Q1 2022 Avis Budget Group Inc Earnings Call

May 3, 2022

[music].

Greetings and welcome to the Avis budget group first quarter 2022 conference 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 todays conference. Please press star zero on your telephone keypad as a reminder, this.

Is being recorded I would now like to turn this conference over to Mr. David Calabria, Treasurer, and senior Vice President of corporate Finance. Thank you Sir you may begin.

Good morning, everyone and thank you for joining us on the call with me are Joe Ferraro, Our Chief Executive Officer, Brian Cho, Our Chief Financial Officer.

Before we begin I would like to remind everyone that we'll be discussing forward looking information, including potential future financial performance, which are subject to risks uncertainties and assumptions that could cause actual results to differ materially from such forward looking statements and information.

Such risks assumptions uncertainties and other factors are identified in our earnings release and other periodic filings with the 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 in any or all of our forward looking statements may prove to be inaccurate and we can make no guarantees about our.

Future performance, we undertake no obligation to update or revise our forward looking statements on this call we will discuss certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website for how we define these measures and reconciliations to the closest comparable GAAP measures.

That I would like to turn the call over to Jeff.

Thank you David Good morning, everyone and thank you for joining us today.

Yesterday, we reported our best ever first quarter results in our company's history.

This now marks our fourth consecutive earnings report will be delivered record high adjusted EBITDA with that given quarter.

I'd like to start this call as I, usually do alright. Thank you all of our employees. If they are giving their best so that we as a team could achieve these results.

In January I stated that we as a company are getting better.

That would be coming better operators better management team and organization.

I think.

That improvement is reflected in how we manage the business this quarter.

Youll recall that during the first six weeks 2022, the entire travel industry, we're still navigating through the effects of on crop.

Travel demand was challenged and we saw the negative effects of this in rental days rate and utilization.

However, instead of shutting down to write out the variant we got to work and mobilized our organization.

We took this opportunity to dispose of our highest mileage vehicles at optimal prices to crystallize significant gains while refreshing the age of our fleet.

We repositioned vehicles to locations, where we believe the recovery would happen earliest and strongest.

We went into overdrive on preventative maintenance to bring our out of service vehicles to some of the lowest levels we've ever seen it.

Sure we were getting ready for the outsized demand, we believe could occur once on the crown subsided.

That turns out to be the right decision.

By the time, we reach Presidents' day.

Strong demand returns and continue to build sequentially throughout the quarter.

By March in the Americas, we had more calls on rent and the highest peak summer of 2021.

If you've followed the reports of other sectors in the travel and leisure space. This will come as no surprise.

Consumer demand for travel is the highest we've ever seen it.

After two years of quarantine video conference calls and home improvement projects consumers have now beside enthusiastically to dedicate their share of wallet towards seeing the world and reconnecting with loved ones.

We had a this already to help our customers do just that.

2022 is off to a remarkable start.

We generated $810 million of adjusted EBITDA in the first quarter.

Now as a frame of reference that's higher than the full year adjusted EBITDA of 2019, and we've delivered this in what is typically the seasonally lowest quarter of the year.

We're ready to build on this momentum and achieve even greater heights, but before we do that let me recap our historic first quarter results and as usual, let's start with the Americas segment.

In the Americas, There was a tale of two quarters I'm, a crown hit hard in January and we saw the effects immediately.

Leisure rental car demand softened significantly and commercial demand was not existent.

Just to illustrate how sharp and severe this was America's utilization in January was lower than any more for 2021.

This includes the pre vaccine rollout of the first quarter of 2021.

Peak of itself, but their hands.

However on a positive side January was also when the used car market has had its strongest we capitalize on this dynamic and sold high mileage vehicles at attractive gains.

We said that we exit makes up some of the best used inventory in the market. It has one older. It's well maintained throughout its life, it's attractively priced.

That was validated through January and February as consumers aggressively purchased our vehicles and there was no shortage of demand.

The capital pruning and harvesting of our rental fleet dominated our activities for the first six weeks and gains on sale contributed significantly to adjusted EBITDA. During this period.

Because we are so quick to act on this by the time the Omicron cases subsided in mid February we have a launch and complete with our targeted age fleet disposition schedule.

This allowed us to focus 100% of our efforts are beginning cars into the hands of consumers back on rent.

During the second half of the quarter, we saw a tremendous rebound utilization RPC and rental days, where we've delivered over 10% more base versus the first quarter of 2019, despite soft start to the quarter.

That's reflected in our reported quarterly metrics as a blend of these two opposite market conditions and not reflective of how we're trending for the second quarter 2021.

RPT for instance was down sequentially in the first quarter of 2022 for.

For the second quarter in a row. However February RPT saw a marked improvement from January and March RPT saw improvement compared to Europe . So the average <unk> of $72 76, which.

Which we printed in the quarter pleasant indicate the strength of the exit trend.

The same holds true for utilization.

Quarter utilization was 69%, which is roughly in line where utilization was in the first quarter of 2019.

However utilization in the month of March of 2022 was near peak summer 2021 levels.

We're operating on all cylinders when it comes to positioning our fleet the squeeze out the most rental days drive RPC and maximize revenue improvement.

Our demand fleet pricing system combined with field experience allows us to consistently execute on operations no matter the demand environment.

Moving on to the income statement results of these metrics.

In the Americas revenue increased by over $900 million year over year American.

Americas adjusted EBITDA during the same period increased by $702 million for an incremental margin of 76%.

If you compare our most recent results to the first quarter of 2019 Americas revenue increased by $673 million, while adjusted EBITDA increased by $775 million for an incremental margin of 115%.

Obviously gains on disposal vehicles contributes significant to these results, but so did our relentless focus on cost control and operational efficiency.

It's the same story, we told all throughout last year.

Maintaining stringent discipline around cost, we're able to maximize the revenue and depreciation benefits that we bring to the bottom line.

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$810 million of adjusted EBITDA generated from the Americas This quarter.

The previous record was $115 million in 2015.

As you can see it's almost if youre comparing two completely different businesses between now and then.

And that's what we mean when we said we're on a transformational journey here.

Getting slightly better at calling into win with focus on pressing every last macroeconomic advantage and running it through a battle tested least efficient operations to sustainably get to a structurally different profitability play.

I'll close the first quarter results of the Americas before I move on let me provide a bit of color around April and what we're seeing in early may.

The strength in demand that we saw materialize in March has continued into the early part of the second quarter.

The Easter season was strong and early indications are promising as well.

While we're not getting into specific guidance on this call I will say that in the Americas at this point it appears that both rental days and RPG will be higher in the second quarter of 2022 that it was in the second quarter 2021.

With that let's move over to our international segment, which posted a record an historic quarter as well.

Consistent with our prior quarters, our EMEA and APAC business have yet to see the robust recovery, we're experiencing in the U S. In terms of travel demand. However throughout the quarter, we saw moderate but noticeable improvement in railcar demand with lead to sequentially, improving rental days and RPT throughout the months.

In the first quarter.

This combined with the maniacal cost control our international team has exhibited throughout the pandemic.

And in $23 million of adjusted EBITDA in the quarter.

On an absolute basis that may seem modest compared to the adjusted EBITDA generated in the Americas.

However, when you consider that this is the highest first quarter adjusted EBITDA that our international segment has ever achieved.

Again to appreciate the step function change made in the sustainable profitability of this business.

To put it differently on a total international basis, adjusted EBITDA has gone from a negative $50 million in the first quarter of 2021.

To a positive $23 million in this most recent quarter, that's over $73 million of improvement in adjusted EBITDA on $140 million of revenue gains representing a contribution margin of 52%.

More impressively if you compare the most recent quarter's results to the first quarter of 2019, you'll notice that despite having over $160 million and lower revenue.

<unk> EBITDA in the first quarter of 2022 was actually $44 million.

Higher in the first quarter of 2019, when they posted a negative $21 million and adjusted EBITDA.

The dynamics that allowed for such impressive adjusted EBITDA drop downs and the Americas are you're not unique to this region.

We believe that latent traffic demand in Europe is just as strong as it was in the U S. A few quarters ago.

Like the Americas, the industry fleet situation internationally is severely constrained as well.

I've said in previous calls that our international team will be ready when demand materializes and.

And that due to the structural cost improvements made to our operations the drop through to adjusted EBITDA will be sizable when we see top line recovery in that region.

I know, it's still early but from where I sit today. It appears that this is the year, where our teams internationally, we'll get to show you just that.

Moving onto fleet were consistent with last quarter, we will focus on the Americas segment.

In the Americas, our average fleet size in the quarters was sequentially higher at 443000 vehicles.

Consistent with last quarter. This was a management decision taken to address the uncertainty around receiving new vehicles. These days.

We've been in daily contact with our OEM partners to ensure that deliveries are vehicles orders remain intact.

However, due to labor shortages caused by omicron early in the year.

Lack of semiconductor availability and ongoing supply chain issues aggravated by the conflict in Ukraine, receiving new vehicles on schedule. This fall from a sure thing.

