Q4 2022 Avis Budget Group Inc Earnings Call
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Speaker 2: We have a brief question and answer session. We will follow the formal presentation.
Speaker 2: If anyone's require operators assistance during the conference, please press Star Zero on your telephone keypad.
Speaker 2: As a reminder, this conference is being recorded.
Speaker 2: It is now my pleasure to introduce your host, David Calabria, Treasurer, and Senior Vice President of Corporate Finance. Thank you. Please go ahead.
Speaker 3: Good morning, everyone, and thank you for joining us. On the call with me are Joe Ferraro, our Chief Executive Officer, and Brian Choi, our Chief Financial Officer. Good morning, everyone, and thank you for joining us on this This Week in the 2020
Speaker 3: Before we begin, I would like to remind everyone that we will be discussing forward-looking information, including potential future financial performance, which is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from such forward-looking statements and information.
Speaker 3: Such risks and assumptions, uncertainties, and other factors are identified in our earnings release and other periodic filings with the SEC, as well as the investor relations section of our website.
Speaker 3: Accordingly, forward-looking statements should not be relied upon as a prediction of actual results, and any or all of our forward-looking statements may prove to be inaccurate, and we can make no guarantees about our future performance. We undertake no obligation to update our or revise our forward-looking statements.
Speaker 3: 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 reconciliation to the closest comparable GAAP measures . With that, I'd like to turn the call over to Joe.
Speaker 3: Thank you, David, good morning everyone and thank you for joining us today.
Speaker 3: Yesterday, we reported the best annual results in our company's history.
Speaker 3: We delivered over $4.1 billion of adjusted EBITDA in fiscal year 2022 and said a new standard for what excellence means at this company.
Speaker 3: I want to thank our 24,000 employees for the work they put in last year to achieve this milestone.
Speaker 3: When it comes to our business, our operators focus on one check out at a time, but it's worth stepping back and reflecting on what's possible when an entire organization brings their best day in and day out.
Speaker 3: This focus and dedication is engraved in how our team operates and it does a stop at the end of a calendar year.
Speaker 3: We're bringing the same level of intensity to 2023, and I'm looking forward to showing everyone what we can accomplish this coming year.
Speaker 3: But before we get into that, let's review our fourth quarter and as usual, let's start with our America segment.
Speaker 3: On our last call, I spoke about stabilization happening within the industry, where we're seeing a return of normal demand seasonality.
Speaker 3: We saw this continue into the fourth quarter and the business metrics reflect what we typically see in the last three months of the year.
Speaker 3: The quarter showed strong commercial demand. In fact, it was the highest amount of commercial volume we have seen during the fourth quarter in company history. And what about levels we achieved in 2019?
Speaker 3: It's apparent that the commercial customers traveling and using our brands and an elevated level.
Speaker 3: A commercial resigning for the year are approximately 100% and on average coming in at an increased price.
Speaker 3: We can follow the traditional patterns that exist in the fourth quarter, which is mostly around holiday periods, with Christmas being the largest.
Speaker 3: Well, they were challenged to surrounding travel late into December . We were able to offset air travel disruptions with robust one-way rentals, as customers need of reaching at destinations.
Speaker 4: Use our cars to get where they were going.
Speaker 4: We have great airline partners and work well together for the best possible outcome for our customers in times of need.
Speaker 4: The fourth quarter always represents a pullback from the height of the third quarter and this year was no different.
Speaker 4: Like I said, we are seeing a return to more normal seasonal trends which allows for better forecasting and matching of supply to demand.
Speaker 4: Price in the quarter was up 1% from 2022 and rebounded from the 3% decline we saw in the third quarter.
Speaker 4: Peak period pricing and improved ancillary sales help to fuel this growth.
Speaker 4: We're supported by great technology with proprietary demand-fleet pricing system.
Speaker 4: which forecast the man down to the car level by location, by day of the week, and time of day, and prices accordingly.
Speaker 4: This technology.
Speaker 4: combined with our experienced team of operators, both in our headquarters and our field, allows to capture this opportunity.
Speaker 4: While maybe early to say what the industry has found in equilibrium between supply and demand, what we saw in the last quarter is encouraging.
Speaker 4: The holiday travel disruptions, combined with supply chain challenges and a desire to rotate older units so as the position was better, heading of the January , had a slight impact this quarter to utilization.
Speaker 4: But as usual, our teams didn't abdicate responsibilities due to factors out of their control. Instead, we continue to focus on cost discipline and deliver results that showcase the streamlined and lean operating structures we built during the pandemic.
Speaker 4: We are keenly aware of the inflationary pressures we faced in 2023, and will continue to combat rising costs with sustainable productivity gains driven by technology and data.
