Q2 2023 Avis Budget Group Inc Earnings Call

Speaker 1: Good morning ladies and gentlemen and welcome to the AVIS Budget Group second quarter 2023 with the YOUPL Hawaii ST Alt seek

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It is now my pleasure to introduce your host.

David Calabria, Treasury and Senior Vice President of Corporate Finance. Thank you so.

Andrea, Treasury and Senior Vice President of Corporate Finance. Thank you so. Please go ahead.

Good morning, everyone, and thank you for joining us. On the call with me are Joe Ferraro, our Chief Executive Officer, and Brian Choi, our Chief Financial Officer. I'm Brian Choi, and I'm here with the Chief Financial Officer of the U.S. Department of

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 different materially from such forward-looking statements and information.

Such risks and assumptions, uncertainties, and other factors are identified in our earnings release and other periodic filings with the SEC, as well as the investor relations section of our website. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results into any or all of our forward-looking statements may prove to be inaccurate and we 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.

With that, I'd like to turn the call over to Jim. Thank you, David. Good morning, everyone, and thank you for joining us today. Yesterday, we reported our second quarter results, which delivered over $3 billion in revenue and $737 million of adjusted EBITDA. I want to thank all our employees for their efforts over the past quarter.

On our last call, I mentioned that in the first quarter it appeared the industry has returned to normal seasonal trends. That was true this quarter as well, where demand strengthened with each consecutive month with June being the strongest showing terrific exit trends and positive momentum going into the summer. In general, trends for the quarter was what we had seen pre-COVID and shows that we are no longer in a COVID environment as it pertains to the business dynamics and seasonality.

Overall, demand for travel is robust and we believe the summer of 2023 will be one for the record books. But before we get into that, let me tell you about the second quarter and as usual, let's start with the America segment. The second quarter of 2022 marked the height of the supply demand imbalance in the rental car industry which led to historically high revenue per day.

If you recall, we were just exiting Omicron. Fleets were challenged and at their lowest levels, and travel increased as virus transmissions reduced.

The second quarter of last year represented the highest RPD we saw in all of 2022. And there was no doubt that RPDs in the second quarter of 2023 would come down from the second quarter of 2022.

The question was around where would rates normalize. Given the stable industry dynamics we observed in the first quarter of 2023, and the normalized demand pattern we saw building into the second quarter, we believe that if we managed the fleet appropriately, an RPD in the mid-70s would be achievable.

That would represent the ninth consecutive quarter where RPD is roughly 30% higher than the RPDs in the pre-pandemic era.

The shapes of the graph today are looking more similar to what we saw in 2017, 2018, and 2019. It's just that they have transposed 30% higher.

And while it might be early to anchor to this new normal, it is clear that the marketplace is back to more seasonally affected trends and stability, which has allowed us to better forecast and plan fleet movements and volume growth.

We were able to grow rental days by roughly 3% year over year, with June growing 6%.

And while this was still true this year as well, we did see more robust return to cities, evening nap demand, and this continues into the summer, allowing our utilization to be even more even least-tributing. Our utilization increased over a point finishing at 71% with a larger fleet. As we have done in the past, we took advantage of our growth in new cars to exit or rotate out older and high-amilic vehicles at the highest residual values where we saw the opportunity.

As in prior quarters, there was high demand for our use vehicles and we met that demand as required. Additionally, in advance of the summer season, our Davis brand kicked off their plan on a marketing campaign.

Our first real media spend in years.

In a world of change and uncertainty, we want our customers to know that they can plan on us because for 75 years, Avicii had only one plan to make sure you keep yours.

It's a natural extension of our iconic We Try Harder campaign and a commitment we make as an organization to deliver. In every call since the pandemic began, we've repped our rigid cost discipline. But cost control and cost cutting are two different things.

