Q4 2021 Avis Budget Group Inc Earnings Call
Okay.
[music].
Greetings and welcome to the Avis budget group fourth quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. David Calabria, Treasurer, and senior Vice President of corporate Finance for Avis budget group.
You may begin.
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 acts.
<unk> results to differ materially from such forward looking statements and information.
Such risks and assumptions uncertainties and other factors are identified in 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.
Formats, 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 Jeff.
Thank you David Good morning, everyone and thank you for joining us today.
Yesterday, we released results that reflect our continued operational transformation and the benefits this brings to our bottom line.
Back in August we reported our best ever second quarter revenue adjusted EBITDA and margin in our company's 75 year history.
In November we reported our best ever third quarter, along those same metrics.
Today, We report our best ever fourth quarter and full fiscal year in our company's history.
I'd like to start this call by thanking all of our employees for doing their part.
Day in and day out to help make 2021, such a historic year for Avis budget group.
Each quarter of 2021 presented new challenges for us to overcome this most recent fourth quarter was no exception given the disruption caused by the omicron variants beginning in late November .
<unk> started off with terrific commercial and leisure demand.
Elevated price.
November continued with much of the same through Thanksgiving.
Then the Varian started to impact travel and our business.
Obviously, the pullback in rental demand was an unwelcome site, but the silver lining of omicron, we're seeing how our team responded to it.
We've dealt with COVID-19 various before and know through the education of hard experience that stringent cost discipline combined with operational excellence can surmount given the whole starting macroeconomic challenges.
We've been through periods in our recent past we were being quickly had a pivot from defense to offense our offense to defense.
What I found remarkable about December was how we were able to play offense from a position of defense, we found pockets of opportunity and leaned into them. We deployed resources, where there was a turned to be made and practice austerity otherwise to.
Put it simply we are getting better we're becoming better operators.
Management team and a better organization.
I firmly believe that companies like people only grow when truly tested.
Do you know what you are capable of if youre not pushed.
We were tested in 2020, and I feel we've grown tremendously as an organization throughout 2021.
But our team responded in December shows that we are only just hitting our stride.
We enter 2022 ready to challenge ourselves grow as an organization and continue to build on the transformation of Avis budget group.
In the quarters to come our team will show through our results, what I just outlined and rhetoric.
But until then let me recap our historic fourth quarter results and as usual, let's start with the Americas segment.
As you recall last quarter, we said that demand for travel in the U S showed positive momentum through the third quarter.
That strength in demand continued into the fourth quarter until December however, despite the effect of omicron had to overall demand in December we were able to redistribute fleet to those regions, where travel remained robust such as warmer climate leisure destinations as well as the mountain areas, where vacations with plentiful and Christmas holiday with.
Surprisingly strong.
By optimizing our fleet supply to demand the Americas segment was able to achieve more than a 5% growth in rental days this quarter versus the fourth quarter of 2019.
We're able to achieve this while maintaining robust RPG given the tightened overall industry supply rental cars.
Speaking of our P. D. This is the first quarter in over a year, where we saw a sequential decline.
Our PD in the fourth quarter of 2021 was down 10% from the previous quarter, but up 30% versus the same period in 2019.
This increase was achieved despite the RPT headwinds from our commercial rental days being higher this quarter than the fourth quarter of 2019.
On our last call I mentioned that rate in the marketplace appear to be returning to normal seasonality.
Unfortunately, the statement was made prior to omicron and due to the new variant we did not experienced the normal seasonality trends this fourth quarter.
The normal years December is a month with the highest R. P D in the fourth quarter, given the peaking this of Christmas.
However in 2021 December represented our lowest RPC in the fourth quarter.
We believe rates should normalize once we move past omicron it turned to normal seasonal trends.
Utilization for the quarter in the Americas was 70%.
Slightly below the 72% we achieved in the third quarter.
Double where we were in the fourth quarter of 2019.
As for the as was the case last quarter, our supply chain teams were able to handle labor and parched challenges extremely well.
Fact that our fleet teams were able to achieve a utilization rate higher than the fourth quarter of 2019. Despite these hurdles is truly impressive.
In the Americas revenue increased by $1 1 billion year over year.
Americas adjusted EBITDA during the same period increased by over $550 million for an incremental margin of 52%.
On a two year basis, if you compare our most recent results in the fourth quarter of 2019 Americas revenue increased by $570 million, while adjusted EBITDA increased by $526 million for an incremental margin of 92% as.
As with the case in the second quarter in the third quarter of 2021 favorable residual values as it pertains to used cars and a strong rate environment optimize bar, our proprietary demand fleet pricing system helped achieve these results.