Rental car industry will face delays and cancellations throughout 2022, that's the reality of the rental car industry supply.

However, as we made it clear earlier consumer demand for railcars is at all time highs.

Wanted to do everything we can to ensure our customers have a vehicle available to make that business trip will take that vacation.

Are there to service that demand in the coming peak currently forced to carry a larger fleet than we normally would in a shoulder period.

Temporary strategy in order to get us through the uncertainty around fleet availability.

As our OEM supply chain normalizes slow off fleet rotation.

Related to fleet, let me address our unusual depreciation for this quarter.

Notice that on a consolidated monthly depreciation cost per vehicle in the first quarter of 'twenty two to $62 down from 185 fourth quarter 2021.

This was due to roughly $300 million of gains from dispositions in the quarter.

If you adjust for those gains you'll see that our straight line depreciation has said it is a $230 per month per vehicle we.

We've always taken a conservative approach on how we account for depreciation of Davis.

But is this measured approach and strong residual environments can result in significant gains in the quarter with dispositions.

This quarter was an example of that.

We're not changing how we account for fleet costs at this time and our fleet refresh was largely completed by the end of February .

Therefore, you will see a normalization of consolidated monthly per unit fleet cost starting next quarter.

Lastly, with regards to the fleet, let me touch briefly on our current buy.

While certain Oems have begun the discussions around the model year 2020, we buy we're still working through how we receive our model year 2022 orders.

Fluid situation and it has been for the past two years that.

Luckily we have decades worth of working together with our OEM partners to deal with this uncertainty.

We believe this is one with true advantages, there's a level of trust that can only be developed by finding the same fight together for years. The understanding of constant shared hardships is what allows you to ask for a favorable when you need it and three we did want to return.

That's the difference between a true partnership and a customer supplier relationship.

So yes, it's a challenging time right now chip shortage supply chain issues and labor uncertainties, but we are here to invest and work with our OEM partners to get through this.

And by the way we've seen some of the product portfolio, that's coming down the Pike from our strategic OEM partners over the next few years and we couldnt be more excited about what's coming both with traditional and electric vehicles.

Moving onto our continued improvements around technology and the customer experience due to strong consumer feedback and efficiency. We've seen in our workflow. We are dedicating additional resources to expand our Adas quick paas offering.

For those unfamiliar with this product and enables our preferred customers upon arrival to select from a choice of vehicles on their phone proceed directly to that car and then utilize the unique QR codes to exit via our automated express exit four completely contactless experience. Additionally.

Additionally, upon vehicle return customers and close out their rental themselves enabled by our connected car technology for an expedited and automated completion of that rental.

Our goal is to have quick pass deployed at the majority of our key airports by the summer travel season.

Next let me comment briefly on <unk> commitment to safety and our latest views on the industry disruptions caused by COVID-19.

Our Eva safety pledge and budget worry free promise made in full effect and provides both our customers and our employees industry, leading protocols to keep everyone safe.

Thankfully at this time it appears the effects of Covid and the omicron variance are subsiding.

While there has been an increase in cases over the past few weeks, we have not seen any impact to our booking demands our belief is that as long as hospitalizations remained low consumers the comfortable traveling.

Which provides a good segue how I'd like to wrap up my prepared remarks.

I love seeing our customers traveling again.

Buzz around the airport and it feels great to be getting back to normal at the so many starts and stops.

From what I see out in the field and from the conversations Ive had with our operators seems like we're already in the peak of summer.

To keep reminding myself that we're just in may.

This wave of demand headed our way in the coming months and I'll tell you exactly what I tell our field ops on this front.

That's exactly what we've been preparing for.

While the hardship and sacrifice the cost cutting the retooling of operations learning how to maximize throughput and minimize leakage those lessons learned the hard way through the depths of this pandemic prepared us for this moment.

Pure true operator being tested like this is when you look forward.

Thankfully at Avis, we pride ourselves on our operational ability and I can tell you unequivocally that.

We're ready for the summer.

If we're able to execute at the level I know, we're capable I belief that 2022.

We showcase how transformed the company we really are.

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 in our press release.

I'd like to start off by addressing domestic revenue per day.

As Joe mentioned in his prepared remarks, the first quarter of 2022, another sequential decline in Americas, our PD.

We went from a peak of $83 33.

In the third quarter of <unk> 21 down to $75 <unk> in the fourth quarter of 'twenty, one and finish this most recent quarter at $72 76.

12, 7% lower than the RPT two quarters ago.

That's a substantial change inside of six months period, and we're likely to see changes both the upside and downside going forward.

That's because as I've stated in the past.

This do not set rental car prices.

Discover price as determined by consumer demand and the availability of supply in the industry.

With industry demand and industry supply change daily So it's natural that we're going to see fluctuations in price from quarter to quarter.

But if you look at it over an extended period youll see that rental car prices across the industry has been modest over the past 10 years.

From the years 2011 to 2021 industry rental car prices have increased at roughly a 2% CAGR.

It's basically in line with the one 9% CPI inflation CAGR over the same period and comparable to pricing <unk> in other sectors of the travel and leisure space, such as airlines and hotels.

Every industry goes through its cycles, and we happen to be in an upward cycle for rental cars.

But I'd like to point out four things when considering this.

One we came off a near death experience in 2020 with no federal bailout.

Two we honored all of our financial obligations to our business and financial Counterparties throughout the pandemic I withstanding substantial losses.

Three this upward cycle in RPT only brings us in line with inflation without taking into account the substantial inflation, we're seeing in 2022.

And lastly for over the past 10 years every major input cost of our industry from the price of new vehicles to labor to real estate to parts to insurance et cetera are all seen price increases well in excess of what we passed along to the consumer.

Given these facts.

I remain confident that we provide an excellent value proposition for customers.

Where else can you get a 20 dollar asset simply handed to you for unsupervised use nationwide whenever you need it for less than the cost of its exceeded rental.

Every booking we receive is proof that our customers feel the same way.

Let's move on to capital allocation, where it's been a very active year, thus far.

As Youll recall share repurchases made up the majority of our free cash flow usage in 2021.

In the second half of 2021, we retired over 14 million shares representing 20% of our diluted shares outstanding at the beginning of the period at an average price of slightly over $100 per share.

Year to date in 2022, we've retired an additional 8 million shares representing nearly 15% of our diluted shares outstanding at the beginning of the year at an average price of roughly $215.

In aggregate during this most recent share repurchase program, we've been able to retire 22 million shares representing nearly a third of beginning shares outstanding in less than a year at an average price of $140 or 48% discount to the closing price as of April 29.

But that only takes into account our buybacks since July of last year.

Our share repurchase program has been an active part of <unk> capital allocation strategy since 2013.

Since we launched the program then EBIT has retired 87 million shares and converts at an average price of less than $60. That's nearly two thirds of the diluted shares outstanding retired at a 78% discount to the closing price as of April 29.

We've demonstrated that as capital allocators, we're willing to take a long term view and stepping aggressively when opportunities arise.

Which is why yesterday, our board approved an additional $2 billion.

Of authorization to our share repurchase program, bringing total authorized funds to $2 3 billion.

But as I said on the last call, we will be nimble with how we deploy capital with Avis just because we viewed share repurchase is the best use of capital for the past year does not mean, we will formulate <unk> allocate a similar amount of capital to this area throughout the balance of this year we.

We will opportunistically allocate capital to those areas that benefit all stakeholders of Avis budget group.

We find ourselves in the privileged position of being in the strongest financial standing in the history of our company.

In the past four quarters, our LTM adjusted EBITDA has grown from $965 million in <unk> 21 to.

So $1 8 billion in <unk> 21 to $2 4 billion in <unk> through 'twenty, one and now as of the first quarter of 2022, we sit at $3 $2 billion in LTM adjusted EBITDA.

So despite our taking an additional term loan C. This quarter, our net leverage ratio remains the lowest in our company's history at less than one three times.

At less than half of the low range of our three to four times historical target.

As of March 31, we had available liquidity of more than $900 million with additional borrowing capacity of $1 7 billion in our ABS facilities.

Our corporate debt is well lathered with 87% 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 covenant as of the end of March.

Let's move on to outlook.

As you know 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.

But I do want to provide a bit of color on what we're seeing currently for the second quarter.

As Joe mentioned earlier on the call the underlying demand environment is strong both in the Americas and internationally.

For the second quarter of 2022, we believe America's rental days will be above the second quarter of 2019 and that RPT will be above the second quarter of 2021.

Depreciation costs in the coming quarter, we'll see sequential increase due to lower fleet dispositions, but we believe consolidated monthly depreciation cost will still be lower than where we're currently straight lining.

As always we are keenly focused on managing operating costs and using productivity tools to work around the tight labor market.

Things are humming and we feel prepared.

Which is why Joe has challenged the entire team to keep the streak alive and deliver it.

Consecutive record earnings report for the next quarter by surpassing the adjusted EBITDA, we posted in the second quarter of 2021.