This marketing campaign is just one example of the deliberate investments we continue to make in areas that we believe will generate outsized adjusted EBITDA benefits.

which is why we are again able to generate adjusted EBITOM margins in the mid-20s on revenue base of nearly 2.5 billion.

On that note, let me provide a few additional income statement results of this quarter. In the Americas, revenue decreased roughly 140 million year-over-year, comprised of RPD declines of 8%, offset by rental day growth of 3%. The prices adjusted EBITDA during this same period.

decreased by roughly $410 million, primarily due to headwinds from rate, vehicle depreciation, and vehicle interest.

While we believe that these factors will continue to be headwinds throughout 2023, as I mentioned earlier, we are seeing things reach an equilibrium.

As you recall, the second quarter historically is a transitional gateway to the summer season, with both volume and price increasing month to month, with June being the strongest on both.

This is exactly what we saw this year. Commercial business supporting the early parts of the quarter, with holidays such as Easter and Memorial Day over indexing on leisure, and the later few weeks of June driven by a start to summer travel and dynamic increases in volume, rate, and close-in bookings.

As a matter of fact, we saw the highest amount of cars on rent at the end of June than we had ever seen before in any month in the history of our U.S. business.

In summary, the America segment delivered solid second quarter results in every aspect of our business from plea positioning to demand pricing to marketing and normalization of historical trends in both volume and price just at a higher pre-pandemic levels all geared towards taking full advantage.

the 2023 summer season. And as long as I'm speaking about the summer, the exit trends we saw in June materialized early on this summer, with the July 4th holiday being the busiest on record and reservations demand increasing with a velocity compared to previous months.

I've been around to many of our locations in the Americas talking to our team members and I have to say they are ready with staff in place and vehicles to support this increased level of activity.

With that, let's move over to our international segment.

Similar to the Americas, our business operated at a higher level generating an 18% margin, almost 13% more than a normalized environment of 2019.

Volume increased 7% with inbound travel generating a large part of that activity.

Year-over-year rental day growth slowed from 16% in the first quarter to 7% in the second quarter of 2023, which, similar to the Americas, saw an elevated level of travel post-Omicron in the second quarter of 2022.

RPD declined 4% year over year. The first decline after eight quarters of growth.

But it's still more than 25% greater than 2019, excluding exchange rate effects.

Just like in the Americas, we saw an increase in RPD as we exited the quarter from the levels we saw when we entered.

However, this more than one pack here.

First, let's talk about the business mix. When we think of rentals in our international element, there are three broad categories.

Domestic travel, which is travel within a country. Then there's cross-border travel, which is travel between countries in EMEA, a German renter renting in France. And lastly, there's inbound travel, which is travel from renters originating out of EMEA and American renting in France.

International inbound is a segment where we're seeing strength similar to what other travel companies are reporting, but it's not large enough to the segment to overcome the headwinds we're seeing in the core European travel.

The Mesting and Cross-border travel which make up over 80% of the rental days is still down over 30% versus 2019.

For this reason, we still believe that there is continued opportunity for operating leverage in this region. The return of days is just taking longer than we've seen in the Americas. When it comes to RPD, there is significant year-over-year comp noise to contend with. If you recall, in the first quarter of 2022, the RPD was in the first quarter of 2022.

That 24% sequential jump was due in large part to COVID restrictions being lifted in the APAC region in 2022. We realized that that wouldn't be replicated in 2023. This year we saw RPG grow over 11% sequentially from the 54.28 in the first quarter to the $60.47 in the second quarter of 2023. We view that as a healthy underlying trend and expect sequential growth to continue in the third quarter of 2023.

International's margin performance is strong, showcasing terrific cost discipline. Our international segment was able to generate over $175 million of adjusted EBITDA in the first half of 2023. That's nearly 10 times what the region generated in the first half of 2019, despite days being down some 20%.

That step function change in profitability is a testament to the re-architecting of costs we undertook during the pandemic. We believe that this will continue to drive sustainable adjusted EBITDA in the region as business recovers in the second half of 2023 and beyond.