Speaker 4: Moving on to the income statement results of these metrics. In the Americas, revenue increased by 100,000,000,000,000 year-over-year.
Speaker 4: However, America's adjusted EBITDA during the same period decreased by 46 million, primarily due to a $68 million headwind in Vible Depreciation and Interest. If you compare a most recent results to the fourth quarter of 2019, America's revenue increased by 674 million.
Speaker 4: while the adjusted EBITDA increased by 480 million for an incremental margin of 71%.
Speaker 4: Gain on dispositions contribute at $163 million towards this quarter. As I said on our previous call, we will remember and proactive when it comes to fleet dispositions. If we see an opportunity in the market.
Speaker 4: I'll get into more detail during the fleet portion of our Pat and Mox. But again this quarter, we ensure proper fleet rotation by exiting high-mile with vehicles at favorable prices as we brought in new fleet.
Speaker 4: Overall, the Americas had a great quarter and a terrific year, and we see positive trends going into January and February .
Speaker 4: Demand is strong and bold looking reservations show this and our price discipline we saw in the fourth quarter is Continuing into the first
Speaker 4: Lastly, there's improved demand for our car sales and the prices have shown improvement, which is encouraging.
Speaker 4: With that, let's move over to our international segment, which had an historic fourth quarter and full year.
Speaker 4: Our international story and playbook for the fourth quarter is consistent with what you've seen out of the team the entire year.
Speaker 4: A strong rate and volume environment was met with stringent course discipline in order to maximize the results to adjusted EBITDA.
Speaker 4: Retal days in the fourth quarter were 15% higher than the fourth quarter of 2021.
Speaker 4: but still 22% below the fourth quarter of 2019, which signals a lanype runway for buying recovery.
Speaker 4: RPD in the fourth quarter of 2022 was 5% higher year over year or a significant 18% excluding a strange rate of effects.
Speaker 4: Similarly to the Americas, you're seeing normal season-ally return to much of Or this??, or the previous pandemic. folder page 37, loading and?? sungikanit.com
Speaker 4: Adjusted EBITDA on the fourth quarter of 2022 was a record 63 million on a recorded basis, including 16 million negative impact from currency exchange rate movements.
Speaker 4: This brought our full year adjusted EBITDA to $560 million on a reported basis.
Speaker 4: including a 79 million negative impact from currency exchange rate movements and marks the highest full-year adjusted EBITDA achieved by our international segment.
Speaker 4: We're proud of what this team achieved in 2022 and expect continued excellence out of this segment in the coming year.
Speaker 4: Moving on to FLEE, we're consistent with last quarter, we'll focus more on the Americas segment.
Speaker 4: Fleet disposition teams maintain busy this core and continue to rotate the fleet exiting high-mileage vehicles to make room for our new 2023 model year vehicles.
Speaker 4: In fact, we sold more cars this fourth quarter than any fourth quarter prior, which shows the elevated demand for our product.
Speaker 4: The selling price of other exposed vehicles remains above netbook value, but as discussed on early calls, we are seeing a moderation in the use car market and do not expect gains at these same levels in 2023.
Speaker 4: The moderating gains on sales combined with higher straight line depreciation, resulting in a higher monthly depreciation cost than we recently experienced.
Speaker 4: We reported monthly pre-unit in the Americas of 175 versus 170 per month in the fourth quarter of 2021.
Speaker 4: However, due to rising interest rate environment, a vehicle interest per month per unit,
Speaker 4: 150 in the fourth quarter of 2021 to 73 in the fourth quarter of 2022.
Speaker 4: Our ASAP facilities include a holding rate conduit facility which impact our vehicle interest negatively in a rising rate environment.
Speaker 4: As we pointed out on our last call, we expect this to continue into the full year of 2023.
Speaker 4: With rising interest costs and moderating use car values, making sure that we have the optimal fleet size where utilization is more important than ever.
Speaker 4: This fleet cost environments so beily penalizes excess fleet capacity and will not risk putting ourselves in that position.
Speaker 4: Now, discipline bleak disposition this quarter illustrates how we're constantly trying to match our supply industry demand.
Speaker 4: with demonstrating that steam discipline to taking on new vehicles as well.
Speaker 4: As I mentioned on our last call, fleet purchases are the largest use of capital in our business and we realize that optimizing for return on that capital is our responsibility as stewards of this business. Therefore, we are being very conscious with both the number of vehicles and the purchase price of those vehicles for our 2023 buy.
Speaker 4: On the margin, we'd rather run out of an incremental vehicle and have it unutilized vehicle on our lot.
Speaker 4: A plea plan for 2023 reflects the stance.
Speaker 4: We're not trying to maximize the number of units we can absorb.
Speaker 4: Instead, we're optimizing the overall health law of Glee, which means younger and lower mileage cars. We're also optimizing the overall vehicle mix of our Glee, which means having a product portfolio that are renters demand.
