Q3 2024 Avis Budget Group Inc Earnings Call
Greetings and welcome to the Avis budget Group third quarter 2024 earnings Conference call. At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone today should require operator assistance. Please press star zero from your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: At this time it is now my pleasure to introduce David Calabria, Treasurer, and senior Vice President of corporate finance. Thank.
Speaker Change: Thank you Sir you may begin.
David Calabria: Good morning, everyone and thank you for joining us on the call with me are Joe Ferraro, Our Chief Executive Officer and has he Martin our Chief Financial Officer before we begin I would like to remind everyone that we will be discussing forward looking information, including potential future financial performance, which are subject to risks uncertainties and assumptions.
David Calabria: That could cause actual results to differ materially from such forward looking statements and information.
David Calabria: Such risks and assumptions uncertainties and other factors are identified in our earnings release, and our 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.
David Calabria: And we can make no guarantees about our future performance, we undertake no obligation to update or revise our forward looking statements.
David Calabria: 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.
Speaker Change: I'd like to turn the call over to Joe.
Joe Ferraro: Thank you David Good morning, everyone and thank you for joining us today.
Joe Ferraro: Yesterday, we reported our third quarter results, which delivered quarterly revenue of nearly $3 5 billion and adjusted EBITDA of $503 million.
Joe Ferraro: As we discussed on our last call we need to bifurcate the impact of nonrecurring fleet gains I vehicle interest and decisions made to improve our utilization.
Joe Ferraro: Our primary goal has always been to keep fleet inside of demand, we've taken the necessary steps to adjust our fleet size throughout the year, which allowed us to continue to improve utilization, but this quarter, finishing nearly two points above our prior year.
Joe Ferraro: Driving utilization is necessary given the high level of dishes fleet carrying cost.
Joe Ferraro: We're also focused on reducing the overall holding costs for the model year 2025 by the drive a more profitable outcome going forward.
Joe Ferraro: We buy is continuing to progress with expected holding costs well below what we have achieved in recent years will talk more about this in the Americas segment.
Joe Ferraro: Okay.
Joe Ferraro: The demand for our business remains robust with global third quarter rental volume in line with third quarter 2023, we've been consistent with electing to focus on higher margin business, particularly when as an industry. We're in a higher vehicle cost environment and we believe it makes more sense to rationalize the fleet then to.
Take a lower priced incremental rental.
Joe Ferraro: Price was down 2% for the quarter overall with the Americas, nearly flat and a two point improvement from this year's second quarter. We will continue to execute this strategy as necessary to prioritize higher margin business.
Joe Ferraro: Before I dive into the results in greater detail I'd like to thank our employees for continuing to deliver the exceptional service during our summer peak season, while driving further operational efficiencies through their hard work and efforts we continue to generate record net promoter scores from our customers with.
With that let's begin as we usually do with details around our Americas segment.
Joe Ferraro: The Americas generated more than $2 6 billion of revenue in the third quarter with 384 million of adjusted EBITDA.
Rental days in the Americas were down 2% compared to the third quarter of 2023.
Joe Ferraro: As I mentioned earlier this is where we made the choice to balance both price and demand.
Joe Ferraro: We took the measured approach to volume and focused on higher margin business in doing so we elected to forgo lower margin business as I said earlier in times like this where fleet costs are outliers to our historic norms. It makes more sense for us to pass on lower price business, especially from brand agnostic customers.
Joe Ferraro: We believe this demand is discretionary and we would always be able to attain this volume to meet our target vehicle utilization and scale going forward, that's fleet costs become more normalized.
Keeping this in mind, we will continue to monitor our industry and make calculated decisions to prioritize price or volume when it makes sense by utilizing our proprietary demand fleet pricing system.
Joe Ferraro: Pricing was nearly flat compared to the third quarter of 2023, but up 28% compared to the third quarter of 2019, showing the relative strength of pricing in our industry.
Joe Ferraro: Price improved sequentially from the second quarter to the third by two points compared to the same periods in 2023, as we transitioned into the summer peak as a matter of fact, our U S business was closer to flat in the quarter.
Joe Ferraro: We kept our fleet inside of the demand, which allows for the most optimal price outcome.
Joe Ferraro: This strategy has resulted in ongoing improvements in our vehicle utilization.
Joe Ferraro: Utilization in the Americas was nearly 72%, which is more than one point higher than the third quarter of 2023.
Joe Ferraro: We will continue to improve as we implement further operational enhancements and remain laser focused on our discipline.
Joe Ferraro: We anticipate strong vehicle utilization in the fourth quarter that surpasses any fourth quarter in our history.
Joe Ferraro: We're on track to start 2025 with substantially fewer cars than we started in 2024.
I wanted to take a moment to talk about our ongoing model year 2025, we buy which is progressing well.
Joe Ferraro: Yeah.
Joe Ferraro: While we're not yet fully complete we are moving closer to our anticipated multiyear target.
Joe Ferraro: As we said in the past we believe the new cars would become more affordable and this has proven to be true.
Joe Ferraro: We expect purchase prices will be below what we achieved during the pandemic years.
As OEM supply constraints and production schedules have normalized.