Moving on to Fleet, where as usual we'll focus more on the Americas segment.

On our last call I said that while we see sort of stronger than expected used car market during the first quarter tax refund season We did not expect gains at those levels for the balance of the year.

That provided to be accurate with used car strength moderating throughout the second quarter as it normally trends.

However, the used car market is still significantly elevated over pre-pandemic levels.

and there is an increased demand for our vehicles of our type.

We are preparing for an environment where our gains will continue to normalize.

The lower gains on sale this quarter versus the first quarter of 2023, combined with the additional new vehicles we inflated, meant that depreciation costs in the Americas grew from $128 per vehicle per month in the first quarter of 2023 to $168 per vehicle per month in the second quarter of 2023.

We expect this trend to continue throughout the third and fourth quarters where our monthly net depreciation per vehicle converges with our monthly straight line depreciation of roughly $300.

Similarly, monthly vehicle interest per vehicle grew sequentially from $83 in the first quarter of 2023 to $96 in the second quarter of 2023 and we expect this trend to continue as well.

This is a true cash cost to our business and we manage it obsessively. We've been consistent in saying that on the margin we'd rather run out of an incremental vehicle than have an unutilized vehicle on our lot.

I believe our fleet growth this quarter reflects that position and will continue to fleet just under demand to optimize utilization and mitigate the headwinds of vehicle depreciation and interest.

As with previous quarters, we continue to look for opportunities to rotate our fleet exiting older, higher mileage vehicles with newer deliveries as this helps to improve maintenance related costs and increase service levels which enhances our customer experience.

We are pleased with the support we get from our OEM partners to deliver new vehicles, differentiated makes and models, all aligned to increase our diversified offerings and insulate us from any large scale recalls.

This quarter, our actions were consistent with that rhetoric. We will continue to be consistent going forward.

Currently, we believe we are fleeted just under demand for the upcoming quarter in order to optimize utilization and mitigate the headwinds of vehicle depreciation and interest.

Additionally, we continue to roll out our electric vehicle strategy which centers on an integrated infrastructure at all locations with vehicle offerings from a varied group of manufacturers.

Demand is increasing and our key focus is on ad-port locations which initially deliver the highest RPD and contribution margin.

We are still in the early stages of performance in this category, but it is important to our team to set the groundwork for customer demand, vehicle maintenance, and revenue generating activities as we know this segment will continue to grow over time.

Technology is a key aspect of our day-to-day performance, creating efficiency in the business and allowing for improved customer experience.

Over the past seven plus years, we have continued to iterate our proprietary demand fleet pricing system which gives us tremendous insight on demand down to vehicle location and prices our cars accordingly.

We believe this technology, combined with our pricing team and field experience, generates a significant advantage in managing supply and demand.

Modernization of our IT systems have provided benefits allowing our partners to seamlessly create reservations, generating real-time demand and increased revenue while creating stability in our operating environment. On the customer experience side, a touchless process allows customers to choose their vehicles on their phone or exchange it upon arrival, creating a digital rental agreement which can be used to exit our facilities through an automated execute process. Digital technology rolled out at a majority of our airport locations could be transferred first-time Avis preferred customers to their vehicles thus bypassing our current counter-verification process.

In this quarter, we have rolled down an improved budget choice application. Customers upon arrival at a budget facility choose their vehicle from a reserve zone, take a picture of the license plate, allowing a rental agreement to be sent to them digitally for a quick exit and an unmanned exit.

This concludes my prepared remarks.

But as we're in the middle of the summer season, let me provide a bit of color around just what we're seeing.

In a word, things are looking positive. The demand for travel is strong, and the exit trends we saw leaving June continued with the July 4th holiday being the best on record in the US.

Summer season has always been a time of the year when activities are at its highest level.

This year the peak seems to be larger and more elevated. Bookings are happening closer in, which is what we've seen traditionally as customers are confident in both longer term and closer in travel opportunities.