But it was our focus on cost discipline that enabled these benefits to fall directly to adjusted EBITDA.
There's not much more to say about the fourth quarter in the Americas the numbers speak for themselves. So instead, let me spend some time, what we're currently seeing the Americas.
In a normal year January has a noticeable drop off from December in both rental days in our P. D.
This is understandable given that December has a major holiday geared towards leisure and January is primarily commercial heavy month.
With many companies reintroducing work from home policies for the start of this year, we recognized declines in rental days similar to the seasonal declines from December of 2019 to January of 2020.
However, our PD in January sequentially down from December , but it's not down nearly as much as we see in a year with normal seasonality.
Some of this as a benefit next with leisure typically holding a higher RPC than commercial.
But some of it also speaks to the fact that despite omicron and its effect on commercial demand and despite there being no major holidays to spur leisure the overall rent a car industry still has more demand than supply.
For competitive reasons, that's about as much detail as we're comfortable getting into.
But given the current trends we are cautiously optimistic about what a rebounded demand could mean once COVID-19 is behind us.
Yeah.
With that let's move to our international segment.
We were seeing a very different story.
I mentioned on our last call that APAC was hit with very strict lockdowns in the third quarter due to the rising virus transmissions in Australia and New Zealand.
However on a positive side I stated on our last call that EMEA was starting to see the green shoots in demand.
Unfortunately, the APAC locked down story continued during the fourth quarter and those green shoots anemia never blossomed.
Given the importance of Christmas and the ski season in December for Europe <unk>.
Frictions implemented due to omicron capped any sort of potential upside.
And yet once again, despite these headwinds our international segment was able to achieve positive adjusted EBITDA of $32 million.
On a total international basis, adjusted EBITDA has gone from negative $28 million in the fourth quarter of 2020.
The $32 million in this most recent quarter.
That is over $60 million improvement in adjusted EBITDA on $143 million of revenue games, representing a contribution margin of 42% despite there being a headwind as depreciation costs.
That's impressive but their achievement is much more notable when compared to the fourth quarter of 2019.
Despite having over $160 million and lower revenue adjusted EBITDA in the fourth quarter of 2021 was actually $16 million higher than the fourth quarter of 2019, yes.
Yes rate contributed but not enough to overcome the volume declines this was made possible entirely by cost mitigation or.
Our international team based out of the UK perfectly embodies the keep calm and carry on spirit. They never complain about those factors out of their control and instead spend all of their energy fighting for every last penny of cost savings I have no doubt that eventually internationals see latent consumer travel demand materialize.
Strengthening rental days.
The focus on cost mitigation operational excellence to survive. These lean times will translate to outsized adjusted EBITDA drop throughs when better days arrive.
Until then we will keep executing the same playbook that enable them to get through this pandemic.
Moving onto fleet.
With consistent in the last quarter, we will focus more on the Americas segment.
In the Americas, our average fleet size in the quarter was 435000 vehicles, the largest amount of vehicles since the pandemic and higher than 2019.
We have a solid history of aligning fleet with demand and this year was no different achieving higher utilization in the fourth quarter of 2021.
And we did in the fourth quarter of 2019 with more cars. Unfortunately, much like the 2021. There is some degree of uncertainty when it comes to receiving new vehicles. These days.
Our OEM partners are doing everything they can do to hit production schedules, but supply chain issues labor shortages due to on the crime and pressure on new car inventories I'm, making that difficult and visibility has become closer and of late.
In terms of all model year 2022 fleet by there haven't been many new developments consistent with my commentary last quarter, given ship shortages and choke points throughout the global supply chain.
Oems are still working through that 2020 to planning and delivery schedules and we're working with them on solutions.
The relationships, we develop with our OEM partners over decades allows us to iterate quickly with a goal of mutually optimizing 2022 fleet deliveries.
We are continuing our strategy of growing our relationship with key OEM partners, while maintaining a disciplined fleet by relative to consumer demand.
Next I would like to discuss the continued improvements with our technology and customer experience. We continue to expand our use of technology with our Avis quick pass offering for those familiar with the product. This enables our preferred customers. Upon arrival select from a choice of vehicles on their own proceed directly to their car and.
And utilize your unique QR code to exit via our automated express as good for a completely contactless experience.
Additionally, upon vehicle return customers can close out their rental themselves enabled by our connected car technology for an expedited and automated completion of their rental where.
We are working towards deploying quick pass at all of our major airports.
Next let me comment on Avis commitment to safety and our latest views around industry disruptions caused by COVID-19.
Our Eva safety pledge and budget worry free promise remain in full effect and provides both our customers and our employees industry, leading protocols to keep everyone safe.