Joe Ferraro: Our OEM partners are fully aware that we are in the market for vehicles. However, we also need to stay disciplined with regards to return on invested capital and only commit to fleet deals that meet our acceptable rates of return.
Joe Ferraro: We will continue to cycle out of older model year cars and make room for the model year 2025, new vehicles.
Joe Ferraro: Thankfully, there's a wide array of vehicles that meet both this criteria.
Joe Ferraro: The Oems have been strong partners to our company and our collaborative approach and similar goals allow for both companies to win when deals are structured appropriately.
Joe Ferraro: We appreciate their support and remain committed as ever.
Joe Ferraro: So the productive partnerships, we've had over decades overall I'm happy with our progress on the buy and we will share more details on our next call wants to buy is fully completed.
Joe Ferraro: Yeah.
Speaker Change: So to recap the Americas had revenue of more than $2 6 billion and adjusted EBITDA of 384 million.
Speaker Change: We continue to maintain our fleet discipline by taking the necessary steps to align with demand ensuring a fleet drives higher utilizations and allows us to maximize profitability.
Speaker Change: Based on our model year, 2000, and twenty-five fleet by we are well positioned to have lower holding costs as we rotate into new fleet we.
Speaker Change: We saw robust volume in the quarter and will continue to prioritize higher margin business as we remain selective regarding lower margin brand agnostic customers.
Speaker Change: As we shift into the fourth quarter October normalize towards the back half of the month after the effects of the hurricane However, the demand in the Americas surrounding the holiday season looks particularly strong for the Thanksgiving and Christmas holiday periods based on current reservations and will lead price will transition seasonally as it normally does from the third.
Speaker Change: Third to the fourth quarter.
Speaker Change: Let's shift gears to international.
Speaker Change: International generated $840 million of revenue and $139 million of adjusted EBITDA in the third quarter.
Speaker Change: Revenue was up 1% compared to prior year, driven by 5% increase in rental days.
Speaker Change: We continue to see robust international inbound and intra European Cross border travel as we have talked about on our previous calls.
Speaker Change: This strategy generates higher margin business as these customers tend to book more in advanced and domestic travelers keep their cars longer and often take additional ancillary products.
Speaker Change: This quarter not only was our domestic travel up 3% in Europe, but our higher margin inbound and intra European cross border volumes grew by approximately 14% as compared to the same period last year. This drove a year over year increase in our leisure business.
As we transition to the fourth quarter advanced reservations are strong and trending positively with the man stemming from into European Cross border and inbound travelers once again.
Speaker Change: Internationals pricing for the quarter was down 5%, excluding currency impacts compared to last year and up 25% compared to the third quarter of 2019 again, showing the relative strength of pricing in our industry. However.
Speaker Change: However, on a year over year basis pricing improved sequentially with September showing the quarter's best improvement.
Speaker Change: We anticipate pricing to be nearly flat in the fourth quarter compared to the fourth quarter 2023.
As noted on previous calls our proprietary demand fleet pricing system is now fully operational and our European business and as expected, we realized both utilization and price benefits as the system focuses on contribution margin.
Vehicle utilization continues to be a priority as we realized higher utilization each of the first three quarters of 2024 compared to the same periods in 2023.
Speaker Change: This quarter's utilization was 73, 7% up over three points compared to the third quarter of 2023.
Speaker Change: We continue to believe that our fleet is adequately positioned and ready to meet the fall and winter demand.
Speaker Change: And similar to the Americas we.
Speaker Change: We expect our fleet size at the beginning of 2025 to be under a prior year's level, making room for new model year vehicles.
Europe is a popular destination for cross border travel and as I mentioned before our fourth quarter reservation showed their strength and price improvement.
Speaker Change: Technology is an integral part of everything we do and enables us to continue to enhance our customer experience I would like to discuss our new customer App that was launched in October.
Speaker Change: Our new App has a refreshed look and feel with a more dynamic user experience that adapt to our customers' journey, providing them relevant information at every step of.
Speaker Change: The App features a new rental dashboard that will give customers quick and easy access to book reservations view their trip details in all of the key actions from the home screen.
Speaker Change: Customers will also be able to continue reservation from previous searches track their loyalty points progression continue to choose their vehicles to better enhance their rental experience exit the gate with the use of that phone and manage their account epilepsy.
Speaker Change: We have a number of exciting new features that are planned in our pipeline to be released in the future, which we believe will enhance the customer experience further by integrating a touchless rental and all the ancillary product offerings.
Speaker Change: The new App updates aimed to increase app downloads goose conversion rates and drive revenue growth through our direct channel reservations were confident that these enhancements will make our customers' car rental experience smoother and more enjoyable.
Speaker Change: I also wanted to give an update on our progress improving our operational efficiencies, we continue to enhance our processes by leveraging our data analytics and on the ground systems to increase throughput and improve productivity.
Speaker Change: These systems and processes allow for better forecasting and scheduling needs by location to optimize labor mix, we continue to face wage inflation and focus on labor initiatives helped to offset these pressures.
We expect to continue to realize these savings through the remainder of the year.
Speaker Change: Yeah.
Speaker Change: As I mentioned on our last call, we have set ambitious goals to target sustainable vehicle utilization performance through better understanding of the disposition of every vehicle within our control.