Pricing in the third quarter will improve sequentially from the second quarter and more aligned with traditional seasonality than we saw last year when it was approximately flat from quarter to quarter.

We have enough visibility to project that despite some reallocation of demand towards international travel, our America segment will deliver the most rental days in the company's history this coming quarter.

The industry is appropriately fleeting and we expect this normalized rate environment to continue throughout the summer.

All I can say is that our team is ready and everyone is laser focused on taking full advantage of this favorable environment and I look forward to showing you what that means on our next call.

With that, let me turn it over to Brian to go through 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.

Let's start off by addressing capital allocation.

We took a balanced approach to free cash flow deployment in the quarter and preserved optionality on how to opportunistically allocate capital in the second half of 2023.

We voluntarily contributed equity in our fleet by forgoing the refinancings of higher-cost tranches of our AASOP term debt as they came due and funded those tranches with cash on hand instead.

This benefit is seen in our fleet debt leverage ratios and will mitigate vehicle interest costs which is adjusted EBITDA accretive.

We also repurchased a little over 720,000 of our shares at an average price of $202, bringing our total repurchase for the first half 23 to $146 million.

The cash we generated in the first half of the year was significantly higher than the cash we deployed towards vehicle equity contribution and share buybacks during this period.

We expect to be more active with capital deployment in the second half of the year, which aligns with the timing of the majority of our cash generation.

We remain in a position to aggressively allocate capital to those areas that best benefit all stakeholders of Avis Budget Group as we identify opportunities. We once again find ourselves in the privileged position of being in the strongest financial standing in the history of our company.

Our last 12 months adjusted EBITDA was $3.4 billion. During the first half, we contributed nearly $900 million back into our vehicle programs, deployed over $130 million into investments in our systems, operations, customer experience, and electric vehicle capabilities, all while having a net leverage ratio of about 1.2 times.

As of June 30th, we had available liquidity of approximately $1.1 billion with additional borrowing capacity of $1.1 billion in our ABS facilities.

Our corporate debt is well-laddered, with approximately 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 covenants test as of the end of June .

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.

However, I do want to provide some color around what we're seeing for the third quarter.

As Joe mentioned earlier on the call, the summer season is robust.

We're taking a measured approach at AVIS and expect to fleet slightly inside of the strong demand we're currently seeing.

That should translate to rental day growth of mid-single digits in the America segment and high single digits in the international segment.

Vehicle disposition gains will moderate and we expect the convergence between gross and net depreciation to continue.

Cost control remains a key area of focus and we believe you'll continue to see operating leverage net of fleet sale gains.

In summary, the travel environment is in our favor and we're well positioned to take advantage of it.

As Joe mentioned, the summer peak is strong, and we should see sequential RP growth in both regions.

which is what gives us the confidence to say that despite diminishing fleet sale gains, we believe adjusted EBITDA for the third quarter of 2023 will be roughly $850 million.

With that, let's open it up for questions.

Thank you, sir. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1.

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Please note participants are restricted to one question and one follow up.

Again, participants are restricted to one question and one follow-up.

The first question that we have comes from John Healy from North Coast Research. Please go ahead, so.

Thank you. Joe and Brian , I was hoping we could talk a little bit about the pricing environment. Obviously, the optics of negative pricing has now shown up, but not really sure that that should be surprising to us. So, I was hoping to talk about the pricing environment, and I was hoping to talk about

your thoughts going into this year about how pricing might trend and how it's actually performed relative to that. And then as you look out to 24 and 25, what gives you confidence because I feel like you're implying a level of confidence that pricing could stay at these meaningfully double-digit levels above.

pre-COVID level. So just kind of how you underwrite that thought process and kind of how you get to that conclusion. Thank you.

Good morning John .