And it's still early but if these trends hold through summer, we believe we'll be able to out to our record full year adjusted EBITDA in 2021 and deliver the highest full year adjusted EBITDA in our company's history in 2022.

With that let's open it up for questions.

At this time, we will be conducting a question and answer session. Please limit yourself to one question and one follow up if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment and may be necessary for you to pick up your handset before pressing the star keys.

One moment, while we poll for questions.

First question comes from the line of Brian Johnson with Barclays. You May proceed with your question.

Thank you.

Got a little different direction, just thinking about the use of your balance sheet should pointing people are going to talk about therapy did depreciation strength.

First.

And this is the first time you've been thought about this since the mid two thousands.

You have 4 billion of floating rate debt.

Have you swapped the significant amount of that and.

What is the sensitivity of your interest expense on your ABS structures that included two say 100 basis point increase in pricing.

Are you assuming in interest rates in our pricing.

Sure Hey, Brian I'll take I'll take that question. So we're definitely in a rising rate environment, but we have a few mitigating factors on our end one we've been very proactive about refinancing our debt and extending maturity dates. So we feel really good about the visibility we have going forward.

And number 275% of our outstanding corporate debt is fixed at an weighted average interest rate of less than four 5%.

The weighted average maturity of that debt is actually five years.

So managing our capital structure has always been a core competency at Avis, our treasury team and our financing counterparties.

Proven this over the years, so we're going to continue doing that.

In terms of what you are asking about and the sensitivity towards the.

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The ABS structure I think that.

65% roughly youll have to double check with David.

Also fixed or I'm, sorry, not except that our overall vehicle that is fixed so we have a lot of.

Stability, there as well, but we are going to consider what to do in terms of capital allocation with regards to that that'll be evaluating callable bonds for refinancings, just overall debt paydown as part of our capital allowance allocation strategy and also reinvesting equity into our ABS structures.

All of that is on the table, we're going to be proactive we can make sure that our balance sheet is bulletproof whatever the rate environment maybe.

Okay, so and at the corporate level.

You added you added $725 million of corporate debt.

How should we model the corporate interest expense going forward and then.

My final question would be around your target leverage ratio and what where how much room do you think you have.

Why don't we get to that how much room. You think you have at the corporate level to continue to lever up kind of inside of eventually.

Some downturn in EBITDA as things normalize.

Sure.

In terms of how to model it going forward I think your best bet is what were like where we stand today, which I said you can take a look at our corporate capital structure at 75% of that debt is fixed actually if you take into account our $1 $2 billion term loan I think actually release, we state in our 10-Q roughly $700 million of that has been hedged out floating to fixed.

A good chunk of it is stable.

Uncertain is what debt, we choose to call and pay down and what that looks like and I can't really give you guidance on that because like I said in the past, we're going to be nimble about what we do with our free cash flow and how we allocate that to our to our balance sheet.

With regards to what the target ratio is I don't think we've given any guidance.

Since the historic three to four times.

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Net debt to EBITDA levels, we've been at the past clearly were well underneath that right now we're at one three times net debt to LTM EBITDA. So there is some room, but we're being prudent that's kind of how we how we address that.

Okay and just one final question you just you talked about monthly straight line depreciation.

Is that a new accounting policy or did you just look at the likely residuals 16 to 24 months whatever your disposal period is.

And on the new vehicles, we're putting them in.

Reduce the spread a bit.

No. This isn't new at all I think that there hasnt been a lot of.

There hasn't been a lot of question our focus around it because typically and what we try to do is maintain our gains and losses to zero.

Where that's not happening right now given the changes that have happened in the used car market. Since we purchased the vehicle and started streamlining them, but it's in the 10-Q every quarter I forget exactly what eight seven something like that gets in there, but what youll see is youll see our overall gross depreciation costs, then youll see like a small <unk>.

<unk> of leases and then youll see our gain and loss.

Your vehicle. So if you look at our 10-Q, which was filed earlier this morning.

Youll see that.

The takeaway is that gain on sales if you take away the gain on sales and vehicles this quarter, which Joe mentioned that $300 million.

We're still depreciating, our vehicle gross depreciating, our vehicles at over $230 a month.

That's roughly 10% below where we were in 2019 and Thats due to two major factors one our vehicles are older. So we're at a flatter part of the depreciation curve.

We're getting more efficient around both disposition timing and channels.

I do believe we'll continue to see gains on vehicles, we disposed throughout the balance of the year, but as Joe said, we will have fewer of those vehicles to work through in the coming quarters. So youll see depreciation levels normalized to where we are straight lining which is around that $2 30, as the year progresses, but we probably won't get all the way there due to the built in gains.

We have in our model year 2021 vehicles.

Our next question comes from the line of Hamzah <unk> with Jefferies. You May proceed with your question.

Hi, This is Mario <unk> on for Hamzah.

I guess, maybe just kind of going into the per unit fleet costs.

I guess the <unk>.

Spectation for Q2.

Should we be modeling or should we be thinking about that returning to kind of.

Maybe our original expectation your original path and trajectory for the rest of the year of getting to call. It 250.

Existing the year or beginning of 2023 should we expect something with a two handle on it starting in Q2, just maybe kind of help us with some of the modeling there.

Sure.

It was as I said and then the question before were straight lining at the $2 30, So I think thats closer to where we'll be exiting in <unk>. So you can take your view on kind of how we normalize to that but let's say that will be around the $200 level next quarter.

Maybe something slightly lower than <unk>.

Pendant on kind of how many cars, we end up selling in the second quarter and throughout the balance of the year, but I do think that that $2 30 level is where it will be kind of exiting the year.

Got you and then.

On fleet growth.

Yes.

Are you guys thinking about that I know that you had your demand fleet pricing system and you're doing.

Doing your best to maintain high pricing, but maybe just comment on what your visibility is the demand.

As of today and if that's changed at all over the past call. It few months versus what you saw in 2021.

Our people booking further out than they have over the past year or has it been pretty consistent with what you've seen.

Yeah I'll take that this is Joe.

I think when you when you when you look at demand, let's start with what happened in the first quarter. We saw a basic step change in what the demand was actually <unk>.

Serialized in February end of February as Brian I think on the last earnings call talked about we saw pretty good demand for the Presidents' day holiday and that continued into March right and that was a.

<unk> two <unk>.

<unk> promise of improving and it has been improving throughout the month of throughout the month of April . So when you have that type of step change you have to anticipate what's going on based on what you see closer in I think what you have to get to your point about demand going out.

If you look at the reservations that are being booked they are booked we have a greater degree of reservations booked over 30 days in advance that we had actually 2019 and what that shows me shows US is the fact that consumers have confidence in their ability to travel.

As well as preparing for.

For a season where they.

They want to take vacations as we talked earlier.

As I said earlier back in.

And last year between video conferencing, and staying at home and entertaining at home people have certainly got now on the road and we see that in our forward looking demand. So demand is going out as we see it today looks quite impressive. If you look at the month of March just to give you an indication.

I mentioned earlier in my remarks that we had more cars on rent in the peak of launch that we did at any time during the summer of 2021.

So that should give you some indication, but we feel demand is going to be.

Our next question comes from the line of Chris <unk> with Deutsche Bank. You May proceed with your question.

Hey, guys. Good morning, congratulations and thanks for the.

Data points, thus far.

I was hoping maybe you could give us a little bit of color on the different buckets of demand between leisure and corporate and just kind of.

Maybe where they trended through the first quarter and what youre seeing seasonally because.

Q2 to be a little bit different in Q3, right and then just directionally.

What's the pricing.

Behavior is for for those buckets. Thanks.

Sure Chris This is Joe.

In the early part of the first quarter.

There was really no commercial or leisure business to talk about as you remember in the fourth quarter, we talked about the fact that commercial business made a rebound, especially in the months of October and into early November for Omicron.

Materialized.

We see strong leisure demand and strong leisure.

Activity on a go forward basis, and I have to say in the latter part of the first quarter, we've seen the commercial demand improve as well to points above 2019 level during the same period that quarter.

I think going forward youre going to see a good mix, especially in the second of both commercial and leisure we said earlier on.

The last call that <unk>.

I believe strongly that commercial business is good for our company.

It gives you a mid week peak as far as how to utilize the fleet more effectively and that will allow you to have that car available for rental for Alicia period, but it comes more on the weekends.

The commercial business that we have seen is.

Has come from the companies that you might think about defense contracting and health care and travel and entertainment logistics and we see a lot of that travel and lastly, what I what I, what we see is that the commercial consumer is keeping the cars longer.

I think they've augmented to safety.

Service and.

The fact that do you have a car or not to.

To make that choice for us and prices have become elevated for commercial business and the last thing I will say about commercial as we've seen a tremendous growth in what we call leisure.

Personal rents a car for a couple of days and then it keeps on the weekend think of a business traveler going to Las Vegas for a conference and that sticks around for a concert on the weekend we've seen a.

Good deal of that in with our split build technology that we did a number of years ago that will allow us to have a consumer to use their corporate card for midweek and then put it on there they.