Speaker Change: We believe task based analytics to live into our operations and maintenance teams will allow for better understanding about vehicle dispositions drive more timely repairs and improved vehicle movements. All designed to create more available fleet. We're currently piloting these digital tools in key cities throughout the country and early.
Speaker Change: Our results are promising.
Speaker Change: These and other operational efficiency strategies enabled us to maintain operating and SG&A expenses on a per rental day basis, consistent with the third quarter of last year, a great achievement given inflationary pressures.
Speaker Change: So to conclude we generated $503 million of adjusted EBITDA for the third quarter. We continued to maintain discipline, which has allowed us to improve vehicle utilization year over year.
Speaker Change: We expect historically high utilizations in the fourth quarter in the Americas.
Our model year 2025, we buy is largely complete we have seen lower prices closer to pre pandemic levels, which will position us with sustainably lower holding costs as they enter into our fleet.
Speaker Change: We will prioritize high margin business, while balancing a certain level of scale.
Speaker Change: Holiday demand looks strong and we expect price will transition seasonally in the Americas and flatten out internationally.
Speaker Change: Overall, our cost efficiencies help us mitigate inflationary pressures on operating and SG&A expenses on a per rental day basis.
Speaker Change: The Americas and international teams are well positioned and prepared to close out the year strong.
Speaker Change: With that I'll turn it over the Eze discuss our earnings liquidity and outlook.
Eze: Thank you Joe and good morning, everyone. My comments today will focus on our adjusted results, which are reconciled from our GAAP numbers in our press release as usual, let me start by discussing our third quarter earnings. We earned 503 million of adjusted EBITDA in the quarter. Once again, we need to bifurcate the impacts of nonbank.
Eze: <unk> fleet gains and greater vehicle interest last year, we had more than 650 million athlete games with 145 million in the third quarter alone. These oversized sleek Gainsborough holdover coming out of the pandemic and as I have previously stated the Gainesville not replicate given that these were a buy.
Eze: Product of the post pandemic supply chain imbalance, our ongoing priority is to consistently size our fleet in line with demand.
Eze: Maximize higher margin business and strength in revenue per day during.
Eze: During the quarter as we focused on these strategies rental days were slightly less than we originally anticipated in order to align our fleet to demand we sold more units in the quarter than forecasted pulling these sales forward generated a loss of approximately $40 million as compared to 145 million of gains last year.
Eze: The year over year quarterly variance from the disposition of vehicles alone was more than 185 million our straight line depreciation increase from approximately $292 to $347 per unit per month the.
Eze: The increase in holding costs resulted in more than 100 million in incremental fleet expense year over year.
Eze: As always we constantly monitor the monitor the market and make any adjustments as needed in the fourth quarter. We expect to have the opportunity to buy late model year vehicles at favorable prices, assuming we take advantage of these opportunities we anticipate pulling forward more vehicle sales into the current year. Therefore.
Eze: We estimate our total company gross depreciation per unit per month will approximate $350 for the fourth quarter.
Eze: Could vary based on the opportunities presented in the fourth quarter. We will continue our discipline to have fleet inside of demand and we will continue to dispose the fleet as required plus remains flexible and adding new cars, our model year 'twenty five fleet purchases more affordable since we are largely complete.
Eze: With our negotiations we can say holding costs should improve we believe over time, our depreciation rate will return to historic levels as we rotate out of the older fleet, which we purchased during the supply constraint pandemic yours and in fleet the model year, 'twenty, five which represents a more.
Eze: Normalized fully by.
Eze: In our yearend call, we will have more to say about the impacts our model year 'twenty five by will have on our earnings now.
Eze: Now shifting gears to vehicle interest last quarter vehicle interest was 72 million dollar headwind well. This year. It was 33 million as compared to the same period in 2023, we expect our interest per unit per month to be of similar now in the fourth quarter as compared to the fourth quarter of 'twenty 'twenty.
Eze: Right.
Eze: In total our fleet holding costs inclusive of vehicle interest expense account for more than 320 million of our year over year decrease in adjusted EBITDA.
When looking at direct operating and SG&A expenses per rental day hour per rental day expense remained flat as compared to the third quarter of 2023. Despite inflationary pressures, we continue to invest in our technological improvements to further drive cost efficiencies generating margin contribution.
Eze: We reinvested nearly 40 million into our core business, we're nearly 150 million year to date. The majority of our capital allocation strategy is designed to drive higher contribution through improved revenue and other operational efficiencies in our business.
Eze: In the quarter volume was relatively flat revenue per day was down 2%. The end result was nearly an 85 million reduction in year over year revenue as a result of these factors. Our adjusted EBITA was 503 million for the quarter. The actions we have taken throughout this year, including <unk>.
Eze: Using our fleet size and cost mitigation strategies have positioned us well going forward.
Eze: As we mentioned on our previous calls we are normally back half allocators. When it comes to share repurchases. We made the conscious decision to repurchase approximately 526000 shares for nearly 43 million.
Eze: October 30th as always we will continue to balance our capital allocation between reinvesting in the company and returning capital to our shareholders.