So it's best to understand pricing to understand from where we came. If you think about last year, as we said in our prepared remarks, there was a high level of travel that occurred right after Omicron. And it was at the time where the fleets were at their lowest. Everyone took cars out the year before.

and we were all basically trying to get our fleet sizes up as we transitioned into 2022. And because of that period, people there was just a robust amount of travel and traveling at high prices. If you recall that fear, I would have to say that for the first time ever, people bought car.

Hotel, also car, airline and hotel and then every year prior to that was always airline, hotel and car. So cars were in high demand and you guys saw all the news that was going on about that and and we enjoyed you know really high RPDs. I think if you think about this year however.

You know, this year you're going back to a more, and I can't say it enough, seasonal approach to how we've managed and viewed the business. And the second quarter is always a transitional gateway to the third. You guys know that as well as I do. You know, we get cars in to take care of the summer peak and get prepared for what we consider to be the most elevated part of our demand curve.

And very much...

And then when you think about how the court progressed, you know, April and May, more traditional commercial months, so there's more of a commercial segment dedicated to that, to that group of offerings. And then once you get to June , and you get to the second half of June when kids start to get off from school and vacation travel starts to continue.

you start to see this growth in price. It all comes because demand starts to elevate, and what we saw was demand was elevating at a very, very high and fast level. So the exit trends that we saw in June were obviously much better than what we saw going into the quarter, and the second point after June was also elevated to the beginning.

As you go into the third, which I think is where your question lies, like we do believe this sequential opportunity will continue. Last year, you know, the rates were flat from the second quarter to the third. We couldn't get over the height that we saw in quarter two. I think this year you're going to see that that whole seasonality.

spectrum normalize and the prices in the third quarter will be certainly better than the second.

And you know when you think about that going out, I think it has to do a lot with you know What's the fleet and what's the positioning and you know as we said in our in our remarks our fleets would were tight Right. We were just under what our demand was was scheduled to be We got good insight from the from the OEMs on what our deliveries were going to be like

and we operated accordingly. And so prices have improved. Now this whole question about like what's going to happen in 2024 I think is an interesting one. Right now we're in the heat of the summer and we're...

spending a lot of our time executing and making sure the third quarter is going to be, you know, as robust as we think it could be. But I think as you go out you'll see this more normalization of the seasonality trends that we've been talking about where the first quarter is about, you know, winter and commercial travel, the second quarter is...

usually better than the first, the third quarter is usually better than the second, and the fourth quarter is kind of a combination of holiday travel and early commercial bookings. I think you'll see fleets very much in line during that period of time, and pricing will of course be coordinated with that.

Hey John , it's Brian here just to add to that.

the normal seasonality that Joe has mentioned, that's kind of what we're expecting for 2024 at this point, but we're still in our early, in our planning phases. The one thing that we do know for certain is that interest rates will continue to be ahead wind next year and the use car markets going to continue to normalize, which is...

As we go through our planning, we're remaining laser focused on utilization and intend to fleet slightly below demand in order to remain disciplined around return on invested capital.

Thank you, guys.

Thank you. The next question we have comes from Stephanie Moore from Jefferies. Please go ahead.

Hi, good morning. Thank you.

I wanted to touch on your comment about the stepped up media spend in the second quarter. My expectations to continue going forward, maybe to talk a little bit about the rationality to step up media spend for the first time in time. Thanks. Look, we haven't spent any real money on

whole lot of that. And I think part of our plan was that we should, you know, tell the world about our company. And we picked, you know, talking about for the past 75 years we've only had one goal and that was to keep yours. And it was an extension of our.

We try honor model that we had for many, many, many years. And I think the time was right for us, right? We had generated a lot of activity last year. We had generated record profits. And it was time for us to talk about our company in a more positive environment than we had in the past. And I think our campaign was done really well. We...

We were on AirTV, we had digital applications, we were at a lot of the airports, and we were on for a good period of time. What we do going forward will be all determined about what we think is the right opportunity and we'll always have that ability to do that if we wish. The motto and slogan is iconic and can always be...