Structure from Omicron that I mentioned earlier is obviously not unique to avis the entire travel sector has seen a pullback to slot. This year because I'm a crown has had a negative effect on early quarter demand.
Both bookings, however are strengthening and leisure demand increasing.
Reservation booking patterns closely and at the start of the quarter, our change to be more further out as consumer confidence grows suggesting a strong underlying travel demand we ended the quarter and beyond.
2020 was historic and banner year for Avis, we overcame certain macroeconomic headwinds and capitalize on other macroeconomic tailwind.
But underpinning the puts and takes of the macroeconomic environment was our internal ability to optimize those factors within our control such as cost savings fleet management and distribution and supply chain optimization.
These core competencies are pillars of strength in any environment, both good and bad.
Learned so much about ourselves through these past two years that I can confidently say that we as a company are forever changed.
2021 showed us what's possible.
It is now on us to prove that structurally higher earnings are repeatable year after year.
We begin with the first quarter of 2022, which I believe will be the most profitable first quarter in the history of the company. Despite the disruption of armour crime.
There are challenges ahead of us, but as we've shown throughout 2021, we had avis work to find a way with that I'll turn it over to Brian to discuss 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 in both our press release and earnings call presentation.
I'd like to start off by talking about our capital allocation in 2021 for the full year 'twenty, one avis generated $2 4 billion in free cash flow excluding vehicle programs.
$250 million of that was spent retiring our 525% senior notes.
Another 630 million was invested into our vehicle programs for.
For context during the first year of the pandemic, we pulled around $800 million in cash from our vehicle programs to survive between the first quarter of 'twenty and third quarter of 'twenty.
Since then we've put over $1 $2 billion back into vehicle programs, representing a net cash inflow of $400 million since year end 2019.
This additional cash infusion combined with the market value of our fleet means our vehicle programs are in the strongest position they've ever been.
The bulk of our capital allocation $1 4 billion was spent on share repurchases in the back half of 2021.
In the past two quarters, we retired $14 2 million shares over 20% of the company's shares outstanding as of the end of the second quarter.
Our volume weighted average price of these repurchase shares was $101, representing a 44% discount to the closing price on February 11th.
We believe our stock was undervalued and moved aggressively to take advantage of an opportunity to create permanent value for our shareholders.
But I'd like to remind investors of what I said on our last call, we will be nimble with how we deploy capital that avis.
Just because we viewed share repurchase is the best use of capital in 2021 does not mean, we will formulaic, we allocate a similar amount of capital to this area in 2022.
We will opportunistically allocate capital to those areas the best benefit all stakeholders of Avis budget group.
So to take a step back after executing on our capital allocation strategy throughout the year, we find ourselves beginning 2022 with our balance sheet in the strongest position it's ever been and.
Our net debt to full year adjusted EBITDA is our lowest in company history at less than one five times, that's less than half of the low range of our <unk>.
Three to four times historical target.
As of December 31, we had available liquidity of more than $750 million with additional borrowing capacity of $2 6 billion and our ABS facilities.
Our corporate debt is well lathered with 83% of our corporate debt, having maturities in 2026 or beyond and 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 December .
Let's move on to outlook.
On our last call, we announced that we've made the decision as a management team to forego, giving formal annual guidance to allow ourselves the flexibility to make agile decisions as the business environment changes.
But I do want to provide a bit of color on what were currently seen.
As mentioned earlier on the call year to date <unk> had a noticeable impact to travel demand during the start of the quarter, which dampened rental days.
Given the dearth of commercial travel throughout January and the beginning of February midweek utilization has been challenged.
And due to chip shortages and chokepoints throughout the global supply chain. Many Oems are still working through their 2020 to planning and delivery schedules and we are working with them on solutions.
That's what we've had going against us thus far and it hasnt started the year, which we would have chosen.
But here's what we have going for us.
Underlying travel demand remains robust.
<unk> infections appear to be receding the used car market is still strong.
And we at Avis are running on all cylinders when it comes to managing operating costs and improving productivity.
Early indications suggest that beginning with President's day demand should strengthen.
Our hope is that the first quarter of 2022 is similar to what we experienced in the first quarter of 2021, which was a challenging beginning of the quarter followed by recovery in the back half.
Obviously, we can't predict how omicron declines or how other variance could materialize, but as of now we believe that despite the macro challenges caused by <unk> com to the start of the year, our cost mitigation and revenue optimization strategy will enable us to deliver the best first quarter adjusted EBITDA in our comp.
<unk> history.
With that let's open it up for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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In the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Aileen Smith with Bank of America. Please proceed with your question.
Good morning, guys.
Great results.