Eze: During the quarter, we issued 700 million of senior notes and used the proceeds in October to repay outstanding borrowings under our secured term loan C.
This allowed us to reduce our secured borrowings and provides us more flexibility in our ability to refinance in the future.
Eze: As of September 30th we had available liquidity of over $1 2 billion, including committed and uncommitted facilities with additional borrowing capacity of approximately $3 2 billion in our ABS facilities after giving effect to a reduction in our asset backed variable funding financing facility.
Eze: These effective November 1st our net corporate leverage ratio was four seven times after giving effect to the term loan C repayment.
Eze: We continue to be well lathered with our corporate debt, having no meaningful maturities until 2027. Additionally, we are in compliance with all of our financing facilities. As you can see in the first nine months and in prior quarters, our priority remains driving.
Eze: Operational efficiencies through the appropriate capital investment plus investing in our fleet. The fleet investments are in the form of reducing the amount of debt reissue against our fleet size in total we have the ability to issue more than $1 billion of debt out of our east a financing structure, which represents further liquidity.
Eze: The Cushing for our company. This provides a strong ongoing flexibility and we will continue to evaluate the best use of this capital coming forward now.
Speaker Change: Now, let's move on to outlook as Joe mentioned, our continued focus is to keep fleet in line with demand, which will allow more efficient use of our assets drive higher utilization and allow us to start next year with less cars than we did this year, we will maintain our flexibility to acquire new vehicles as well as to.
Speaker Change: Dispose, if others should the opportunity arise our twenty-five by is going well and almost complete we expect lower holding costs as we transition these vehicles into our fleet demand around the holiday periods look strong and price will move seasonally in the fourth quarter as it normally does.
Speaker Change: As I mentioned earlier in the year nothing below 1 billion of adjusted EBITDA is acceptable to us. This year, we have experienced unprecedented challenges in fleet costs and vehicle interests as they are the highest in our history and the year started with a broader industry being over fleet, it's putting pressure.
Speaker Change: On revenue per day.
Speaker Change: However, despite these challenges we see.
Speaker Change: I have still achieved nearly 730 million of adjusted EBITDA or nearly 850 million, excluding approximately 120 million in uncharacteristic sleep losses, we remain focused on achieving 1 billion and adjusted EBITDA. This year, excluding fleet losses.
We will give more details regarding fleet costs and our future earnings potential in our next call with that let's open it up for any questions.
Speaker Change: Thank you well now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: Let me press star two if he like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: In the interest of time to allow as many as possible to ask questions. Please limit yourself to one question and one follow up.
Speaker Change: One moment, while we poll for questions.
Thank you and our first question comes from the line of Chris <unk> with Deutsche Bank. Please proceed with your questions.
Speaker Change: Hey, good morning, everyone and thanks for taking my question.
Speaker Change:
Speaker Change: So Joe I know I think as he just mentioned.
Speaker Change: Do you expect your <unk>.
Fleet costs to begin trending back towards.
Towards historical levels, knowing that won't happen all at once but when we think about your comments on the 25, we buys and what you might do in the fourth quarter I know in 2019. Your Americas Btu is sub 300 per month I think closer to 80, I mean is that the benchmark to think about again not for <unk>.
Speaker Change: Any one period not fourth quarter or next year, but is that where it can trend back towards is that a fair way to look at it.
Speaker Change: Good morning, Chris I know you directed to your question there Joe So let me take the first half of it I think you're thinking of things correctly right. It's all about what we think it may be given we are materially complete with the model year 'twenty five by but I still think Theres a lot to go through there's still a lot of math.
Speaker Change: I have to figure out in the fourth quarter given the opportunities that are presented to us, but I don't think your analysis of thinking about where we are where we were in 2019, I think though the 20th 19 levels, while still a bit too low compared to what we're initially seeing but anything you know call it significantly better.
Speaker Change: Then what we saw for example, this quarter right. This quarter, our gross depreciation was $347 I guided to 350 for next quarter keeping in mind. The most important thing for US is to keep fleet inside of demand until give the business the flexibility to sell more than maybe we had forecasted right.
Speaker Change: Now make room for more to come in sooner rather than later and and last but not least to try to figure out how all that math comes down to the bottom and becomes a more normalized fleet costs.
Speaker Change: Closer to 2019, but I wouldn't say at the 2019 levels.
Speaker Change: Okay I appreciate that and then as a follow up.
Speaker Change: There's obviously a lot of dwelled into the industry, we're hearing more about robo taxi and moving a little closer on autonomous and I was hoping that you could maybe comment on what youre modeling going forward.
Speaker Change: <unk> can be in a position to.
Speaker Change: Possibly participate in that and I guess I would also extend that to.
Speaker Change: The rideshare and you know as the industry landscape evolves a little bit you know, it's something you guys haven't done as much of it is that possibly on the table as a as another.
Speaker Change: Avenue for growth. Thanks.
Speaker Change: Yes, Hi, Chris.
Speaker Change: Joe I'll answer that so I'll start with the last part on Rideshare you know, we don't talk about it much but we are we are active in the rideshare.
Speaker Change: Business segment.
Speaker Change: We've been growing that business year over year pretty substantially and I'm like I said, a couple of years ago. When someone asked we looked at that on a margin basis. So were pretty pleased with our results so far on that and.