Private club for the weekend, so we've seen that and then what.

What we've shown on the leisure side is especially around holidays when.

Easter holiday or President's week, or even Martin Luther King early in the month tremendous activity in growth centered around those as well.

Okay.

Very helpful. Thanks, Thanks, Joe and then just as a follow up.

Maybe too early to tell but can you do you think there is any structural change in kind of the hold period for your vehicles I mean, obviously <unk> just going to be a gating factor at some point, but you guys have been able to stretch I think the whole period to meet the increased demand and take care of the.

Availability issue. So just going forward do you think there is a structural change or does the whole period revert back.

Listen when you think about how we how we operate our fleet there are three aspects of it that we certainly concentrate obviously, how you buy it.

And how you sell it but in the middle is a key component of how you use it and.

Obviously, we have based on this very fluid situation.

Buying in generating new car.

From the Oems has caused us to rethink that a little bit and.

So we we refreshed our fleet in the first quarter.

We've done a lot to take out higher mileage vehicles that my opinion would have lasted throughout the summer peak and we've augmented some of our fleets in other areas with.

Both new and some some used vehicles, but as I see it right now the residual values are really high and we've had no issue with selling cars.

The demand has been strong and the residual values are strong I think we've taken a measured approach going forward to see exactly what the.

The new car situation looks like as we get into the peak of our of our season and we'll make decisions accordingly, as we go out.

Always very apparent.

Both.

Mileage and age in the residual values of the cars hold and react accordingly based on those metrics, Chris just to just to add to that some of this is.

The fact that we've been talking about all last year the constraints that we're having around buying new vehicles. This year.

As we are into our 2023 model here discussions like that constraint is going to continue on into into next year as well. So just industry supply is going to be challenged.

Because industry rental car demand is at peak.

That's just going to lead to slightly ultra vehicles, but what I would say is that we're getting better about managing these vehicles were noticing the benefits. It has been on the flatter part of the depreciation curve, we're able to keep our out of service levels at historic lows and our NPS scores from our customers are higher than it was in 2019, So I think.

It's something that.

Kind of.

We think is sustainable going forward.

Our next question comes from the line of John Healy with Northcoast Research you May proceed with your question.

I think you wanted to ask a question about capital allocation, Brian you guys have been.

Really.

Bold and thoughtful and smart with the buyback over the last couple of years kind of on your comments about future allocation interesting.

<unk> seen some transport transformational M&A.

And the kind of the marketing sector recently, just kind of curious to get your.

Your thoughts about M&A and.

If you could potentially look to M&A as a way to incubate this business.

Even further in terms of either retailing on the auto side or even deeper into the mobility landscape just wanted to get your thoughts on appetite and interest level there.

Okay sure.

Well, John like we take a holistic view when it comes to capital allocation. So guests we consider share repurchases. We also look at debt Paydown.

And we do look at the M&A landscape, which like you said is becoming more and more attractive out there, but the reason why we've been still aggressive around the purchases is that we've gotten a chance to repurchase at levels that we feel.

That our shares were undervalued relative to fundamentals around our current and future earnings trajectory.

So yes, we have been active around that front. We retired 22 million shares since July of last year and that was at an average price of $140, which is a 50% discount to where we closed yesterday. So I think you can make the case that our shares were undervalued.

Yes.

Now, where we allocate capital going forward is going to be a function of how attractive.

Each of those three buckets are and to be clear. We were active asked about April as well in terms of our share repurchases, we acquired $1 million of half shares last month at an average price of $270. So obviously, we still view share repurchases as an extremely compelling use of our free cash flow at these levels.

Now depending on where that share price goes forward that will kind of move our decision in terms of where we really look towards debt pay down which is something that we're looking.

Closely monitoring right now, especially in a rising rate environment.

And M&A possibilities out there we said this before in the past and previous calls.

That we're not going to go and pursue M&A for M&A sake, we're going to be thoughtful about where we add on.

Probably see more things that are closer to like bolt on acquisitions to core competencies and we are monitoring that landscape actively.

Great and just wanted to get a big picture question.

Your fleet was up I want to say, 1% over 2019 levels and the unit economics.

Again, just amazing this quarter, but would just love to know.

Where do you think you've gained share.

In the industry are there any channels verticals and with that share position that you've gained.

How durable do you think that does for the company.

I'll take a shot at that.

When you think about our company we offer various different brands in various different segments that attract consumers to our company.

We have three brands Avis budget and Payless, all attract a different type of consumer Avis, obviously more.

Commercially orientated people will expect.

Excellence in service budget, which appeals to the leisure travel which was certainly.

Very big this past quarter, and you have payless to someone who is maybe a little bit more.

In line with.

<unk> proposition and then you take what are the other things that we do here.

Talk about as much but we have a growing retail segment of our business.

Where we've been doing that for a number of years, we have a.

Rideshare business that we have cars located within walking distance of urban centers and college campuses and we have a last mile delivery business thats been growing pretty rapidly over the past number of years with our budget truck.

Budget truck business and combine that with things that we do we offer one way products for people and short term leases. So I think we probably cover the gambit of full range on mobility and Youll see us moving as time goes on into more electrification of our fleet and I think with that we have we offer.

A variety of products that attract consumers to our company.

John just to add to that we don't manage to market share at this company, we manage to meeting the demands of our customer base.

And it's still fresh in our minds that environment in 2020, when our volumes were down 80%.

Trauma, believing it leaves a mark.

We had avis like we firmly believe that our return on assets is more important than the absolute size of the asset base. So it is not market share that we're solving for its meeting the demands of our customer in a thoughtful way that maximizes our return on capital deployed.

Our last question comes from the line of Ryan Brinkman with Jpmorgan. You May proceed with your question.

Great. Thanks with regard to capital allocation.

You've been pretty clear in your communications, including on the call just now and in your actions that you are laser focused on share repurchase while also entertaining other opportunities with the shares proofing, maybe especially attractive right now just given valuation.

I just want to follow up on the other opportunities, including I heard you say in answer to I think it was Joe's question bolt on acquisitions to complement our core competencies and so I guess in addition to a buyback and inorganic.

Expansion the other bucket really is the incremental organic investments you could push on so I just wanted to get your appetite around like bolstering core competencies via more organic or.

Step change maybe pulling ahead.

It changes the inorganic so for example, like with direct to consumer.

Sure.

Whats the math of the strategy on Okay. We've got all this cash we could deploy it on building out stores or do you go out and you buy somebody who is already selling cars to consumers, maybe we can start there.

Okay, I'll start and then I'll throw it over to Brian .

When we look at deploying capital, we obviously look at how to make our operations more efficient and we're working on.

Process and procedures to do just that basic protocol productivity systems in place to make our businesses certainly more reflective of the operating environment. We spent.

Time in the past talking about our Avis App and our.

I spent I talked a little bit about <unk>.

<unk> passed where we allow a customer to come in and really in a self service mode and transact with our transact with our company, we'll be rolling that out in a more aggressive fashion as the as the year goes on so youll see us deploying in things like the customer experience because we do believe that that's a differentiator with our company.

You talked a little bit about how we sell cars.

That's on our list as well as how we will sell cars in a differentiated way we talked in the past about growing our sale lots and things of that nature, we do believe.

That if we wanted to wait to sell more cars dynamically to the consumer of that hole that will certainly benefit our company and lastly.

It's how do we prepare ourselves for the electrification of vehicles as we talked to our Oems going forward.

Eric vehicles will be part of their part of their fleet portfolio and.

One thing, we love about working with us.

Our OEM partners as it gives us tremendous diversification in fleet and electric vehicles will be part of that we need to be prepared for that.

Sure.

You hit on on all other points.

There's a third option as well.

When it comes to bolt on.

And bolstering our core competencies and we can build ourselves organically right dedicate more resources to building. It ourselves we can go out and acquire through M&A, which youre asking about inorganically or we can partner as well that's the third option with.

Best in class people, whose core competency. It is to do just that so we're evaluating all three and yes direct to consumer is important that's something we're focusing a lot of time right now and looking at all three of those options, but we're also looking at things around the supply chain and around electrification as Joe said so.

Yes, we're looking at all areas. Okay very helpful. Thank you and then just the last question is big picture, how youre thinking about.

Travel in the middle part of the year, you did help us on the second quarter, but just how big of a catalyst is it do you think to be taking masks off on the claims in the U S. And then what are you seeing in terms of some of those international within Europe sort of restrictions on travel and those being lifted in sort of the disc.

Proportionate impact that that can have on on leisure in Europe .

Internationally the U S I should say sorry, yes.

Yes, so to your question.

We saw a travel in the first quarter of a step change and we believe there is a robust so travel certainly as it pertains to the summer season, yet to come if you think about the things that were not.

Apparent last year in the in the 2021 season, one of which you mentioned was inbound international traffic, we've definitely seen a change in the booking patterns. Once those countries lifted their restrictions, so whether that be from Canada recently or or or.

Europe that has made a material impact so international business, which has been down quarter to quarter.