Speaker 4: Thankfully, our key OEM partners are coming out with exciting new launches in 2023, and we secure key applications for both traditional internal combustion vehicles and of course electric vehicles.
Speaker 4: So going into the first quarter, we've seen continued demand for our use cars and prices have continued to improve. A fleet size is currently just under demand levels, showing improved utilization and a continued rationalized approach to fleet levels in our industry.
Speaker 4: While on the subject to be these, let me reference the press release we issued on January 26th jointly with SK Group's Evercharge.
Speaker 4: Those who haven't seen it allow me to recap the key takeaways as I believe this partnership clearly represents our vision and strategy around rental fleet electrification.
Speaker 4: Electric vehicle share is increasing as a percentage of new car sales, a macro industry trend that nobody disputes.
Speaker 4: However, how to take advantage of this trend specifically when the car rental industry is less obvious.
Speaker 4: and Davis, we believe the road to electrification.
Speaker 4: Rest on a foundation of charging infrastructure.
Speaker 4: An optimal charging framework is an unnecessary condition to support an electrified plea.
Speaker 4: I'll approach to creating this infrastructure at scale and follows 14 pillars that build upon each other.
Speaker 4: I approach to creating this infrastructure at scale and follows 14 pillars that build upon each other. The first is power availability.
Speaker 4: This means coordinating with the appropriate utilities and airport municipalities to secure access to enough power to support a large rental fleet.
Speaker 4: The second pillar is hardware. Each site has its own specific needs, both in terms of physical footprint and customer composition.
Speaker 4: A Cuddard garage will have different hardware requirements versus an open air lock.
Speaker 4: The check-in, check-out dynamics can vary dramatically from a leisure-heavy airport versus a commercial of the airport.
Speaker 4: These factors, along with many others, need to be considered before developing a thoughtful portfolio.
Speaker 4: About two chargers, DC fast chargers, and energy storage solutions.
Speaker 4: Having unified hardware that can dynamically manage electrical loads is necessary to optimize the power availability.
Speaker 4: Third pillar of Swapwear.
Speaker 4: The majority of residual value in electric vehicle resides in its battery.
Speaker 4: Therefore, it's necessary to monitor and optimize charging history while meeting the turnaround time for our customers demand.
Speaker 4: We need short-wrest solutions to draw on the grid at all peak times, short-for-peak times, and load managed throughout the day to minimize cost per kilowatt.
Speaker 4: The daily movement and life cycle over rental tar is fundamentally different from the retail own personal vehicle.
Speaker 4: which is why we require purpose-built software that offers visibility and guidance around the unique challenges we face.
Speaker 4: comprehensive data capture that powers the right software is the only way you'll get the most out of your hardware portfolio.
Speaker 4: The fourth and last color is operations process. Normal ice vehicle can be gas in three minutes, and any pump can be used for any car.
Speaker 4: That's not the case for an EV plea. The operations flow changes based on the state of charge of the vehicle.
Speaker 4: There's an optimal charging port for certain vehicles based on when it's expected to be rented next, and variables change as new vehicles enter the lot, or charging thresholds are met.
Speaker 4: The legacy methods in our handbooks won't work for this. Reacquire new tools and better real-time connection with technology for the vehicle journey to adapt an electrified world.
Speaker 4: Without the right operational process, all the kilowatts, charging stations, and dashboards in the world won't help you.
Speaker 4: These are daunting challenges. The weed avis have been working quietly through them for years. We've engaged the foremost subject matter experts on developing and for its specific road maps, and we've been in constant dialogue with our only importance to forecasts our upcoming EV next, which in my opinion.
Speaker 4: is extremely diverse and a fleet that our customers will enjoy. Well, we've waited to show what we've been working on until we've been competent that the product is reflective of the meticulous consideration and substantial effort given by our internal team and external partners.
Speaker 4: We believe what we've installed in Houston together with SK Group and EverTradGE will represent the most advanced large-scale charging system.
Speaker 4: together with SK Group and Evercharge represent the most advanced large-scale charging system in the fleet ecosystem.
Speaker 4: It addresses all up four of our key EV pillars and serves as proof point of what we've been developing as an example of what's yet to come.
Speaker 4: I want to thank the SK Group and the EverTradged teams for helping us achieve this milestone and convey how excited I am for the additional airports we have slated to launch this year.
Speaker 4: I'll pour you and wrap up my prepared remarks by once again saying how proud I am of our team and the results of 2022.
Speaker 4: It's definitely one for the record books. It marks an incredible turnaround from the challenges we faced just two years ago. And I'm cited what we can still accomplish in 2023.
Speaker 4: Demand the storm. In the street, pleads a rationalize.