Speaker Change: As that business grows we are certainly a participant in that and that does add to rental days for sure is as those customers keep the cars.
Speaker Change: For a good period of time.
Speaker Change: I'm happy to say that you know as we look on a per unit basis. It is a profitable group of business and growing so I'll answer that one that way as far as other tech related stuff. We we are always monitoring that and you.
Speaker Change: You know when you think about our company in general as things start the progression you talk about autonomous cars and things of that nature, we're perfectly situated to handle something like that because we first of all we have the cars, we know how to fix cars, we hold them in depots all around the United States and we have the ability to move them SC fits.
Speaker Change: So you know as that starts to develop and that gets a more prevalent.
Speaker Change: You can also see us probably participating something like that but right now, we're where we're taking a view of where it is and where it's going to be and also thinking about how we would manage the logistics or something like that which I said earlier, we were in perfect position to do because of our infrastructure because of our knowledge of how to deal with cars.
Speaker Change: <unk> demand and you know, what's the difference about picking up a car in Manhattan at a depot, having it delivered to you from one of our depots all over the New York area to your personal home so.
Speaker Change: Oh boy.
Speaker Change: To come on that obviously.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you. Our next question is from the line of John Babcock with Bank of America. Please proceed with your question.
Good morning, and thanks for taking my questions I.
John Babcock: I guess, just first of all on the Hurricanes.
John Babcock: I know you didn't call it out, but you know and so I assume the impact well actually sorry, I guess, it's going to be more of a <unk> thing but.
John Babcock: Could you just talk about how the impact of the Florida Hurricanes is going to impact the U S. But also you know how it is also going to impact the dynamics for the broader railcar market if at all.
Speaker Change: Yeah sure I'll take that.
Speaker Change: The hurricanes when they happen, especially what happened. This this this quarter they started off not being very good for anybody because you know the airport's shut down the planes are canceled flights and since we're predominantly an airport related business. You know that has a challenging effect on us in this particular case.
Speaker Change: The sequence of Hurricanes was it was was difficult because you had one that hit Florida you know.
Speaker Change: The end of September, which we actually took a little bit of a rental day hit in the quarter because of that.
Speaker Change: And then you have followed it up with another one a week or two later and you know the rhetoric surrounding the second one was going to be historic you know tidal surges and things of that nature and based on the first one which had pretty significant.
Speaker Change: Significant damage through through Florida, and up into the North Carolina's I think they are you know the municipalities took a very active role in making sure. They were evacuations and things of that nature. So when something like that happens you have problems three days or four days before as people start to think about not traveling.
Speaker Change: And then you'll have problems.
Speaker Change: During the fourth the cancellation of flights and then for a period of time later, where people are on on you know sure whether they want to go into those restricted areas, but what normally happens. After that is there is also a positive right as a company. We've rented many cars to people they know through hurricanes and other related aspect.
To get them back home in this particular case evacuate from certain area. So you have that benefit of cars are the ability to have cars leave but we always felt like we were a car rental company. We had an obligation to the traveling public and so we make our vehicles available and people took them to wherever they bought was safe. The second aspect is that there.
Speaker Change: It comes in what normally happens is relief workers.
Speaker Change: Whether that'd be Red cross, a FEMA or municipalities, who are using cars for various different reasons. There's a number of those vehicles, which we have on the road right now and will continue for.
Speaker Change: For a long period of time.
Speaker Change: Which helps to also mitigate the the shutdowns that we faced early on.
Speaker Change: And lastly, I think you see a dynamic that you know.
The people in those areas tend to rent cars, whether it be off airport or in another places which changes the.
Speaker Change: Dynamic of supply and demand at airports I will tell you. This after the Hurricanes hit for example, the state of Florida. Those places got tight you know for various different reasons and type fleets in a place like Florida is always helpful. So while you lose initially.
Speaker Change: It's a matter of time in periods after that that you tend to you know.
Speaker Change: Make up whether it be through rentals, you know in other segments or.
The tightness of fleet that usually occurs.
Speaker Change: Early to tell how that's going to transition as we go through but it'll be effective throughout the remaining part of the.
Speaker Change: Of the quarter.
Speaker Change: I hope that helps are helpful.
That's perfect.
Speaker Change: And then just a last question.
Speaker Change: We're thinking about.
Speaker Change: Kind of moving forward, what gives you confidence that as D. P. You and other operating costs. So that you can control come down that ultimately pricing could hold up and I know you talked about focusing on higher margin volume and so youll get some mixed benefit from that but generally I mean, how would you have us think about pricing in a in a while where cost environment for the broader railcar.
Speaker Change: Smith.
Yeah, well look at arena, where we're incredibly focused on our margin right and and for us.
Speaker Change: Our our rental days our costs were in line with our rental days, which is I thought a pretty good result, considering the the inflationary impacts that we've been dealing with we have a number of initiatives that we deal with internally every day to manage to manage our cost lines. For example, you know.
Just then our vehicle on vehicle lines. When we look at in life costs those are related to parts and supplies. We have we have efficiency.
Speaker Change: Areas are going on that deal with.
