming up of the European inbound Canadian and bound because theyre virtually shut down.
As has been kind of stagnant when that happens is anyone's guess there was talk you know the.
Of the day about the EU opening up the Americans being able to play there and hopefully vice versa, but that's kind.
Kind of a wait and see for us as far as we can tell and lastly on your ride Hail question, we have grown out of a ride hail business significantly over the past couple of years, we have a terrific partner.
Who we work with the daily and.
That business, we continue to see as an opportunity to grow I think lastly, the truck business for the truck segment terrific growth in and the overall, our commercial business for truck and the.
E Commerce business as we said many times on the calls previously has grown tremendously with the band utilization et cetera, and that hasn't stopped and so we think that will continue throughout the rest of the year.
Okay.
I appreciate all of that color and and the follow up question is on you and.
Labor costs are we read about.
A lot of headlines about that impacting various consumer facing businesses, you talk a little bit about what youre seeing at the ground level and the are you confident that the any increase and hourly wages.
It's not going to significantly derail the the margin progress.
Yeah, that's a great question, Yeah, we Bob.
And we read about that as well and obviously, it's something that we're thinking about right just to give you some context, we've been dealing with.
Cost of living adjustments and minimum wage increases over the past the <unk>.
Number of years and especially in the.
And certain states out west et cetera, and we've been able to well to deal with that.
We work on.
I've been on on productivity level.
Evaluations of all of our business, we've continually looked at how to make our processes cleaner and smoother, which allow us to deal with higher levels of productivity than we had in the past. So yes. We are certainly aware of that we will monitor that as time goes on but it's something that as of today.
And right now isn't a giant watch out for me.
Yes, Chris we've been spending a lot of time like Joe said during the pandemic win.
And this wasn't an issue at all and investing in the systems the processes of the technology in order to kind of maximize productivity to be able to do more with less so yes. It is something we're monitoring but and some of it we feel good about.
Okay very helpful. Thanks, guys.
Thank you we have reached the end of the question and answer session I would like to turn the call back over to Jeff Farrar for any closing remarks.
Yes, Thank you and thank you for joining us today, so to summarize we delivered an outstanding quarter for.
<unk> this year and with the Americas, delivering the highest adjusted EBITDA margins and the company's first quarter of history and international showing extreme resiliency through stringent cost control of financial position remains strong and will continue to capitalize on the continued recovery as troubled and demand returns and want to thank all of you for your interest and our company and I look forward to speaking with the.
And again shortly thank you.
Okay.
Thank you for your participation and this does conclude today's teleconference. You may disconnect. Your lines at this time I have of.
Great day.