Speaker 4: prices started the year performing well
Speaker 4: And they've continued to be demand for our used vehicles and improved prices. With that, I'll turn it over to Brian to discuss on the liquidity and outlook. Thank you, Joe. Good morning, everyone. I'll now discuss on the liquidity and your turnout look.
Speaker 4: My comments today will focus on our adjusted results, which are reconciled from our GAT members in our press release.
Speaker 5: I'd like to start off by addressing capital allocation.
Speaker 5: In conjunction with our earnings release yesterday, we also announced the authorization of an additional $1 billion to our share repurchase program, which brings a total available authorization for buybacks to $1.7 billion. Last quarter, we bought nearly 4 million shares for roughly $750 million, which comes to an average purchase price.
Speaker 5: of $192 per share. Davis' share repurchase program had led to substantial value creation over time for its long-term shareholders.
Speaker 5: Since the program began in 2013, Avis has retired 96 million shares and converts at an average price of $71.
Speaker 5: That's over 70% of the original shares outstanding retired at a 67% discount to the closing share price as a February 10th.
Speaker 5: However, we firmly believe that our share price today does not fully reflect the fair value of the company we've transformed into post-pandemic.
Speaker 5: which is why we believe it's our fiduciary responsibility to ensure that our Repurchase Program continues unimpeded for the benefit of all shareholders.
Speaker 5: I'm pleased to announce that along with the $1 billion increase in authorization, we also clarified language in our credit agreement to ensure we could do just that.
Speaker 5: So let me point out that this new authorization and amendment simply gives us the option to deploy cash towards share repurchases.
Speaker 5: As I've said in the past, we will be nimble with how we allocate capital at Avis.
Speaker 5: Just because we've been chair repurchased as the best use of capital in 2022 does not mean we will formulately allocate a similar amount of capital to this area in 2023.
Speaker 5: We will opportunistically allocate capital to those areas that best benefit all stakeholders of ABA's budget group.
Speaker 5: We continue to find ourselves in the privileged position of being in the strongest financial standing in the history of our company.
Speaker 5: Our adjusted EBITDA has grown from $2.4 billion in 2021 to $4.1 billion in 2022.
Speaker 5: During the year, we've repurchased $3.3 billion of shares, invested nearly $1 billion back into our vehicle programs, deployed over 300 million into investments in our systems and operations, customer experience, and electrical vehicle capabilities.
Speaker 5: All while having a net leverage ratio of less than one time.
Speaker 5: As of December 31st, we had available liquidity of approximately $1.6 billion with additional borrowing capacity of $1.9 billion in our ADS facilities.
Speaker 5: Our corporate debt is well-latter with approximately 86% of our corporate debt having maturities in 2020 states are beyond. And we are in compliance with all of our secured financing facilities around the world with significant headroom on our maintenance governance tests as of the end of December .
Speaker 5: debt is well-latter with approximately 86% of our corporate debt having maturities in 2020 states are beyond. And we are in compliance with all of our secured financing facilities around the world with significant headroom on our maintenance governance tests as of the end of December . Let's move on to our outlook.
Speaker 5: 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.
Speaker 5: But I do want to provide a bit of color on what we're currently seeing to the first quarter.
Speaker 5: As Jill mentioned earlier on the call, we are seeing a return to normal seasonality in the business.
Speaker 5: which means that for the first quarter of 2023, we believe RPD will see a seasonal decline from 4Q22 as we enter a shoulder period in our leisure segment and commercial rates make up a greater portion of our business mix.
Speaker 5: Our best estimate at this point is that RPD in 1Q23 will be in between 1Q22 and 1Q21.
Speaker 5: However, due to the commercial accounts we signed in the event this throughout 2022, we believe sequential rental days and average wheat size will be close to flat for a consolidated company.
Speaker 5: Depreciation costs in the first quarter will see a sequential increase as our fleet mix continues to weigh more heavily to model your 23 vehicles.
Speaker 5: Our straight line depreciation in the fourth quarter was in the high 200s and we expect this figure to settle in the 300 to 320 range for 2023.
Speaker 5: As Jill mentioned, while the use-car market is currently helping, we do not expect to realize anywhere near the gains we realized in 2022.
Speaker 5: Therefore, you should expect a convergence in reported depreciation, net of gains, and our straight line depreciation as the year progresses.
Speaker 5: Let me shift over to vehicle inter-suffend, which I touched on during our last call. I'll focus more on the America segment.
Speaker 5: In the Americas, vehicle interests sequentially rose from $52 per month in 3Q22 to $73 per month in 4Q22.
Speaker 5: Due to rising interest rates and increased cap costs of incoming vehicles, we expect monthly per unit interest expense in the Americas to be approximately $100 in 2023.