Speaker Change: How we procure parts and tires and glass and things of that nature, we look at it down to the location level, we have productivity systems that enabled us to offset wage inflation by being able to have more productivity by having proper scheduling we go down to scheduling three shifts.
Speaker Change: And you know a by location. So there are a number of things that we're that we've looked at we have connected car, which gives US you know.
Speaker Change: Better performance on gas recovery, so that as gas prices, whether they increase or not we're able to recover at a level that allows us to to to improve on our guests.
On a gas vehicle gas cost.
I mentioned that were working a pretty big initiative on improving our overall utilization through digital aspects that allow us to know the disposition of every vehicle in our fleet. We believe that if we do do that and.
Speaker Change: Text based analytics that go to our location management team will be able to get more cars on the road without having to buy more so those are some of the things that I think about you know in particular, how we manage the how we manage the business and day to day. We're lucky we have teams of great experienced leaders in our.
Speaker Change: In our business that allow us to execute on a very very high level. Some of these initiatives that we're putting through and I do believe that if you think about price the last point about price in our industry over the years. It's been a you know it's been pretty stable given the given the ebbs and flows of the of.
Speaker Change: What happened pre and post COVID-19.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next questions are from the line of Lizzie Dove with Goldman Sachs. Please proceed with your question.
Lizzie Dove: Hi, there good morning, Thanks for taking the question I just wanted to talk ask about competition in the industry. Yeah. We've had a couple of quarters why America's volumes have been lower than kind of what we've seen in terms of like TSA believes it feels like it's just higher competition frame debate nonpublic competitor could you kind of shed.
Lizzie Dove: The latest I've, just kind of what you're seeing there and how that impacts how you think about you know volume trends, particularly in the Americas going forward.
Speaker Change: Yeah, we.
Speaker Change: You know our plan. This this past quarter was we wanted to focus on price target higher margin business and keep the fleets tight which drove utilization I you know I think when you looked at our company over the first couple of quarters, where you didn't have the utilization was in exactly where we would have wanted it. So we were able to get.
Speaker Change: To that and that drives a more certain outcome when it comes to our P. D. I believe in this environment and we believe in this environment, where there are per unit costs were high and rising and our interest costs as well.
It would behoove us to pass on maybe an unused you know a low margin rental or even have an unused corn a lot we've been talking about that on a number of calls for the quarter.
Speaker Change: So running a highly efficient fleet process is critical to our success.
Speaker Change: And we were able to do that.
Our goal.
Speaker Change: You know was to get our fleet in line with demand and also get our fleet younger and we transitioned out a lot of vehicles in the early part of this year now if you ask about you know competitors and things of that nature.
Speaker Change: If we pass on business, we felt it was brand agnostic business business that is discretionary that we could potentially get you know anytime we want and we are somewhat we all protect the bar of our scaling in and we know where we stand and if you look at it compared to 2019, you know our our our quarterly business was up double digits.
Speaker Change: We might have just taken our business different ways over the past couple of years and if you think about TSA volumes compared to 19, well well ahead of that as well. So I think we're in a good spot we took actions in the quarter because we wanted to minimize our our holding cost keep our fleet in line and going out and I'll just add one other comment about you know.
Speaker Change: Everyone bought cars in 'twenty three 'twenty four at high prices and probably went into this year with more cars than they would've liked and does that put pressure on things of course, but we made a conscious effort to get rid of our cars and I and I think everyone else is going to do that as well because the buy the twenty-five bi is materially better.
Speaker Change: And it behooves us to get cars in at that at those low prices and transition out of all the cars. So if you're asking me my opinion you know while we acted this way and you know the way we saw it in this quarter I think the industry on a whole kind of normalizes over time.
Speaker Change: That's helpful. I appreciate the color and you also gave a lot of helpful commentary around kind of the outlook for pricing D. P. U Cos I guess, putting that all together and I hope I'm not misremembering I think you've said in the past that you know.
Speaker Change: And 1.1 billion is kind of the floor of how you see normalized EBITDA going forward has anything changed about that outlook.
Lizzie Dove: Hi, Lindsay it's easy just to be clear nothing has changed on that outlook I'll just maybe.
Consolidated into thoughts we've had in our prepared remarks, and some of them even the questions that came up today right.
You can see fleet and intricate interest costs are at historic highs.
Lizzie Dove: As they normalize of course, we'll see benefits plus the operational efficiencies that we've been talking about that are really you know are well under way that too will provide benefits.
Lizzie Dove: Not to mention the improved pricing powers that Joe just mentioned and last but not least you know as we said in our prepared remarks, we intend to keep the fleet or fleets tighter than where we started last year. So we will have less cars, starting the new year. So all of those things combined.
Lizzie Dove: Our laser focused and had seen no issue in us being a sustained about billion dollar company.
Lizzie Dove: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Ryan Brinkman with Jpmorgan.
Speaker Change: Please proceed with your question Hi.
Ryan Brinkman: Hi, Thanks for taking my question just thought to check in on capital allocation, including after the during the pandemic and the chip shortage and with high inflation and low interest rates you allocated a considerable amount of your record cash flow towards repurchases, including when your shares are higher.
Ryan Brinkman: Sequentially it.