Draw off of that should we need it, but we saw it was the right time and it gave us a pretty good bounce Absolutely, thank you, and then just as a follow-up I wanted to get your thoughts or get an update on how your conversations with OEMs are going for the back half of this year and in 2024

You noted that you did take growth in some new cars and the quarter to rotate out of some higher mileage vehicles. Could you just talk a little bit about those conversations with OEMs and how you're kind of balancing supply availability with new vehicles and I'm also kind of continuing to play and use them.

ultimately what that could mean for depreciation. Thank you.

what that could mean for, you know, depreciation. Thank you.

I'll start off Brian if you want to add something about depreciation. You know we are in constant communication with our OEMs and we have relationships that go back fortunately decades so we're always talking to them and gaining insights into what they see.

you know whether it's going to be are they going to be vehicle delays are they going to be on schedule the types of vehicles that they have coming up the vehicles that they want to offer to to our industry and um... you know coming off the coming off the uh... the first quarter

But I think one of the areas that we've been consistent with over the years and why we've had such stability in our overall cost and not a whole lot of imbalance is the fact that we take advantage of the time's right to rotate out the older vehicles. Because eventually those cars become commercially unacceptable and could lead to challenges in the business. So we did what we thought we needed to do. We rotated out the cars. We had insight that we were going to get vehicles in to support what we believed our demand. As you see, we had a utilization benefit in the second quarter, which is something that we're really focused on because of the fact that interest costs are...

so much higher this year and You know going out I I would say that you know the the OEM OEMs have the measured approach to to supply You know, I think everyone learned last year, especially Deal ships how to sell cars with not having the total amount of inventory that they had in the past

And I think that's, you know, that's what you're gonna see going forward. I mean, you know, the economist, the son, I talk about what they think new car supply is going to be or, you know, how many cars are gonna get sold in the United States next year. And this year it seems to me like there's gonna be a slight uptick, but not, you know, but kind of in line with what you saw this year.

Brian , you want to talk about depreciation, all? Yeah, sure. And you're noticing right now the trends in depreciation, taking up, and this is because as we exit, our older model vehicles and, in fleet, newer model vehicles, the cap cost is much higher. We expect this trend to continue and because we take a return on invested capital approach to all of the

The best way to protect appreciation and residual values is to make sure that you purchase the cars correctly and we need to ensure that our purchase price has a cushion to the retail purchase price. So that's what we're focused on. We do this every single year and we're making sure that we optimize our portfolio purchases for this.

You know, I listen I'll just have one thing there's still demand for used cars and There's a twenty thousand dollar benefit between the price of a new car and used car which is always Always attractive and the used car inventory is light What you know because of off lease vehicles and less trade so there's still going to be demand to sell our cars going forward

Great, thank you so much. Thank you. Ladies and gentlemen, just to remind us, if you would like to ask a question, please press star and then one.

The next question we have comes from Chris Urenaka from Deutsche Bank. Please go ahead. sized

Hey, good morning guys. Appreciate all the all details so far.

You guys obviously did a terrific job on fleet management as always during the quarter. But the question is really on what you're seeing in the...

in the industry landscape. And, you know, we know that at least one of your peers is bringing back more fleet, of course, they were severely challenged last year. And so you know, the question I guess, Joe is, it seems like with you guys fleeting more under demand, it you know, the implication is you're, you want to hold pricing integrity for the whole industry and you're willing to

you know, maybe forego a little bit of volume for that? Is that directionally correct? And just what are you what are you seeing out there with the with the peers?