Speaker 5: Increases to straight line depreciation and interest expense means that the cost to deliver a rental day will be going up in 2023.
Speaker 5: Therefore, we must be prudent with how much capital we allocate towards fleet growth and carefully evaluate the appropriate return we require on the capital we deploy.
Speaker 5: I'll reiterate something that Joe said in his prepare remarks.
Speaker 5: On the margin, we'd rather run out of the incremental vehicle and have an unutilized vehicle on the lot.
Speaker 5: This reflects the ROI-driven rigor we hold ourselves to when making fleet decisions.
Speaker 5: We apply that same rigor towards price optimization, cost discipline, and asset utilization every day across every location in our business.
Speaker 5: which is what gives us confidence that despite certain macroeconomic headwinds, we will continue to deliver strong EBIDA and free cash flow throughout 2023 and beyond.
Speaker 5: But that lets open enough questions.
Speaker 2: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. 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.
Speaker 2: For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys.
Speaker 2: In the interest of time we do ask you please limit yourself to one question and one follow-up.
Speaker 2: Again, that is Star 1 to register a question at this time.
Speaker 2: The first question today is coming from Chris Lungkopf of Deutsche Bank. Please go ahead.
Speaker 4: Hey, good morning guys and congratulations on fabulous year.
Speaker 4: So, question is, I guess Joe, you know, when we look back to the 2018, you guys were always in this kind of $100-ish million range of e-bid-daw much smaller numbers, of course. And if we, you know, if we look what you did in 2022 and we strip out the gains which we can figure out.
Speaker 4: Do you think you go back to being in a range of 100 or 200 million of ebitile, whatever that might be? Is that a realist way to just think about it at the highest level?
Speaker 4: Thank you.
Speaker 4: You know, we're a structurally different company than we were back in I think you said in the teens I was the president of America's then so I could I could tell you that's for a fact
Speaker 4: The way we look at our business, how we manage our fleets.
Speaker 4: how we look at our demand, how we use data and technology for some of our decisions is completely different than we had in the past. And if you recall, during the height of the pandemic, we had to take a good amount of cost out of this business. And while some comes back over time, yes, but...
Speaker 4: We've managed to have stringent course controls to drive our output.
Speaker 4: And what we're seeing is, if you go back to those teen years, we didn't quite see the demand that we have today. As I reported, we have high commercial demand. And in this period, we're trying to call this shoulder period for travel as you come up though, the busy, you know. And we're trying to call this shoulder period for travel as you come up.
Speaker 4: fourth quarter and holiday season, it started off really well. Now if you look at TSA volume compared to 19, which is interesting, in the month of January , first week actually started off relatively flat compared to 2019, and the last week finished flat compared to 2019 and over.
Speaker 4: Over the last couple of years you've seen that we've run, you know, our volume is, you know, a little bit higher than TSA volume as it stands. So, yeah, I think we're in a different place than we were back in the teens, Chris. And that's the way I would think about it.
Speaker 6: Okay, thanks, Joe. And then as a follow up and appreciate all the detail you guys gave on the approach to bringing EVs into the fleet. But the question would be as those.
Speaker 6: to become more significant and you're prepared to bring on a larger number. How do you think about the economics of those in terms of lower maintenance costs, but maybe longer hold periods and appreciation? And it's not necessarily a specific number, but just high level thoughts on the economics.
Speaker 4: Yeah, I think the best way to categorize it is we're learning. There's every indication that these cars should perform better from a maintenance standpoint.
Speaker 4: less moving parts and things of that nature. As far as life, you know, in mileage, we're gonna get in, you know, that as time goes on, but my early indications are probably the cars which should run a little bit longer as we see it. I'll tell you, you know.
Speaker 4: As we go forward, we're going to most likely learn a little bit more about what the maintenance course is all we haven't seen hardly any so far right yet. But I do say it's kind of early to tell on that. We will start increasing our fleet sizes over the year. We have a good array of new models coming in.
Speaker 4: And like I said earlier in my preferred months, I think the infrastructure designs that we have and the layouts will ultimately determine our success. And at the end of the day, Chris, we look at our per-unit economics. What we can drive and revenue for the car, how long we use it, how it drops through to determine.
Speaker 5: you know, overall success of that entity. Great, thanks guys. Thanks Chris. Thank you, the next question is coming from John Healy of North Coast Research, please go ahead. Thank you, I wanted to ask you guys a little bit about Fleet for the Air. Your competitor kind of gave us some perspective of how they were thinking.
Speaker 5: of fleet commitments and what we might see in kind of the scenarios that you're developing to kind of strategize for that.
Speaker 5: John , this is Ryan. I'm going to start and then end it over to Jill. I think we said in our prepared remarks.