We've seen it we've seen that in the first quarter rise, but the bookings holding going out at least for the first four weeks of March are positive compared to 2019, I think it has a lot to do with those lifting of restrictions and.

And.

Mask mandates.

Yeah, we're not we're not getting into kind of guidance outside of the second quarter, but as Joe said in his prepared remarks that things are very very robust for this coming quarter.

Every leading indicator that we typically follow that's prepaid leisure bookings corporate travel cancellation rates or you name. It all of it points to the most robust demand environment, we've ever seen most robust by a significant margin I would say so I think that coming off of two years of a pandemic like Joe said, there's just so much.

Latent demand around travel right now that we feel really good about where we stand, but we're not going to comment right now in the third quarter.

The airlines are talking about it exactly the same.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Joe Ferraro for closing remarks.

Thank you so to recap we reported our best first quarter earnings in our company history, the Americas and international teams delivered record quarters from increased volume and improved pricing. We continue to expand our Adas quick pass offering <unk> preferred customers utilizing our technology for a well received contactless rental experience and most importantly, I want to know.

And thank all the employees for their continued tireless efforts in helping US achieve these results and we're not done as I continue to challenge the entire team to keep this streak alive I believe we can deliver the highest full year adjusted EBITDA in our company's history with that thank you for your time and interest in our company.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation during the rest of your day.

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Greetings and welcome to the Avis budget Group first quarter 2022 conference 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 todays conference. Please press star zero on your telephone keypad.

A reminder, this conference is being recorded I would now like to turn this conference over to Mr. David Calabria, Treasurer, and senior Vice President of corporate Finance. Thank you Sir you may begin.

Everyone and thank you for joining us on the call with me are Joe Ferraro, Our Chief Executive Officer, and Brian <unk>, Our Chief Financial Officer.

Before we begin I would like to remind everyone that we won't be discussing forward looking information, including potential future financial performance, which is subject to risks uncertainties and assumptions that could cause actual results to differ materially from such forward looking statements and information.

Future performance, we undertake no.

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.

Thank you for joining us today.

Yesterday, we reported our best ever first quarter results in our company's history.

This now marks our fourth consecutive earnings report will be delivered record high adjusted EBITDA with that given quarter.

I'd like to start this call as I, usually do alright, thanking all our employees who are giving their best so that we as a team could achieve these results.

In January I stated that we as a company are getting better.

That would becoming better operators better management team and a better organization.

I think the proof of that improvement is reflected in how we manage the business this quarter.

Youll recall that during the first six weeks to 2022, the entire travel industry, we're still navigating through the effects of almond crop.

Travel demand was challenged and we saw the negative effects of this in rental base rate and utilization.

However, instead of shutting down to write out the variant we got to work and mobilized our organization.

We took this opportunity to dispose of our highest mileage vehicles at optimum prices to crystallize significant gains while refreshing the age of our fleet.

We repositioned vehicles to locations, where we believe recovery would happen earliest and strongest.

We went into overdrive on preventative maintenance to bring our out of service vehicles to some of the lowest levels we've ever seen in.

In short we were getting ready for the outsized demand, we believe could occur once omicron subsided.

And that turns out to be light decision.

By the time, we reach Presidents' day.

Strong demand returns and continued to build sequentially throughout the quarter.

By March in the Americas, we had more cause on rent and the highest peak summer 2021.

If you've followed the reports of other sectors in the travel and leisure space. This will come as no surprise.

Consumer demand for travel is the highest we've ever seen.

After two years of quarantine video conference calls and home improvement projects consumers have now decided enthusiastically to dedicate their share of wallet towards seeing the world and reconnecting with loved ones.

We had avis already to help our customers do just that.

2022 is off to a remarkable start.

We generated $810 million of adjusted EBITDA in the first quarter.

Now as a framework of reference that's higher than our full year adjusted EBITDA of 2019, and we've delivered this in what is typically the seasonally lowest quarter of the year.

We're ready to build on this momentum and achieve even greater heights, but before we do that let me recap our historic first quarter results and as usual, let's start with the Americas segment.

In the Americas. It was a tale of two quarters I'm, a CRO and hit hard in January and we saw the effects immediately.

Leisure rental car demand softened significantly and commercial demand was not existent.

Just to illustrate how sharp and severe this was America's utilization in January was lower than any month for 2021.

This includes the pre vaccine rollout of the first quarter of 2021.

Peak of itself the variance.

However on a positive side January was also when the used car market is at its strongest we capitalize on this dynamic and sold high mileage vehicles at attractive gains.

We said that we exit makes up some of the best used inventory in the market. It has one older. It's well maintained throughout its life and is attractively priced.

That was validated through January and February as consumers aggressively purchased our vehicles and there was no shortage of demand.

Capital pruning and harvesting of our rental fleet dominated our activities for the first six weeks and gains on sale contributed significantly to the adjusted EBITDA. During this period.

Because we are so quick to act on this by the time the Omicron cases subsided in mid February we will launch and complete with our targeted aged fleet disposition schedule.

This allowed us to focus 100% of our efforts are beginning cars into the hands of consumers back on rent.

During the second half of the quarter, we saw a tremendous rebound in utilization RPC and rental days, where we've delivered over 10% more days versus the first quarter of 2019, despite soft start to the quarter.

That's reflected in our reported quarterly metrics as the blend that these two opposite market conditions and not reflected on how we're trending.

<unk> quarter of 2021.

RPT for instance was down sequentially in the first quarter of 2022.

For the second quarter in a row.

However February RPT saw marked improvement from January and March RPT saw improvement compare to Europe . So the average <unk> of $72 76.

Which we printed in the quarter doesn't indicate the strength of the exit trend.

The same holds true for utilization.

Quarter utilization was 69%, which is roughly in line where utilization was in the first quarter of 2019.

Although the utilization in the month of March 2022, with near peak Summer 2021 levels.

We're operating on all cylinders when it comes to positioning our fleet the squeeze out the most rental days drive RPT and maximize revenue improvement.

Our demand fleet pricing system combined with field experience allows us to consistently execute on operations no matter the demand environment.

Moving on to the income statement results of these metrics.

In the Americas revenue increased by over $900 million year over year Americas.

Americas adjusted EBITDA during the same period increased by $702 million for an incremental margin of 76%.

If you compare our most recent results to the first quarter of 2019 Americas revenue increased by $673 million, while adjusted EBITDA increased by $775 million for an incremental margin of 115%.

Obviously gains on disposal vehicles contribute significant produce results, but so did our relentless focus on cost control and operational efficiency.

It's the same story, we told all throughout last year.

By maintaining stringent discipline around cost, we're able to maximize the revenue and depreciation benefits that we bring to the bottom line.

The results of <unk> eight.

$810 million of adjusted EBITDA generated from the Americas This quarter.

The previous record was $115 million in 2015.

As you can see it's almost if youre comparing two completely different businesses between now and then.

And Thats, what we mean when we said we're on a transformational journey here.

'bout, getting slightly better and calling it a win with focus on pressing every last macroeconomic advantage and running it through a battle tested least efficient operations to sustainably get to a structurally different profitability play.

I'll close the first quarter results of the Americas before I move on let me provide a bit of color around April and what we're seeing in early may.

The strength in demand that we saw materialize in March has continued into the early part of the second quarter.

The Easter season was strong and early indications are promising as well.

While we're not getting into specific guidance on this call I will say that in the Americas at this point it appears that both rental base and RPG will be higher in the second quarter of 2022.

In the second quarter 2021.

With that let's move over to our international segment, which posted a record an historic quarter as well.

Consistent with our prior quarters, our EMEA and APAC business have yet to see the robust recovery, we're experiencing in the U S in terms of travel demand.

However throughout the quarter, we saw moderate but noticeable improvement in railcar demand with lead to sequentially, improving rental days and RPT throughout the months in the fourth quarter.

This combined with a maniacal cost control our international team has exhibited throughout the pandemic.

And in $23 million of adjusted EBITDA in the quarter.

On an absolute basis that may seem modest compared to the adjusted EBITDA generated in the Americas.

But when you consider that this is the highest first quarter adjusted EBITDA that are international segment has ever achieved.

Again to appreciate the step function change made in the sustainable profitability of this business.

To put it differently on a total international basis, adjusted EBITDA has gone from a negative $50 million in the first quarter of 2021.

To a positive $23 million in this most recent quarter, that's over $73 million of improvement in adjusted EBITDA on $140 million of revenue gains representing a contribution margin of 52%.

More impressively if you compare the most recent quarter's results to the first quarter of 2019, you'll notice that despite having over $160 million and lower revenue.

<unk> EBITDA in the first quarter of 2022 was actually $44 million.

Higher in the first quarter of 2019, when they posted a negative $21 million of adjusted EBITDA.

The dynamics that allowed for such impressive adjusted EBITDA drop downs in the Americas on Youre not unique to this region.

We believe that latent traffic demand in Europe is just as strong as it was in the U S. A few quarters ago.

Like the Americas, the industry fleet situation internationally severely constrained as well.