First question on some of the bleeding dynamics in the fourth quarter.
Certainly been anticipating that you would hold on to more vehicles in the quarter. Despite seasonal patterns of de fleeting. The production environment that was probably going to remain under pressure through this year, but a 70% utilization rate in the Americas in the quarter.
It's not indicative of being over fleet it even on a temporary basis.
So are you still feeling the pressure of getting enough vehicles on hand in the corner and are now.
A way to triangulate, perhaps what your optimal fleet size and optimal rental days would have done in the quarter at some of the supply constraints will not pass along meaning would you have gone out and acquired dropped more vehicles in the quarter are possible to meet demand.
Yes, hi, good morning, this is Joe.
<unk>.
I have been saying.
So the last couple of quarters, including <unk>.
My prepared remarks today that the fleet situation is certainly a very fluid one.
No. It has not been normalized from 2019, and it's not going to be normalized as we see going forward. We are working with the Oems on their distribution schedules.
As we went through 2021, we had cars that had that were canceled for chip shortages in Macau.
Mccrone issues et cetera, and we had cars that were delayed or do you think you've found in the fourth quarter was some cars that were probably going to come maybe in the mid third arrived late and we took them.
And our.
Very important for US was the fact that we can maintain a young young age fleet with with.
With normalized mileage accretion I think one of the hidden benefits of what we do one of our core competencies is not just how we buy cars and sell them, but how we rotate the fleet and getting the new cars in whenever that happens allows us to do just that and we are very sensitive towards that as far as getting cars going forward.
Yes.
We are working with our with our OEM partners as I said in the past we deal with virtually all of them and.
There are certain things that happened during the course of the quarter over the course of the month and we have to react towards that and they react with us and.
So.
I was pretty pleased with receiving those new cars I also think the utilization was indicative of the demand of the apparent demand that was that was in the.
In the business during that last quarter.
I mean, just to touch on the second part of your question in terms of like what do we have gotten too if we our supply hasn't been a constraint.
We don't manage to a target rental days any ear and especially given what we've been through in the last.
Two years, we fully realize that competing based on price and Thats. How you get there if you want to target date as you compete on price.
Realize that that's not how you maximize profit. So we chose instead to compete based on the quality of our product and our service.
And our team works every day to ensure that we earn the right that we have out there and provide a strong value proposition to our customers.
Okay, Great. That's helpful. And then second question on the pricing dynamics in the Americas I understand there are a lot of puts and takes the pricing in any given quarter and you cited some of the dynamic of omicron in sandbox, but I think there is a concern that pricing.
Maybe starting to perhaps rollover.
In the quarter is it possible to identify what you think were the main factors for the sequential decline in revenue per day, whether it's the typical seasonality or the <unk>.
The demand environment, or maybe even perhaps never turn a commercial business, which typically comes on it at lower revenue per day, and what you think is more important than others.
Yes.
So maybe I can unpack the quarter a bit for Ya October started off with very high volume and increased demand both commercially and leisure.
Yeah.
Columbus Day holiday was very good.
Yes.
We saw that continuing throughout the month of November both positive commercial and positive Felicia.
And then as towards the end of November the announcement came out about that.
Variant claim coming into the United States and the case counts started to go up.
And.
Everyone saw that and that had a material effect on travel.
We got through the beginning of the quarter and then towards the end of the quarter was the Christmas holiday and normally as we said our December is usually higher than October and November we did see some downward pressure.
Due to that to that variance I will say this too if you just look at the holiday just it for.
As a stand alone.
How long it was later this year and think about what happened early on in the month of January you had this omicron variant that was that was pretty apparent what what happened in October was people went back to that work offices in January again.
Most likely work from home, which given wherever they were the opportunity to keep the car on a rent. So we sort of like some of that December holiday bleed into certainly lean into January what we've seen going forward.
And underlying strength in our <unk>.
In price.
That's pretty evident.
Okay, Great. That's very helpful. Thanks for taking the questions.
Yes.
Thank you. Our next question comes from the line of Hamzah, Missouri with Jefferies. Please proceed with your question.
Okay.
Good morning. Thank you just following up on on the pricing commentary do you have a sense of how much corporate.
Kind of impacts revenue per day, and then and then.
Just reading into your comment you think pricing is going to be stronger in February versus January versus December and March will be stronger versus February I know your guide is only Q1, but should we be thinking about pricing in Q1.
Higher RPT versus Q4 just.
Just just parsing out some of the pricing comment.
Both in your prepared remarks, and kind of just in the last call color.
Hey, Hamzah I'll take the first part of that question on the corporate and leisure dynamic in and Joe can take kind of.
The second part of your question, but.