Speaker 5: that fleet cost are increasing this year. Vehicle is increasing this year. So we would rather... help
Speaker 7: have a tighter fleet going forward and our fleet plan in 2023 reflects that. I'm not trying to maximize the number of units we can absorb, as Joe said. I think from our perspective what we're trying to do is match our fleet industry demand and given that the costs to hold this fleet are higher this year, I think.
Speaker 7: maximizing utilization and being very tight on that front is more important than ever. Let me give you a few tips. Yeah, thanks Brian . I certainly agree with that.
Speaker 4: You know what and John we made a concerted effort over the last two quarters to rotate our fleet out It did a couple of things for us One was it allowed us to exit high-amilage cars that you know come with a you know higher maintenance Platform and we were able to do that in the third and the fourth quarter
Speaker 4: The third quarter we sold more cars than we did in any other quarter prior to, if you exclude the pandemic year when we got rid of a lot of cars. And the fourth quarter was the best we've had in the fourth quarter. The second quarter isn't gonna be even better.
Speaker 4: It was really designed to set ourselves up those six months with designed to set ourselves up for entry into January . We wanted to go into January with a fleet size that we thought was generated demand and also generate utilization to give us the best possible outcome as we started the year of early. I think as Brian said, we're going to look very heavily at what are, you know, what.
Speaker 4: forecasted periods are, including the peak, obviously as we get closer. And I think what we did in the third and fourth quarter gives us the agility and nimbleness to take action. Should the peak develop bigger than we thought or should it not? And then we can be at a place that's probably...
Speaker 4: a little best to jump off for if we had a low of the police size.
Speaker 4: So I think you'll see us look at that very critically. We have DFP, which I mentioned in my earlier remarks, that give us good forecasting insight and we've been tracking both leisure and commercial trends for a long period of time that should help us develop our strategies.
Speaker 5: Great, that's super helpful. And just wanted to ask just on the capital allocation front, clearly, BiBAC has been a successful lever you've fooled. But the environments changed a little bit in terms of maybe assets out there that are distressed.
Speaker 5: As you look at kind of the landscape, is there any facets of the business where you look at things and say, hey, there might be some strategic transformational M&A out there that might fit us, maybe even in the mobility space or the auto-remarkening space or retail space? Are those things...
Speaker 5: You know what I would say relevant in your thought process? Or are you guys looking at 23 and just saying, hey, we're just going to keep running the same playbook that we've done the last couple of years and putting those things a little bit off to the future. I just would love to think about how you, I would love to hear how you're thinking about that.
Speaker 7: Yeah, John , I think we've been consistent in saying that we won't be formulaic in terms of share of our purchases. As we look at the free cash flow that we generate, we look across.
Speaker 7: like all platforms in terms of where we can, where we can reinvest that. So yes, M&A is one of them. Obviously, reinvesting ourselves has been a significant portion of our free tax flow usage, and we think that will continue this year as well. And given rising interest rates and just general macroeconomic uncertainties, we're focused on corporate debt paydown and fleet equity contribution as well.
Speaker 7: So when it comes to M&A, we're always looking. We do look at adjacencies. And as opportunities arise, we're not going to be shy about acting collectively.
Speaker 7: You know, that's something that we evaluate on a case-by-case basis.
Speaker 7: that's something that we evaluate on a case-by-case basis. Understood. Thanks, guys.
Speaker 2: Thank you. Once again, ladies and gentlemen, that is Star One if you would like to register a question at this time. The next question is coming from Diego Ortega of Morgan Stanley . Please go ahead. Thank you.
Speaker 5: Good morning. I have a very quick one in terms of average fleet age. So if you have a metric for that in terms of months or miles, then how does that compare to your own average fleet age? How do you think you can extend that? Thank you.
Speaker 4: Hi, this is Joe. Let me try to answer that the best way I can. Over the pandemic, obviously the car rental companies had to increase the whole period on their cars. We did a whole lot to try to reduce that in the second half of this year, as I mentioned, in the amount of cars that we sold.
Speaker 4: I said if I say on average is our age increased tremendously over the previous pandemic, I would say it really hasn't. As far as mileage, we have developed technology a while back that we in time call mileage optimization. And basically...
Speaker 4: The technology allows us to deploy a car to a customer based on their anticipated mileage needs. And over the years, as that starts to learn and get smarter, we've managed to reduce our monthly per unit mileage a little bit over time, which helped our over mileage tradition. And as I said before in an earlier commentary.
Speaker 4: We spent a lot of time these past two quarters exiting higher mileage cars. At pretty high gains I would think to get our fleet back in line so that we have a fleet size that's right for the time of year and also.
Speaker 4: product that's commercially acceptable to our customers. And we keep getting new cars in which is going to obviously help the per unit mileage and the overall mileage of the average of the health of our cars and the average mileage of our fleet.