I've said in previous calls that our international team will be ready with demand materializes and.

And that due to the structural cost improvements made to our operations the drop through to adjusted EBITDA will be sizable when we see top line recovery in that region.

I know, it's still early but from where I sit today. It appears that this is the year, where our teams internationally, we get to show you just that.

Moving onto fleet were consistent with last quarter, we will focus on the Americas segment.

In the Americas, our average fleet size in the quarter was sequentially higher at 443000 vehicles.

Consistent with last quarter. This was a management decision taken to address the uncertainty around receiving new vehicles. These days.

We've been in daily contact with our OEM partners to ensure that deliveries are vehicles orders remain intact.

However, due to labor shortages caused by <unk> early in the year.

Lack of semiconductor availability and ongoing supply chain issues aggravated by the conflict in Ukraine, receiving new vehicles on schedule. This fall from the shore.

Rental car industry will face delays and cancellations throughout 2022, that's the reality of the rental car industry supply.

However, as we made it clear earlier consumer demand for railcars is at all time highs.

Wanted to do everything we can to ensure our customers have a vehicle available to make that business trip will take that vacation.

In order to service that demand in the coming peak.

Currently forced to carry a larger fleet than we normally would in a shoulder period.

This is a temporary strategy in order to get us through the uncertainty around fleet available.

As our OEM supply chain normalizes slow off fleet rotation.

Related to fleet, let me address our unusual depreciation for this quarter.

You'll notice that on a consolidated monthly depreciation cost per vehicle in the first quarter of 'twenty two to $62 down from 185004th quarter 2021.

This was due to roughly $300 million of gains from dispositions in the quarter if.

If you adjust for those gains you'll see that our straight line depreciation has said it is a $230 per month per vehicle.

We've always taken a conservative approach on how we account for depreciation of Davis.

This measured approach and strong residual environments can result in significant gains in the quarter with dispositions of hall.

This quarter was an example of that.

We're not changing how we account for fleet costs at this time and our fleet refresh was largely completed by the end of February .

Therefore, you will see a normalization of consolidated monthly per unit fleet cost starting next quarter.

Lastly, with regards to the fleet, let me touch briefly on our current volume.

While certain Oems have begun discussions around the model year 2020, we buy.

We're still working through how we receive our model year 2022 orders.

Fluid situation and it has been for the past two years net lucky.

Luckily we have decades worth of working together with our OEM partners to deal with this uncertainty.

We believe this is one of the true advantages there is a level of trust that can only be developed by finding the same fight together for years. The understanding that comes from shared Hot chips is what allows you to ask for a favorable when you need it and three we did want to return.

That's difference between a true partnership and a customer supplier relationship.

Yes, it's a challenging time right now the chip shortage supply chain issues and labor uncertainties.

We are here to invest and work with our OEM partners to get through this.

For those unfamiliar with this product and enables our preferred customers upon arrival to select from a choice of vehicles on their phone proceed directly to that core and then utilize our unique QR codes to exit via our automated express exit four completely contactless experience. Additionally.

Additionally, upon vehicle return customers and close out their rental themselves enabled by our connected car technology for an expedited and automated completion of their rental.

Our goal is to have quick pass deployed at the majority of our key airports by the summer travel season.

Next let me comment briefly on Avis commitment to safety and our latest views on the industry disruptions caused by COVID-19.

Our Eva safety pledge and budget worry free promise made in full effect and provides both our customers and our employees industry, leading protocols to keep everyone safe.

Thankfully at this time it appears the effects of Covid and the omicron variance are subsiding.

While there has been an increase in cases over the past few weeks, we have not seen any impact to our booking demand. Our belief is that as long as hospitalizations remain loyal consumers the comfortable travel.

Which provides a good segue how I'd like to wrap up my prepared remarks.

I love seeing our customers traveling again.

Pause around the airport and it feels great to be getting back to normal after so many starts and stops.

From what I see out in the field and from the conversations Ive had with our operators seems like we're.

We're already in the peak of summer I have to keep reminding myself that we're just in may.

Wave of demand headed our way in the coming months and I'll tell you exactly what I tell our field ops on this front.

That's exactly what we've been preparing for <unk>.

All the hardship and sacrifice the cost cutting the retooling of operations learning how to maximize throughput and minimize leakage those lessons learned the hard way through the depths of this pandemic prepared us for this moment.

Pure true operator being tested like this is when we look forward.

Thankfully at Avis, we pride ourselves on our operational ability and I can tell you unequivocally.

Now we're ready for the summer.

If we're able to execute at the level I know, we're capable I believe that 2022 will fully showcase how transformed the company. We really are 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 in our press release.

I'd like to start off by addressing domestic revenue per day.

As Joe mentioned in his prepared remarks, the first quarter of 2022, another sequential decline in Americas, our PD.

We went from a peak of $83 33.

In the third quarter of <unk> 21 down to $75 in <unk> in the fourth quarter of 2001 and finish this most recent quarter at $72 76.

12, 7% lower than the RPT two quarters ago.

That's a substantial change inside of six months period, and we're likely to see changes both the upside and downside going forward.

That's because as I've stated in the past we have Davis do not set rental car prices we.

We discovered price as determined by consumer demand and the availability of supply in the industry.

Both industry demand and industry supply change daily So it's natural that we're going to see fluctuations in price from quarter to quarter.

But if you look at it over an extended period youll see that rental car prices across the industry have been modest over the past 10 years.

From the years 2011 to 2021 industry rental car prices have increased at roughly a 2% CAGR.

Basically in line with the one 9% CPI inflation CAGR over the same period and comparable to pricing CAGR in other sectors of the travel and leisure space, such as airlines and hotels.

Every industry goes through its cycles, and we happen to be in an upward cycle for rental cards.

I would like to point out four things when considering this.

One we came off a near death experience in 2020 with no federal bailout.

We honored all of our financial obligations to our business and financial Counterparties throughout the pandemic I withstanding substantial losses.

Three this upward cycle in RPT only brings us in line with inflation without taking into account the substantial inflation, we're seeing in 2022.

And lastly for over the past 10 years every major input cost of our industry from the price of new vehicles to labor to real estate to parts to insurance et cetera have all seen price increases well in excess of what we passed along to the consumer.

Given these facts.

I remain confident that we provide an excellent value proposition for customers.

Where else can you get a 20 dollar assets simply handed to you for unsupervised use nationwide whenever you need it for less than the cost of its exceeded rental.

Every booking we receive is proof that our customers feel the same way.

Let's move on to capital allocation, where it's been a very active year, thus far.

As Youll recall share repurchases made up the majority of our free cash flow usage in 2021.

In the second half of 2021, we retired over 14 million shares representing 20% of our diluted shares outstanding at the beginning of the period at an average price of slightly over $100 per share.

Year to date in 2022, we've retired an additional 8 million shares representing nearly 15% of our diluted shares outstanding at the beginning of the year at an average price of roughly $215.

In aggregate during this most recent share repurchase program, we have been able to retire 22 million shares representing nearly a third of beginning shares outstanding in less than a year at an average price of $140 a ton.

48% discount to the closing price as of April 29.

But that only takes into account our buybacks since July of last year.

Our share repurchase program has been an active part of <unk> capital allocation strategy since 2013.

Since we launched the program then EBIT has retired 87 million shares and converts at an average price of less than $60.

Nearly two thirds of the diluted shares outstanding retired at a 78% discount to the closing price as of April 29.

We've demonstrated that as capital allocators, we willing to take a long term view and stepping aggressively when opportunities arise.

Which is why yesterday, our board approved an additional $2 billion of.

Of authorization to our share repurchase program, bringing total authorized funds to $2 3 billion.

But as I said on the last call, we will be nimble with how we deploy capital at Avis, just because we viewed share repurchase is the best use of capital for the past year does not mean, we will formulate equally allocate a similar amount of capital to this area throughout the balance of this year we.

We will opportunistically allocate capital to those areas that benefit all stakeholders of Avis budget group.

We find ourselves in the privileged position of being in the strongest financial standing in the history of our company.

In the past four quarters, our LTM adjusted EBITDA has grown from $965 million in <unk> 21 to.

So $1 8 billion in <unk> 21 to $2 4 billion in <unk> 'twenty, one and now as of the first quarter of 2022, we sit at $3 $2 billion in LTM adjusted EBITDA.

So despite or taking on additional term loan C. This quarter, our net leverage ratio remains the lowest in our company's history at less than one three times.

That's less than half of the low range of our three to four times historical target.

As of March 31, we had available liquidity of more than $900 million with additional borrowing capacity of $1 7 billion in our ABS facilities.

Our corporate debt as well ladder with 87% 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 Covenant test as of the end of March.

Let's move on to outlook.

As you know 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.

I do want to provide a bit of color on what we're seeing currently for the second quarter.

As Joe mentioned earlier on the call the underlying demand environment is strong both in the Americas and internationally.

For the second quarter of 2022, we believe Americas rental days will be above the second quarter of 2019 and that RPT will be above the second quarter of 2021.