How we manage how we manage those two, you know, so how we manage supply is compared to the man you know we said in our in our opening remarks that you know, we'd forego a Incremental a rental if we're going to have a car sitting on the sidelines, right? I'm not going to hold the car for that just one incremental rental a week So we look at that that being said we also understand that we have the you know The largest peak in the year occurring right now So our fleet our fleet is in line with that high level of demand Now what normally happens after we get out of you know, July and possibly, you know Early August is that we start to trend our fleet sizes down

deal with the seasonality of demand that occurs between August and the end of the year. And as you go out, you know, the third quarter is, you know, October is largely about commercial business and then, you know, the November-December period is about, you know, more or less holidays and our fleet size will go down according to that demand curve that we see.

so that we open up next year in the right spot. And then next year we start building upon the man. I think as I said earlier, the OEMs are rather disciplined on their approach. Sure they want to sell cars just like every other year. But right now, last year was...

The car sold to the industry was at its lowest point in the past six, I think. So there's expected to be more demand, more car sold this year, but not to the levels it was previous years.

And Chris, just to add to that, listen, we can't comment on the strategy of our competitors, but just speaking for ABG, I think we can say we don't manage to optimize market share, we manage to optimize profitability.

Okay, fair enough. And then I guess as a follow-up, maybe we can go back to sleep.

management a little bit in terms of you know I think I probably have asked this this question on prior calls but you know just just the the way that you're managing the fleet in terms of full period and you know buying

buying used cars selectively and you know changing your mix and things like that and cascading things through ride share I mean the the question is do you think we're at a structurally lower level of Straight line depreciation going going forward relative to say 2019 I'll start

and give you kind of how we do it and then Brian you can come in. You know when I think about how we deal with the day-to-day on flea, it starts with what we anticipate is coming with new cars and it also senses around what we believe the man is going to be like. We will always react to favorable environments in the car selling market.

We have systems that allow us to anticipate where the car is best going to be sold in a geographic location. What level of trim needs to be on that car to be sold at a proper benefit to us? And what time of the year is best to sell that car? Specific car, not just a car in general. And we work through that, and we have modeling that we do with outside.

companies that help us determine residual values over the short and longer haul. And that hasn't changed. And if you see, we took our cars in the early part of the year, we took our cars in the second part when residual values were at their best, and we'll continue to rotate our fleet because we believe that that's a true aspect of maintaining some consistency.

and overall fleet costs. So you don't have any blowups that would say, you have cars that are problematic. As far as our, as how we cascade cars, we have a good number of brands that we do that with. Obviously we have Avis and budget, and we have Payless, which we cost Cascade cars too. And we have this very interesting,

which is a tool that is seamless to our team, but it allows the evening out of mileage. So we don't have these large discrepancies of one or two cars having an abundance of miles and own it for a short period of time. That technology has helped us to maintain an even level of mileage accretion.

over the totality of the fleet. And I think the other thing is about segments of business. What segments accrue the least amount of miles, which will determine your overall cost per car? And we've capitalized on growing commercial segments that do that.

Some commercial accounts rent a car for four days, park it in a corporate office for those days, do very little mileage. Monthly rentals are also a segment that does little mileage. We try to accelerate some of those.

Yeah, Chris, I think in terms of the gross, like the straight line depreciation, you'll see when our queue is posted after this call, it's roughly 280 this quarter. That's not too far off from where we were on a gross debt.

straight line in 2019. So despite significantly higher cap costs, we're managing, like you said, with all the things that you had mentioned, the cascading, the extending the useful life of vehicles to still be around those 2019 straight line depth levels.

But when we think about carrying cost of cars, you have to factor in vehicle interest as well, and that's significantly above where it was in 2019. It was kind of in the mid-50s in 2019, and now we're guiding to it's going to be over $100. That's a real cash cost to having the vehicles as well. So we're always kind of managing.

making sure that we get the appropriate return on capital for our fleet. Okay, very helpful. Thanks guys.

Thank you. The next question we have comes from Kristella Vapolos from SIG. Please go ahead.

Good morning everyone, thanks for taking my question. Joe is wondering if you could dig into the comments on cross-border here, perhaps provide a little bit more detail with why you think it's...

weaker or at least at this point in the cycle. Thank you.