Due to competitive reasons I don't think we are getting into any more detail than like as you know our <unk>.
Contracted commercial rates are typically lower than our spot leisure rates that you see out in the market. So when we have more commercial business as we did in the fourth quarter than previously than previous quarters in 'twenty, one like that has a slight impact to rate, but that's about as much as as much detail as we're comfortable giving in terms of how the cadence of.
If all start at the first quarter I am not going to get into much Joe can provide a little bit of color.
Yes.
Seasonality certainly as seen here.
The Christmas peak holiday has very high leisure rates and then you come off this into January I think if you look at it on an absolute basis youre going to definitely see that what we have seen in the.
Early on.
Is an improvement compared to what you would normally see in seasonality and there is this underbelly of demand.
In our industry right now.
There is.
Started off slow with with the variant but.
If you take a look at what we're we're about to go through Presidents' day, It was actually a week.
Sooner last year, but President's day. This week and then the month of March both of those look to be periods of increased demand and improved price.
Got it got it very helpful. And then just as my follow up question.
Is.
Is just around you know.
International supply demand dynamics versus the U S market I know you mentioned in your prepared remarks.
Strong cost performance internationally, but anything you would sort of call out in terms of.
International supply demand dynamics that you expect this year or Q1.
And maybe maybe longer term, if there's anything structurally going on there that's different.
Then what we saw in the U S.
Yeah.
International with the U S came out with it sequentially improved activity internationally, we've seen a lot of restrictions.
And that that story is yet to be told about what would happen when the restrictions start to dissipate I think if you look back to last year, we saw a definite pricing power in the in the third quarter and a tremendous amount of increased demand.
Get back to normalized levels no not by a long shot that's why I think we continue to concentrate on our cost removal strategies, which were very much apparent in the third and the fourth quarter, where we had improved EBITDA over 2019.
Less than like a 150 or $160 million of less revenue, we managed supply and demand at the same way, we do and internationals here, we set our fleet strategy slightly below what we believe our demand is and and deal with it that way, but I do believe that once demand does come back and international we will see that same.
Maybe not to the degree that we saw early on here, but that same ability of getting improved price.
Got it thank you.
Thank you. Our next question comes from the line of Billy Covance with Morgan Stanley . Please proceed with your question.
Joe and Brian So solid results here it looks like travel putting in a strong fashion question is on your cost structure given the strong demand can you update us on the incremental spend you expect from hiring more workers, especially given this tight labor market.
Okay.
Yes.
We experienced that just like everybody else did.
During the.
Good time, a good portion of last year and.
We will experience that what I have seen however is our ability to improve productivity and do it in a way that doesn't jeopardize any service levels. We came out with our touchless product last year and to a large degree that's more or less a self service type product, which enables us to do a good deal of demand without having to have.
All that labor to support that and we were able to implement that at a good number of our locations throughout throughout the throughout the U S. So yes, we've seen we've seen some of that pressure that you might talk about hiring or inflation, but we have a number of strategies that we've been working on since 2020.
To kind of deal with that level of pressure one of which is certainly efficiency in how we manage productivity.
<unk> in the field.
We've taken out a lot of cost in the back office, we have accounting modernization technology that allows us to be more efficient there we have our.
Our in car technology that gives us a better return on gasoline than we had seen as the rising gas prices.
That has certainly helped us.
Uh huh.
We've had we have our proprietary demand fleet pricing system that enables us to get cars in the right spots and inefficient manner. So well, while we have seen some of that pressure, we had certainly have programs aligned to.
To combat that.
Okay.
But just a quick follow up there I think Brian .
To the market about in early 2020 around $200 million in sort of permanent cost savings just wondering if you're willing to update the market now instead of what you see is permanently removed.
Just naturally come back as demand comes back.
Is there a number you can start yet.
They were not comfortable sharing a number on that at this moment, but.
To Joe's point.
Things like you said in terms of.
Terms of labor inflation, that's not something that's unique to this year, we dealt with that all of last year and will be I think we're going to be dealing with that with like minimum wage increases and things like that going forward.
So from our perspective, we throughout last year and this year has been.
Investing in giving our field.
Technology and resources, they need in order to maximize productivity.
In order to offset those increases.
Going back to your question I know we gave a.
A bogey in terms of where we expect to be.
But.
No update to that at this time other than that we think that there's actually more to be had.
Got it thank you.
Thank you. Our next question comes from the line of Brian Johnson with Barclays. Please proceed with your question.
Thank you I have two questions first you talked about the sequential decline in pricing from December to January being.