As always we are keenly focused on managing operating costs and using productivity tools to work around the tight labor market.

Things are humming and we feel prepared.

Which is why Joe has challenged the entire team to keep the streak alive and deliver our fifth consecutive record earnings report for the next quarter by surpassing the adjusted EBITDA, We posted in the second quarter of 2021.

And it's still early but if these trends hold through summer, we believe we'll be able to out to a record full year adjusted EBITDA in 2021 and deliver the highest full year adjusted EBITDA in our company's history in 2022.

Let's open it up for questions.

At this time, we'll be conducting a question and answer session. Please limit yourself to one question and one follow up if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like Jim will be a question from the queue.

Participants using speaker equipment and may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions.

First question comes from the line of Brian Johnson with Barclays. You May proceed with your question.

Thank you.

I wanted to get a little different direction, just thinking about the use of your balance sheet. So clearly people are going to talk about <unk>.

Depreciation straight.

First.

And this is the first time might be even thought about this since the mid two thousands.

You have 4 billion of floating rate debt.

Have you swapped the significant amount of that and.

What is the sensitivity of your interest expense on your ABS structures that included two say 100 basis point increase in pricing.

I think demand in interest rates in that pricing.

Sure Hey, Brian I'll take I'll take that question. So we are definitely in a rising rate environment, but we have a few mitigating factors on our end.

We've been very proactive about refinancing our debt and extending maturity dates. So we feel really good about the visibility we have going forward.

Number 275% of our outstanding corporate debt is fixed and weighted average interest rate of less than four 5%.

Weighted average maturity of that debt is actually five years.

Managing our capital structure has always been a core competency at Avis, our treasury team and our financing counterparties.

And this over the years, so we're going to continue doing that.

In terms of what you are asking about.

The sensitivity towards the.

The ABS structure I think that <unk>.

65% roughly youll have to double check with David.

Aesop debt is also is also fixed or I'm, sorry, not except that our overall vehicle that is fixed so we have a lot of.

Stability, there as well, but we haven't.

Consider what to do in terms of capital allocation with regards to debt that will be evaluated callable bonds for refinancings, just overall debt paydown as part of our capital allocation strategy and also reinvesting equity into our ABS structures.

All of that is on the table, we're going to be proactive.

Can make sure that our balance sheet is bulletproof whatever the rate environment maybe.

Okay, so and at the corporate level.

You added you added 725 million corporate debt.

How should we model the corporate interest expense going forward and then.

My final question would be around your target leverage ratio and what where how much room do you think you have.

Why don't we get to that how much room, you think you have at the corporate level.

Continue to lever up kind of inside of eventually.

Some downturn in EBITDA as things normalize.

Sure.

In terms of how to model it going forward I think your best bet is what were like where we stand today, which I said you can take a look at our corporate capital structure at 75% of that debt is fixed actually if you take into account our $1 $2 billion term loan I think actually we state in our 10-Q roughly $700 million of that has been hedged out floating to fixed.

A good chunk of it is stable.

With regards to what the target.

Ratio is.

We've given any guidance.

Since the historic three to four times.

Okay.

Okay and just one final question you just you talked about monthly straight line depreciation.

Is that a new accounting policy or did you just look at the likely residuals 16 to 24 months whatever your disposal period is.

And on the new vehicles, we're putting in.

Reduce the spread a bit.

No. This isn't new at all I think that there hasnt been a lot of.

There hasn't been a lot of question our focus around it because typically and what we try to do is maintain our gains and losses to zero.

On a period, where that's not happening right now given like the changes that have happened in the used car market. Since we purchased the vehicle and started streamlining them, but it's in the 10-Q every quarter I forget exactly what no eight seven something like that gets in there, but what youll see is youll see our overall gross depreciation costs, then youll see like a small.

All portion of leases and then youll see our gain and loss.

<unk> per vehicle. So if you look at our 10-Q, which was filed earlier this morning.

Youll see that.

The takeaway is that gain on sales if you take away the gain on sales and vehicles this quarter, which Joe mentioned that $300 million.

We're still depreciating, our vehicle gross depreciated in our vehicles at over $230 a month.

That's roughly 10% below where we were in 2019 and Thats due to two major factors one our vehicles are older. So we're at a flatter part of the depreciation curve.

We're getting more efficient around both disposition timing and channels. So I do believe we will continue to see gains on vehicles, we disposed throughout the balance of the year, but as Joe said, we'll have fewer of those vehicles to work through in the coming quarters.

Youll see depreciation levels normalized to where we are straight lining which is around that $2 30, as the year progresses, but we probably won't get all the way there due to the built in gains we have in our model year, 2020 one vehicles.

Okay.

Our next question comes from the line of Hamzah <unk> with Jefferies. You May proceed with your question.

Hi, This is Mario <unk> on for Hamzah.

I guess, maybe just kind of going into the per unit fleet costs.

I guess the <unk>.

Expectation for Q2.

Should we be modeling or <unk>.

We be thinking about that returning to kind of make.

Maybe our original expectation your original path and trajectory for the rest of the year of getting to call. It 250.

Exiting the year or beginning of 2023 should we expect something with a two handle on it starting in Q2, just maybe kind of help us with some of the modeling there.

Sure.

Listen as I said in the question before that we're straight lining at the $2 30, So I think thats closer to where we'll be exiting in <unk>. So you can take your view on kind of how we normalize to that but let's say that will be around the $200 level next quarter.

Maybe something slightly lower and it's dependent on kind of how many cars, we end up selling in the second quarter and throughout the balance of the year, but I do think that that $2 30 level is where it will be kind of exiting the year.

Got you and then.

On fleet growth.

How are you guys thinking about that I know that you had your demand fleet pricing system and you're doing.

Doing your best to maintain high pricing, but maybe just comment on what your visibility is the demand.

As of today and if that's changed at all over the past call. It few months versus what you saw in 2021.

Our people booking further out than they have over the past year or has it been pretty consistent with what you've seen.

Yes, I'll take that this is Joe.

I think when you when you when you look at demand, let's start with what happened in the first quarter. We saw a basic step change in what the demand was was actually <unk>.

Serialized in February end of February as Brian I think on the last earnings call talked about we saw pretty good demand for the presidents day holiday and that continued into March right and that was a.

Coming off of where we were with things were kind of stagnant you saw the TSA volume or passengers, who went through the airports that only 25% in January was kind of in the mid Twenty's in February and all of a sudden that started to show promise of improving and it has been improving throughout the month of throughout the month of April .

When you have that type of step change you have to anticipate what's going on based on what you see closer in I think.

To your point about demand going out if.

If you look at the reservations that are being booked there.

We have a greater degree of reservations booked over 30 days in advance that we had actually 2019 and what that shows me shows US is the fact that consumers have confidence in their ability to travel.

As well as preparing for <unk>.

For a season, where.

They want to take vacations as we talked earlier.

As I said earlier back in last year between video conferencing and staying at home and entertaining at home people have certainly got now on the road and we see that in our forward looking demand so demands going out as we see it today looks quite impressive if you look at the month of March just to give you an indication.

<unk>.

I mentioned earlier in my remarks that we had more cars are on rent in the peak of March than we did at any time during the summer of 2021.

So that should give you some indication of where we feel demand is going to be.

Our next question comes from the line of Christopher <unk> with Deutsche Bank. You May proceed with your question.

Hey, guys. Good morning, congratulations and thanks for the.

Data points so far.

I was hoping maybe you could give us a little bit of color on the different buckets of demand between leisure and corporate and just kind of.

Maybe where they trended through the first quarter and what youre seeing seasonally because.

Q2, it can be a little bit different in Q3, right and then just directionally.

What's the pricing.

Behavior is for for those buckets. Thanks.

Sure Chris This is Joe.

In the early part of the first quarter.

Materialized.

We see strong leisure demand and strong leisure.

Activity on a go forward basis, and I have to say in the latter part of the first quarter, we've seen the commercial demand.

Improve as well to points above 2019 level during the same period that quarter.

I think going forward youre going to see a good mix, especially in the second of both commercial and leisure we said earlier on.

The last call that.

I believe strongly that commercial business is good for our company.

It gives you a midweek peak as far as how to utilize the fleet more effectively and that will allow you to have that car available for rental for a leisure period, but it comes more on the weekends.

The commercial business that we have seen is.

I think they've augmented to safety.

Service and.

The fact that do you have a car or not.

To make that choice for us and prices have become elevated for our commercial business and the last thing I will say about commercial.

We've seen a tremendous growth and will be KOB leisure personal rents a car for a couple of days and then keeps on the weekend think of a business traveler going to Las Vegas for a conference and it sticks around for a concert on the weekend we've seen.

Good deal with that and with our split build technology that we did a number of years ago that will allow us to have a consumer to use their corporate card for midweek and then put it on their private cloud for the weekend. So we've seen that and then what we've shown on the leisure side is especially around holidays when these.

Easter holiday or President's week, or even Martin Luther King early in the month tremendous activity in growth centered around those as well.