Ryan Brinkman: Although your share price was lower are you given that the interest rates were much higher you pivoted.
Ryan Brinkman: More toward retaining those costly the tranches of your securitization Steve noninterest expense. Just curious now you things are changing a bit again, alright with your share price even lower than when you made the pivot.
Ryan Brinkman: Toward the fleets are you know a parking it there and the interest rates coming back down seemingly.
Ryan Brinkman: Now just curious if you feel any differently again about the options available to you either as a result of your ongoing free cash flow or even the equity cushion that you've built up in those fleets facilities.
Speaker Change: Good morning, you know I think when you think about it our main theme has always been to remain flexible. So that's not going to change we want to continue that flexibility when it comes to capital allocation.
Speaker Change: Vesting in our fleet, obviously was a bigger priority and always wise, but continues to be a priority for us I think the other thing to think about is as you as you progressed through the year. We also mentioned about allocating cash to our operational efficiencies right all of those require some type of.
Speaker Change: I wouldn't say, we'd get started those this year, we were heavy on allocators and call. It investing in ourselves to start reaping those rewards, but continue to do that and as always you know buying back stock will be and also on the top of the R.
Speaker Change: Our list, but I think now it's also about how we invest in ourselves and really bring for more and more operational efficiencies in the future.
Speaker Change: Okay. Thanks.
Speaker Change: I know you mentioned the hurricane obviously that was the big deal is there anything to think about in the fourth quarter with the election, what would impact that that had sort of historically and how might that right that sort of disruption maybe that could occur in the fourth quarter versus what had occurred in the third.
Speaker Change: Yeah I'll take that.
Speaker Change: Yeah, there's been a lot of talk about you know the the election and travel related businesses, you know the way I see it.
There's nothing different than this national election than we've seen in the past.
I think the one four years ago happened during COVID-19. So it may not have or irrelevant, but so.
Speaker Change: The one four years before that was similar to the one I'm suspect four years from today will be similar I mean, what happens during a national election is that people tend to stay home either they want a boat and they are or they you don't want to want to watch the results and see what happens there's nothing abnormal about.
Speaker Change: About that it happens quite frankly every four years, but I will say about about volume in general going out.
Speaker Change: I like the way the calendar falls in the quarter and to say that we have veterans day, which is on a Monday.
Speaker Change: Okay.
Speaker Change: You have Thanksgiving, which is the last the last possible.
Speaker Change: Week it could be in the month of November and Thanksgiving is a big holiday, which by having at the last week. It doesn't disrupt two days were two weeks' worth of travel. So you I think you get an extra week kind of in November I'm pretty bullish on the on the Christmas holiday and the fact that it's gonna be longer you know having a holiday.
Speaker Change: Our new year's day is on a on a Wednesday, most people will not come back to work Thursday, or Friday, which gives you a great length on a period of time, where you have usually high demand and some good pricing so.
Speaker Change: While there has been disruption in the quarter and notable disruption when it comes to Hurricanes and you know a national election. There was some things that are happening that you know will certainly mitigate some of those activities. So as I said or as I said dressing.
Speaker Change: Very helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Chris Lewis with Susquehanna International Group. Please proceed with your questions.
Chris Lewis: Good morning, everyone.
Chris Lewis: So.
Joe.
Chris Lewis: Of course, correct me, if I'm wrong here, but this fleet by cycle.
Chris Lewis: She feels different.
Chris Lewis: From those perhaps.
Since 2019.
Chris Lewis: For a lot of reasons, obviously, we know about the supply chain here.
Chris Lewis: With the Oems, but at.
Chris Lewis: At this point or are we at a.
Chris Lewis: A point I guess, where.
Chris Lewis: You go into these negotiations and outcomes are kind of more predictable or kind of more.
Chris Lewis: Where you're able to realize a better better outcomes and I realize this is a very general question I'm, just trying to understand sort of the dynamics of this buying cycle versus the prior let's say four and ultimately.
Chris Lewis: Read through for kind of how we should think about holding costs for the fleet.
Chris Lewis: And 25 and beyond.
Chris Lewis: Right.
Speaker Change: You know I think the abnormality with the fleet buying cycles as as you mentioned had a lot to do with you know the past couple of years and the supply chain imbalances as you suggest as long as as well as you know the the shortage of vehicles.
Speaker Change: All of our companies in our industry.
Speaker Change: Exhibit a lot of vehicles during COVID-19 and that Rakuten will put a lot of pressure on us trying to read too sure to restock, our inventories and unfortunately during a period of time where prices were.
Were more expensive than we had in the past.
Speaker Change:
Speaker Change: It seems like this year. However, when we went into this year.
Speaker Change: Things have gotten more but you know more normally back to where we were historically does that mean that 26 spy is going to be that way I'm not sure, but it seems like the twenty-five bi is significantly.
Speaker Change: More improved than the previous two and more in line with what we've seen you know pre COVID-19, which I think is great. What I do know is that.
Speaker Change: While we are almost done with our with our buy they were still being cars offered as there are cars right now in certain so we have certain Oems that have high inventory levels that may be wanting to transition those out before the end of the year and yeah, there their fluid as well on their on their.