Better than normal seasonality on the other hand, you did note that December was a weaker or PD that uplift versus the rest of the quarter due to the travel hesitation on Amazon. So could you give us a sense of how January pricing shaped up against all of <unk> and then my second question I wanted to kind of drill into the corporate travel trends.
Sure, Brian Let me start off with that and I know, we gave some color in the prepared remarks, but the reason why we gave that color was that's kind of what we were comfortable giving.
Don't want to get into this and this isn't just for you but for any other follow up questions on the call, we're not going to be getting into like month by month detail of.
Of RPT buildup, Joe can get into some of the unique dynamics around December and January in terms of why we've been seeing that but.
But we won't be giving kind of.
Monthly RPT updates either in these calls are going forward.
Yeah, I think you had it right the travel disruption based on Omicron, certainly spoiled the tail end of November and in the end.
The beginning certainly of December .
We did see strong Christmas demand and we did see strong Christmas price. So that was very much evident and there was a lot. There was a good buildup of demand if you think about it last year.
Virtually Thanksgiving was a wash out because.
Travel restrictions and things of that nature in the launch degree. So was so as Christmas I do think Christmas was was a bit later.
If you think about the calendar people took off after the holiday instead of before which.
As a material effect on what you see is that.
That happens in the pure month. So we did see in the month of January some dynamics that would say that we performed better than seasonality as far as as far as price there was a comment.
To your question about what we're seeing about commercial.
In the quarter, we saw a big pent up demand about commercial if you think about it people werent back in their offices to a large degree during that during that <unk>.
The 2021 period, but there were many returned to work dates out there that started after after the summer.
Summer ended August we were dealing with the delta vary and at the time and probably that through some part of September but then people did return to work and when they return to work what we've been what we've been seeing in what I'm, saying is that there would be more travel and we saw that.
I think there was a lot a lot of pent up demand that Brian talked about that was contract commercial but there was also.
Demand in the mid space, and small business, which reacts more leisure pricing, which is certainly helpful.
Again with the variant that started out in January we have seen it as we see and Brian talked about in his remarks about midweek.
<unk> as it pertains to utilization that was very much apparent early on in January because as you know commercial supports a lot of that midweek activity.
But I see that coming out.
Just a quick follow on on the leisure corporate split per volume can you talk about can you give me the actual number for <unk> and expectations for <unk>.
The only thing I will say about what I would call about the fourth quarter as the first quarter, we did experience a mix shift of more commercial than certainly the third quarter.
But.
It's hard to say, what it will actually turn out to be because we have the month of March yet to come in March tends to be.
In a normalized year highly commercial I don't see that that being as evident this launch as it was.
March of 2019.
Okay. Thanks.
Thank you. Our next question comes from the line of Chris <unk> with Deutsche Bank. Please proceed with your question.
Hey, guys, good morning, and congratulations on a great quarter and the year.
Wanted to go back to that kind of corporate commercial segment.
A slightly different way.
I don't know if youre willing to share with us what percentage of your corporate or commercial.
Accounts are on a contracted rate, but really just trying to get a sense of the core of the question is.
They're a way we can get comfortable with an expectation that those accounts are going to be paying a higher rate this year and going forward than they did in say 2019.
Okay.
If you want to just look at commercial and niche segments.
The large commercial accounts that have been contracted throughout many years.
These are all been negotiated.
A while back so those rates are what those rates are.
It will.
It's the mid market and the small business that allow us as you know to have higher rate.
And that we charge for that for that type of consumer and those those two segments have been growing.
So I can't go into right now do you like what do we think the percentages or do.
We believe that commercial business will start to come back more in 2022 versus what it was maybe in an early parts of 'twenty, one probably so there's probably going to be some pent up demand as accounts get better as people get back to the office and they want to get together and they start looking at that.
Revenue in top line earnings to see if there is a need to.
To go on a more sales calls so I do see that.
They're happening as long as the buyers transmissions and people feel safe traveling.
Chris you've been covering us for a while and you know that for many years large contracted business. So just kind of always had.
Headwinds to it in terms of rate of what we've noticed during the pandemic and even now going forward.
Is that our large commercial accounts, especially those coming up for renewals or even new accounts are much more interested in.
The service, we provide in terms of fleet availability, what kind of ancillary.
Benefits, we could offer due to kind of our different brands.
And really the quality of the fleet as well in terms of in terms of age and odometer and I think.
Given that we've seen.
Corporate customers focus more on on those qualities rather than just competing on price and we're doing everything we can in order to make that the focus going forward.
Okay that is helpful. I appreciate that and then Brian I know you mentioned earlier on share repurchase.
Promises for 2022.
There is an element of being opportunistic but the question is.
If share buybacks were substantially less or significantly less hypothetically what are some of the other uses for that.