Yeah, I think when you talk about cross-border you have to think about some of the elements of it. If you're looking at cross-border from into the Americas.

that's at really high levels right so there's a whole lot of travel coming in from Europe , Asia pack, South America, the Caribbean etc that's that's really strong and it's over a really strong base last year so that has not that we have not seen that slow down

As a matter of fact, we anticipate that being strong throughout the summer and into the fall, quite frankly. I think the question may be about European travel. The reverse, the Americas into Europe is very strong.

People have booked far in advance and that has that has been that has been really solid similar to what the airlines are seeing I think that the European travel that we called out is the inter country travel if you remember last year European Europe was shut down pretty pretty much and when it opened

There was a whole abundance of people going back to see family and friends and maybe some commercial leisure travel. That peak was hard to overcome.

We believe that as you go forward some of that would sought to moderate as well.

Okay, and my second question, so when you talk about the return to normal or typical seasonality, I just want to understand how we should think about, or the moving parts of US domestic. From the perspective of the airlines.

we have plateauing business volumes, a lot of murkiness as it relates to blended travel and then of course as you said

very strong outbound international travel which is pulling from a potential domestic travel pool. So, you know, could you help?

frame or provide a little bit more color how we should think about seasonality given these moving parts here within the domestic US for the second half. Thank you.

Sure, you know what we're seeing is close-in reservations booked with an acceleration that we hadn't seen so far this year as soon as the summer season started.

I think when you look at last year there was there was like more of less a straight line level of demand going into the summer. We came off a huge omicron bump and going into the summer we didn't see that in a level of activity. This year the peak seems elevated to me. It seems like there's more travel.

it seems like it will extend. If you recall last year, there was, you know, during the course of the year, kids were working for school remotely, they started to go the second half. I think it cut the summer period a bit shorter because people were, you know, excited to get.

the back to school stuff. I think that extends a little bit more this year. So we're seeing, you know, pretty significant demand going into the summer. And I think that was probably only, you know, if you want to...

versus to night 2019 and our rentals are certainly higher than that, you know We have a lot of commercial business that has been coming in people commercial companies are getting back to travel. We've seen You know outside demand and aerospace and defense you know professional and financial service companies tech so You know, we see domestic travel pretty good Everything is hitting real quick and I try to do we affiliate our sales with our reply agency We also try to help people through these Replacement sector in our business design systems we know helpful for our business is our customers discs like retail or ETFs wake up for Pharaoh We try to handle opportunities in multipleas

Hi, thanks for taking my question. Relative to that $900 million deployed back into the vehicle programs in the first part of the year, of course this is increasingly attractive with the rise in rates, what is the amount now that you are over collateralized or that you could withdraw from the programs in cash at any time? And I think you said before you intend to be nimble with this going forward.

which is your key private competitor has traditionally run with. Are there advantages to that approach beyond obviously paying interest on less debt such as maybe being able to negotiate better rates on the remaining debt or other benefits you can think of? Thanks.

And I think without giving an exact number, the best way to look at this is look at what our vehicle debt is relative to our vehicle assets, and you've seen that stick down. In terms of the benefits of having structurally more equity in the fleet, yes, there are benefits that come from that, but I feel like we're fairly long ways away from becoming any sort of investment grade. I don't think that that's kind of in the horizon for us. We feel that there's better use of our free cash flow at this time, especially given that we believe that our shares are undervalued at this time.

Great, thanks. And then finally, I realize it is a diminishing number with less potential to benefit DPU going forward, but can you give us a sense as to how many fully depreciated vehicles might remain in stock and are those vehicles primarily in the America segment or how should we think about that? We're not giving guidance around that specific number, but it's a de minimis amount at this point. And so, we're not forecasting benefits from that going forward, which is why we think that you'll see this convergence between straight line depth and kind of our reporting net