Speaker 2: Thank you. The next question is coming from Ryan Brinkman of J.P. Morgan. Please go ahead.
Speaker 5: Hi, thanks for taking my question. I thought to ask on the trend in revenue per day after a track stronger than we expected in the fourth quarter. I heard the comments on one queue but what are your thoughts on like what the new normal might be here or what the structural versus cyclical drivers of RPD may be and how that could shake out.
Speaker 5: going forward. It seems like there's so much focus on what's happening with new news vehicle prices and what the split of structural versus cyclical drivers there might be, which of course is somewhat related, but with used prices down 15% in 2022, but you're a US RPD op. You know, is that still driven by like, like, present, you know, like cyclical factors? Joe, I remember you saying in 2021 that
Speaker 5: The rental car industry will be at the bottom of the totem pole for receiving vehicles from the automakers when they do get their semiconductor. So I guess I'm just trying to ask, like how much of this good news on RPD do you think is driven by still present, cyclical factors such as shortage of rental cars etc. versus how much might be driven more by structural factors such as discipline on the part of the rental car firms even after supply normalizes or anything else.
Speaker 4: Okay, thanks. Let's take a look at a couple of factors.
Speaker 4: First of all,
Speaker 4: Over the years, the amount of cars that the car rental companies have bought are certainly a lot less than they were. I don't see that changing in this year. What things go in the years to come hard to say, but I don't see that changing.
Speaker 4: As the demand for new cars continues to be robust, there's a lot of demand out there, a lot of travel related demand. And there are things in our environment that may be causing that. Obviously, we have more commercial business than we had in the past. And there are things in our environment that may be causing that.
Speaker 4: But if you take a look at what's happening to the traveling consumer, I think that hybrid work has some significant effect on potentially traveling. You work in your office three days a week and you have off maybe Monday and Tuesday, that allows someone to look at their life maybe differently and say, you know what, I'm going to work remotely for two days and experience the...
Speaker 4: more days. I think that has increased and that's structurally different than what we saw pre-pandemic. And I think that has a heightened effect on demand. And when demand is high, that supply is somewhat constrained, you're always going to see the improvement in price. And I think we'll see that. We've seen that in January , February .
Speaker 7: You know, what happens in the future is hard to say, but we intend to state this plan. Yeah, Ryan, without getting to any kind of specific guidance here, I think you mentioned discipline in the rental car industry about kind of the demand of absorbing new vehicles. I think another thing to consider is discipline in the OEM industry as well.
Speaker 7: The automakers are just making fewer cars and they're allocating a few reports from that to the rental car providers. So that's one thing that we view as structural. And also from our perspective, we are laser focused on just a return on invested capital and our PD will reflect that. Does that move lock step quarter to quarter as to appreciate it? No, but over the course of time.
Speaker 7: but our 10K will come out and you'll see that our total shares outstanding is 39.5 million shares right around there so nothing in the first quarter.
Speaker 7: Our total share of outstanding is 39.5 million shares right around there, so nothing in the first quarter. Thank you very much.
Speaker 2: Thank you. The next question is coming from Stephanie Moore of Jeffries. Please go ahead.
Speaker 8: Hi, good morning. Thank you.
Speaker 8: I wanted to touch on the commercial travel business. It continues to be quite robust and I think a nice upside, you know, the last couple quarters here. Could you really talk about what you're seeing with your commercial customers? Is there anything that we can kind of go into this for you're able to?
Speaker 8: and take incremental share because of either additional programs that you have running or, you know, we love just to get a sense of what's driving such a strong out performance here beyond what I think we all realize is a return to some normal business travel behavior, but any other color that's more in your control will be helpful. Thank you. Yeah, okay, thanks. So
Speaker 4: Yeah, we've seen a good abundance of commercial travel. We said when we came out of September , at least I said, it was the best September I've seen. It was largely due to, you know, an abundance of commercial travel that continued to October . Didn't slow down. And then we had pretty good commercial travel in November and December , which is usually, you know, those months are usually predicated on holiday and holiday travel.
Speaker 4: there as customers who travel commercially then stay a little bit extra and take in some leisure activities which has certainly helped. We've had over the past couple of years a hundred percent retention rate in our commercial accounts. And I think that's important because we resign.
Speaker 4: hundreds and hundreds of these every year. And over the years, we've had people attracted to our company through some of the product offerings that we have. I mentioned in a previous call, our quick pass. For those of you who don't know what it is, it's a product that...
Speaker 4: allows a customer to choose a car on their phone prior to their landing at one of our reports. They can exchange it if they like through the use of their phone. They can bypass the counter due to facial technology that we have to say that you are who you say you are.