Where does it go as a cash build is a fleet is it capex EV acquisitions, just trying to get a sense for what's on the radar.
Yes, sure I mean, we take a pretty holistic approach when it comes to kind of deploying our capital and.
Like you said last year, yes, we saw.
Given where our share price was an incredibly.
A favorable opportunity for us to allocate shares allocate capital to share repurchases.
But I would say is that we still view that as a very compelling.
Use of free cash flow at these levels I think youll see on the cover of our 10-K.
Our shares outstanding was $53 7 million as of February 11, So thats 2 million shares lower than where we ended the year.
Yes.
But listen we're also looking at.
Kind of our balance sheet and understanding.
How to best.
Bullet proof our business.
Survive shocks to the system going forward. So we'll look at kind of repaying down.
In terms of M&A activities, and we've always been pretty active in terms of acquiring license fees I don't think that there's anything out there right now in terms of core railcar.
That that that we're able to we were able to acquire but there are areas kind of in adjacencies to our core business that we can that we can take a look at so we're evaluating all three fronts.
Okay very good thanks, guys.
Thank you. Our next question comes from the line of Ryan Brinkman with Jpmorgan. Please proceed with your question Hi, Thanks for taking my question and congrats on the hire fleet size can you talk about.
How you've been able to achieve this with the very well known bottlenecks in the new vehicle industry are you able to say.
Like what percentage of your vehicles are maybe used versus new when you buy them or how the average age of the fleet has tracked and what your outlook maybe for some of these metrics moving forward and what impact. These changes to the composition of the fleet may have had or may have in the future on metrics such as.
RPT or depreciation per unit et cetera.
Okay.
Like I said these past couple of years have certainly not been normal.
But what it has done for us.
In my opinion straightened out relationships with our OEM partners.
We have relationships that go back decades, and those relationships will certainly tested in 2020 in 2021, when we speak to them often very often as a matter of fact and get insight into what they're thinking.
And they have been terrific partners to work with even during the ups and downs on the Crown, we understand their business and understand what they're trying to do so whether it be chip shortages or.
Pressure on on labor or or.
Supply chain.
Or even <unk>.
Selling with the era of.
Retail inventories that.
Fortunately had been at historic lows.
For some of our partners, we've been able to to continue to get the fleet that we need as far as new versus used or our position in what we've gotten is certainly much more new than used.
Not that we don't buy used cars, which we will and we do.
They fit a certain.
Certain geographic area of the country may be and they are at a certain amount of age and a certain amount of miles in a certain amount of price point. So we're not going to buy a used car or a new car for that matter of fact that doesn't contribute to the per unit economics that we've been accustomed to here. We spent a good deal of time analyzing.
How we're going to buy the cars, what trim levels, and where we're going to place them. We spend a good deal of time talking about how we're going to exit the vehicles.
Through alternative channels versus selling them at auctions and things of that nature, but I think the key component.
Through this whole thing and as part of our core competency here is how we manage the rotation of the fleet because that's one of it.
The hidden aspects of fleet management that sometimes.
<unk> seen materialized in.
Per unit depreciation or et cetera, So we manage our agent our mileage pretty stringently and we've had over the years our strategy here, where we have avis and budget and we also Cascade course to Payless. We also cascade cars to ride hail and that we have a useful life that we believe.
Can get us the best return on our investment and we will continue to see us do that.
Throughout throughout 2022.
I do believe that.
Yes.
Fleet size based on what the manufacturers are able to Bruce will be constricted.
At least through the model year 2022.
Alright, that's great gentlemen earlier.
Earlier.
On the call, but some of that.
The fleet number being higher than maybe you had expected in the fourth quarter had to do with deliveries that were scheduled for the third that came into the fourth.
So that contributed a bit and then as Joe said.
The health of our fleet is incredibly important in terms of making sure that we deliver to our customers.
Not that they are accustomed to both in terms of age and mileage. So there will be fleet sales go on throughout the quarter go on throughout this year, but just given like Joe said in terms of times of uncertainty to hold a little bit right now.
And.
It made more sense.
Okay, great. Thanks.
One question on capital allocation already I, just wanted to sort of probe on.
Any appetite you might have for measures other than share repurchase, which I'm sure will remain the focus but you mentioned debt pay down balance sheet, but you also mentioned M&A. So obviously the rental car industry itself very highly consolidated.
But what about these adjacencies you know maybe just follow up on that could.
Could you speak to some of the types of Adjacencies you might be interested in whether you might be interested in acquiring some of the more startup type companies with alternative business models. For example, like you did with Zipcar right.
I don't know if you have any thoughts on two ROE or maybe some of the other kind of peer to peer or car sharing models, whether you might be interested in acquisitions, not just to sort of.