Okay.

Very helpful. Thanks, Thanks, Joe and then just as a follow up.

Maybe too early to tell but do you do you think there is any structural change in kind of the hold period for your vehicles I mean, obviously, Michael just going to be a gating factor at some point, but you guys have been able to stretch I think the whole period to meet the increased demand in and take care of the.

Availability issue. So just going forward do you think there is a structural change or does the whole period revert back.

Listen when you think about how we how we operate our fleet there are three aspects of it that we certainly concentrate obviously, how you buy it.

And how you sell it but in the middle is key component of how you use it and.

Obviously, we have based on this very fluid situation.

Buying in generating new car.

From the Oems has caused us to rethink that a little bit and.

So we we refreshed our fleet in the first quarter.

We've done a lot to take out higher mileage vehicles that in my opinion.

So throughout the summer peak and we've augmented some of our fleets in other areas with.

Both new and some some used vehicles, but as I see it right now the residual values are really high and we've had no issue with selling cars.

The demand has been strong and the residual values are strong I think we've taken a measured approach going forward to see exactly what the.

The new car situation looks like as we get into the peak of our of our season and we'll make decisions accordingly, as we go out.

Louis is very apparent.

Both.

Mileage and age in the residual values of the cars hold and react accordingly based on those metrics, Chris just to add just to add to that some of this is.

The fact that we've been talking about all last year the constraints that we're having around buying new vehicles. This year.

As we are into our 2023 model year discussions like that constraint is going to continue on into into next year as well. So just industry supply is going to be challenged.

And because industry rental car demand is at peak.

That's just going to lead to slightly ultra vehicles, but what I would say is that we're getting better about managing these vehicles were noticing the benefits. It has being on the flatter part of the depreciation curve, we're able to keep our out of service levels at historic lows and our NPS scores from our customers are higher than it was in 2019, So I think it's something.

That kind.

Kind of we.

We think is sustainable going forward.

Our next.

Question comes from the line of John Healy with Northcoast Research you May proceed with your question.

I think you wanted to ask a question about capital allocation, Brian you guys have been.

Really.

The bold and thoughtful and smart with the buyback over the last couple of years kind of on your comments about future allocation interesting and we've seen some transport transformational M&A.

And the kind of the marketing sector recently, just kind of curious to get your thoughts about M&A and.

If you could potentially look to M&A as a way to integrate this business.

Even further in terms of either retailing on the auto side or even deeper into the mobility landscape just wanted to get your thoughts on appetite and interest level there.

Okay sure.

Well, John like we take a holistic view when it comes to capital allocation. So guests we consider share repurchases. We also look at debt Paydown.

And we do look at the M&A landscape, which like you said is becoming more and more attractive out there, but the reason why we've been still aggressive around the purchases that we've gotten a chance to repurchase at levels that we feel.

Sure.

That our shares were undervalued relative to fundamentals around our current and future earnings trajectory.

Yes.

Now, where we allocate capital going forward is going to be a function of how attractive.

Each of those three buckets are and to be clear we were active all throughout April as well in terms of our share repurchases, we acquired a $1 million of half shares last month at an average price of $270. So obviously, we still view share repurchases as an extremely compelling use of our free cash flow at these levels.

Now depending on where that share price goes forward that will kind of move our decision in terms of where we really look towards debt Paydown, which is something that we're looking.

Closely monitoring right now, especially in a rising rate environment.

And M&A possibilities out there we've said this before in the past and previous calls.

That we're not going to go and pursue M&A for M&A sake, we're going to be thoughtful about where we add on.

Colleagues see more things that are closer to like bolt on acquisitions to core competencies and like we are monitoring that landscape actively.

Great and just wanted to get a big picture question.

Your fleet was up I wanted to say, 1% over 2019 levels then the unit economics.

Again, just amazing this quarter, but would just love to know.

Where do you think you've gained share.

In the industry are there any channels vertical and what that share position that you gained.

How durable do you think that means for the company.

I'll take a shot at that.

When you think about our company we offer various different brands in various different segments that attract consumers to our company.

We have three brands Avis budget and Payless, all attract a different type of consumer Avis, obviously more.

Commercially oriented people will expect.

Excellence in service budget, which appeals to the leisure travel which was certainly.

Very big this past quarter, and yet payless to someone who is maybe a little bit more.

In line with.

Our value proposition and then you take what are the other things that we do here.

Talk about as much but we have a growing ride hailing segment of our business.

We've been doing that for a number of years, we have a.

Rideshare business that we have cars located within walking distance of urban centers on college campuses and we have a last mile delivery business thats been growing pretty rapidly over the past number of years with our budget truck.

Budget truck business and combine that with things that we do we offer one way products with people and short term leases. So I think we probably cover the gambit, a full range of mobility and Youll see us moving as time goes on into more electrification of our fleet and I think with that we have we offer.

A variety of products that attract consumers to our company.

John just to add to that we don't manage to market share at this company, we managed to meeting the demands of our customer base.

And still fresh in our minds that environment in 2020, when our volumes were down 80%.

Is that kind of trauma I believe me it leaves a mark.

Our last question comes from the line of Ryan Brinkman with Jpmorgan. You May proceed with your question.

Great. Thanks with regard to capital allocation.

I think you've been pretty clear in our communications, including on the call just now and in your actions that you are laser focused on share repurchase while also entertaining other opportunities with the shares proofing, maybe especially attractive right now just given valuation.

Just wanted to follow up on the other opportunities, including I heard you say in answer to I think it was Joe's question bolt on acquisitions to complement our core competencies and so I guess in addition to a buyback and inorganic.

Expansion the other bucket really is the incremental organic investments you could push on so I just wanted to get your appetite around like bolstering core competencies via more organic or like.

Step change maybe pulling ahead.

It changes the inorganic so for example, like with direct to consumer.

Whats the math of the strategy on Okay. We've got all this cash we could deploy it on building out stores or do you go out and you buy somebody who's already selling cars to consumers, maybe we can start there.

Okay, I'll start and then I'll throw it over to Brian .

When we look at deploying capital, we obviously look at how to make our operations more efficient, but we're working on.

Process and procedures to do just that big project productivity systems and things to make our businesses certainly more reflective of the operating environment. We spent a ton of time in the past talking about our Avis App and R. R. I spent I talked a little bit about.

Quick passed where we allow a customer to come in and it really in a self service mode and transact with our transact with our company, we'll be rolling that out in a.

A more aggressive fashion as the as the year goes on so youll see us deploying in things like the customer experience because we do believe that that's a differentiator with our company.

You talked a little bit about how we sell cars.

That's on our list as well as how we will sell cars in a differentiated way we've talked in the past about growing our sale lots and things of that nature, we do believe.

That if we find a way to sell more cars dynamically to the consumer of that hole that will certainly benefit our company and lastly.

How do we prepare ourselves for the electrification of vehicles as we talked to our Oems going forward.

Eric vehicles will be part of their part of their fleet portfolio.

One thing, we love about working with our.

Our OEM partners as it gives us a tremendous diversification in fleet and electric vehicles will be part of that we need to be prepared for that.

Sure.

I think you hit on all other points.

There's a third option as well like when it comes to bolt on.

Kind of and bolstering our core competencies and we can build ourselves organically right dedicate more resources to building. It ourselves we can go out and acquire through M&A, which you are asking about inorganically or we can partner as well thats the third option with.

With best in class people, whose core competency. It is to do just that so we're evaluating all three and yes direct to consumer is important that's something we're focusing a lot of time right now and looking at all three of those options, but we're also looking at things around the supply chain and around electrification as Joe said so.

Yes, we're looking at all areas. Okay very helpful. Thank you and then just the last question is big picture, how youre thinking about.

Proportionate impact that that can have on on leisure in Europe .

Internationally the U S I should say sorry, yes.

So to your question.

Apparent last year in the in the 2021 season, one of which you mentioned was inbound international traffic, we've definitely seen a change in the booking patterns once those countries lifted their restrictions.

So whether that be from Canada, recently or or or Europe that has made a material impact so international business, which has been down quarter to quarter.

And.

<unk> mandates.

We're not we're not getting into kind of guidance outside of the second quarter, but as Joe said in his prepared remarks that things are very very robust for this coming quarter.

Every leading indicator that we typically follow that's prepaid leisure bookings corporate travel cancellation rates like you name it all of it points to the most robust demand environment, we've ever seen most robust by a significant margin I would say so I think that coming off of two years of a pandemic like Joe said, there's just so much.

Latent demand around travel right now that we feel really good about where we stand, but we're not going to comment right now in the third quarter.

The airlines are talking about it exactly the same.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Joe Ferraro for closing remarks.

Thank you so to recap we reported our best first quarter earnings in our company history, the Americas and international teams delivered record quarters from increased volume and improved pricing. We continue to expand our Avis quick pass offering for Avis preferred customers utilizing our technology for a well received contactless rental experience and most importantly, I want to know.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation through the rest of your day.

Q1 2022 Avis Budget Group Inc Earnings Call

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