Speaker 4: You can exit the gate using your phone and over a, an ex-a-gate reader that allows you to leave the gate when you come back or connect the car technology, you will allow you to check you in and give you a receipt in seconds. And our commercial accounts like that, like that opportunity for us.
If they need help, they'll solve with someone that they can go to, but more so than not, it's kind of a contact plus experience. We have plans to enhance our budget fast-break offering, which is kind of more small business-related. We think, and we've been working heavily on our digital properties, you know, to, you know, how you deploy and get reservations and things of that nature so that we can continue.
to enhance the customer experience which allows, I guess, our retention rate, the fact that people have come to our company, you know, of late and travel the way they have.
Absolutely, that's helpful. And then, you know, I think depending on who you listen to or your own opinions, you know, there's a lot, there's a good number of people that are assuming the US is in some kind of a recession either right now or hits one at some point in 2023. So, well, let's just kind of hear what you view would be your recession.
or is that concern? And you hear a lot of that, especially on TV and on a like. We haven't seen it yet.
We just haven't, not in travel. Does that mean it won't happen? No, but we have not yet seen it. I think there's one other element of travel that we haven't spoke about and that's inbound business. I think that's going to be pretty powerful this coming year as well.
Now, what started last year is countries started to open up and people started to travel, but as you remember, there wasn't many flights and capacities were challenged in last year's summer and airports were challenged. So I think you're going to have people who now have the confidence to book, and I think that will help, which will increase the travel opportunities as we get to mid-year.
to what we were doing back at that time. We were faced with an 80 or 90% decline in revenue, and we reacted, and we came through it on the other side. So I'm fully confident in the team that we would be able to do what we needed to to get through and come back a stronger company as we are today.
Great, and just one follow up to that point. Could you quantify what percentage of your business pre-COVID was that inbound business?
I don't recall that as it stands right now, but I will tell you this past year our inbound business was up quite a bit.
And we think that will be exploring the opportunity to better that going into this year.
Understood. Thanks so much.
Thank you. Our next question is coming from Chris Dethelopolis of Susquehanna. Please go ahead.
Morning everyone. Just one question for me. Joe, so in your prepared remarks throughout the call you talk about...
supply demand dynamic gradually moving back towards equilibrium. So curious to hear your thoughts as we think about demand and some of the
arguably structural changes within airlines, hybrid work, blended travel, uneven recovery, and international travel and view from some that capacity is going to remain tighter for some time. So given these dynamics how are you thinking about
changes within airlines, hybrid work, blended travel, uneven recovery, an international travel, and view from some that capacity is going to remain tighter for some time. So given these dynamics, how are you thinking about, I understand about...
seasonality moving closer towards more typical patterns but if these dynamics persist here with your airline partners or just with travel in general how are you thinking about managing the fleet under this kind of new construct if you will
Thank you. Yeah, well listen we've been managing fleet here and certainly I have for a long period of time and we are keenly aware of close in and longer term patterns that we might see. We have systems that help us understand what they could be based on reservation demand and
trend and what holidays look like and what peak period summer travel might be. I think if you were to ask me, we are going in with a, you know, cautious amount of optimism. We're going to keep the fleets as the way I see it tight for a number of reasons as we said earlier. You know, fleet costs are higher, interest costs are higher.
We don't want to get ahead of ourselves. And I believe our success over the past years has been our ability to react.
Whether it be 2020, react to the fact that we needed to get out of cars and get out of cars in a very, very quick fashion and sell them in the ways we did through the channels that we had. Or, as we did last year, to react and say, you know what, the peak is going to be bigger than we actually thought and is there an opportunity to have more fleet.
The beauty of it is we have terrific relationships with our OEM partners. We deal with all of them. We have a large array of vehicles coming in that are both gas and EVs. We've been able to sell cars in the last two quarters.
and allow us to go with the January where the fleet size is at the right level. And I do believe that gives us a tipping point to say, you know, should the man get up, you come up, we can react and should it go down, we could certainly react. So I'm pretty positive where we all are the fleet size. And I think we have the experience and technologies at our disposal to ensure that that goes on throughout the throughout the rest of the year.
Okay, thank you. Thank you at this time I'd like to turn the floor back over to Mr. Farahra for closing
Sure, thank you. So to recap, we reported our best yearly earnings in our company's history. Our team continues to deliver in every business metric including enhanced revenue generation, diligent fleet management, and stringent cost control. These efforts were highlighted by the Americas reporting over 3.6 billion of adjusted EBITDA during the year.
and international achieving historic fourth quarter and full year results. Most importantly, I really want to acknowledge and thank the all the employees for their continued tireless efforts in helping us achieve the results. And I'm excited for what we accomplished in 2023 with this same level of intensity. Thank you all for your time and interest in our company.
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time or lock off the webcast and enjoy the rest of your day.
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