Generate revenue in other ways, but maybe Tulsa like creatively obtained cars or dispose of cars. How are you kind of think about adjacencies.
Yes.
We're not going to comment kind of on where we are looking but we're in active discussions.
In.
All of those areas that you had mentioned.
Actively looking at all of those areas.
What I would say is that we're not here to just kind of invest or acquire a company that's out of our core competency and coordinating right. Now we're looking for things that are going to help us optimize the strategy and the path that we've been on.
These past two years, so that would be more towards core competencies, such as the supply chain management or disposal of vehicles versus kind of.
New business models or things on the electric.
Electric vehicle side.
In terms of acquisitions.
Okay very helpful. Thank you.
Thank you. Our next question comes from the line of John Healy with Northcoast Research. Please proceed with your question.
I think you wanted to spend a little time talking honestly Todd.
Yes.
When you look at 10 year depreciation for the year.
Largely at a higher level than what your public peer has been doing so if you look at the fleet.
And I'm sure you guys have an estimate of fair market value of the fleet versus what's on the balance sheet would just love to kind of get your thoughts on just the spread between the two of those and kind of whats kind of your view of kind of go forward depreciation.
Maybe without any gains or losses and the <unk>.
Business as we look to 'twenty, three and maybe longer term.
Sure John So.
Joe had mentioned fleet management, it's a core at the heart of what we do and.
Davis have always taken a conservative approach that we've never taken a write down in terms of our.
In terms of our fleet.
We're not going to be commenting on what we think fair market value is versus what's listed at book.
You do understand kind of how we depreciate our cars is our best guess as to what we think the true.
Kind of curve of that car it looks like if youll see in our 10-K.
Back out I think we had $120 million of gains on sale from vehicles this quarter.
If you back that out of depreciation and lease charges are still over $250 per month per vehicle. So that's our best guess as of now now listen for.
The past few quarters, we've been proven wrong.
We understand the used car market like this may not last forever. So we do take a conservative approach in.
Right now our best guess is kind of what we're streamlining the cars at which is roughly that $2 50 a month.
Okay. So when you look at that $120 million of gains. This quarter is there a way to think about how many cars you actually sold and I know, we get the average number but in terms of the actual units that you cycled through our marketing strategy is there a way to think about how many units that 120 created created that $120 million gain.
Sure I mean, John we know exactly what that is right because we know how many vehicles. We sold that we don't get into like the kind of the beginning adds ending because then you can.
For competitive reasons.
It's just not.
Numbers that we disclose in none of our competitors disclose that either.
Understood and then just a final question for me.
<unk> had a couple of months that kind of maybe digest some of the last year announcements regarding electric vehicles and it sounds like some of those cars are.
Turning to come into the market.
Recently.
Any updated thoughts on how you look at EV.
Bold do you want to be as it relates to entering that niche of the market and on this openness really for you guys to buying cars.
In that channel.
Yes, sure let me, let me start with a few high level thoughts and then Jochen can add color.
You mentioned evs as a niche of the market and we intend to niche today, but we firmly believe that that is not going to be a niche going forward thats, where the entire mobility ecosystem is headed so we're spending and dedicating a lot of time.
So our <unk> strategy and we've been working with both our OEM and infrastructure partners to make sure we're ready to deliver electric vehicles, when our consumers demand.
That means having to evs themselves and we're taking deliveries of <unk>.
Right now from several different Oems as we speak.
But it also means thoughtfully constructing out like what a build out of infrastructure means to complement our workflow. This is a site by site exercise to address potential constraints and our goal is to maximize vehicle uptime, while minimizing charging costs.
We're moving quickly on both these fronts, but youll hear more from us as we develop them, but for competitive reasons, we're not getting into more detail than that at this time, Joe anything you want to listen I think Brian you hit it on the head.
What I will say John is that the.
The Oems of which we partner with all of them.
Making them certainly more available to fleets than.
And then they had in the past so.
We think thats good news as we as we know.
Operationalize.
How we will.
And to the consumer and the consumer use cases, so we started to see more and more of that.
And you will see more and more of that from us over time.
Great Congrats on a great year guys.
Thank you.
Okay.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Ferraro for any final comments.
Okay.
So to recap we reported our best annual performance in our company's 75 year history. The Americas delivered a record year and we were able to beat all of our key pre pandemic metrics. This quarter international improved throughout the year in the fourth quarter adjusted EBITDA exceeded 2019, I want to take this time to thank the hard work and tireless efforts of all our employees has passed.
At year and look forward to working together again in 2022. Thank you all for your time and interest in our company.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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