Speaker Change: On their production and delivery schedules and we will be in the market you know to keep looking at that as we look at our fleet rotation.
Speaker Change: You know I was pleased pleased with the buy I like particularly the fact that the vehicles are variable in nature of many different makes and models and trim levels that support the rental car experience.
Speaker Change: Hum.
Speaker Change: For me going forward I think that what not what happens in this particular case and as you know.
Speaker Change: How quickly we can rotate off fleets in and out and get some of these new lower cost of cars and will affect our R. R.
Speaker Change: Cause very positively.
Speaker Change: Okay.
Speaker Change: My follow up so I think.
Speaker Change: I think Brian has been in this role now for about a year or so and so we've seen all this work around demand and pricing analytics you mentioned the app.
Speaker Change: Where are we in this.
Speaker Change: This journey of transformation and what are some of the initiatives.
Speaker Change: As we look at 25 and beyond that.
Speaker Change: That we should think about as it relates to things around revenue or where perhaps apps locations just want to understand where we are in some of the.
Speaker Change: Highlights of sort of things to come thanks.
Speaker Change: Sure. It's it's hasnt been quite a year, yet, but you're right. Brian we did put Brian in that role very pleased to have him in that role because he has this incredible ability to dry just data and come up with innovative ways for us to improve our processes. They can do you think about what we concentrate on most critically as a company and how we want to transform their three Ella.
Since the first is about fleet, we just talked about that a minute ago. So Brian is very much involved with the team looking at data analytics, and and and residual value curves and things of that nature.
Speaker Change: As well as how it affects our balance sheets et cetera on the fleet by so I'd say, that's that's number one number two is about operational efficiency and someone asked me a question just a minute ago on number of things that we're looking at and I talked about.
Speaker Change: There is no secret if we get you know we are extremely focused on our variable cost lines and getting them in line with our overall business and we're working on a number of different initiatives, whether that be productivity out of our stores whether that be in light vehicle costs on our cars whether that be.
Speaker Change: Damaging and salvage recovery, whether that be overall utilization and I touched on that we have we have a number of initiatives going on right. Now is looking at how we can best let our operators know the exact disposition through technology of each of our vehicles because if we do do.
Speaker Change: We believe that we have a better way to get them in from a from a state of disrepair into a state of repair as well as being moved to the locations that have the best opportunity to put them on the road. If you think about you know vehicle utilization of point of utilization as worth you know.
Speaker Change: A good deal of operational EBITDA to our company. So that's another area that we're focused on and the last one does have to do with revenue right. How we can how we can retool our systems out there are a number of people who are part of that retool our system. So that we have the best contribution outcome, we are continually investing.
Speaker Change: And our demand fleet pricing system that will allow us to look at business segments and business opportunities and take reservations into our funnel and then distribute them out to the to the appropriate locations at the exact best price opportunity and volume opportunity that we can so you hit on it fleet opt.
Speaker Change: <unk> efficiency as well as revenue generation through better.
Speaker Change: Better contribution margin of the three areas and you will see significant growth in those three over the years to come.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question is from the line of John Healy with Northcoast Research. Please proceed with your questions.
John Healy: Thanks for taking my question just wanted to ask you a kind of a philosophical question Joe.
John Healy: I think about what we're hearing on the call from you guys as you.
John Healy: You know optimism that the fleet cost number is going to come down next year and that the buyer is going to be better the benefit of rates you guys have sold off cars and a tightened up capacity.
John Healy:
So I guess as I think about all of those things I mean, it's an encouraging backdrop going into next year, but we would love to just kind of here how much can that fleet by rotation truly bring down holding costs in 'twenty five because my my thought is youre going to still have a sizable amount of cash.
John Healy: Or is that or higher GPU than you'd like in your fleet and <unk>.
John Healy: Just hoping you could kind of give us some direction on how much the fleet cost number could come down.
John Healy: Maybe in the six or 12 month period, just as you as you rotate out so that would be helpful. Thanks.
John Healy: Sure Yeah.
John Healy: Right.
Speaker Change: We're just completing the by now so those exact calculations that you're talking about will be thought about in the next as weak as we complete our business plan.
Speaker Change: Youre right.
One by cycle May not tell me in at the totality of the story, but it's a start and we took out a good number of vehicles. Early this year do you think of as you guys look at our fleets. Our average fleet sizes. So you know a couple of hundred thousand cars give or take a.
Speaker Change: A year come out or get rotated out so theres still a couple you know that.
Speaker Change: Certainly more to do next year, but you know I think the thing that I look at this you know how it would be you know as nimble and flexible as we can with those both our dispositions as well as spot buys there.
Speaker Change: Their buys that happened more so than when you actually think right now that will enable us to Oh, it's a <unk>.
Speaker Change: Rotate out quicker but.
Speaker Change: For us we tried to get a head start by getting out of some of those challenges you know all of us at least for US we bought cars out of it.
Speaker Change: At a higher price, we bought used cars over the over the pandemic that we needed to get out of them. So we did a lot of that flushing out.
Speaker Change: Early this year, but it will take us a bit longer to kind of get our hands around that more to come as we as we give you. Your are expected you know Gpus for the 25 business plan in next call John.
John: Sure and I guess, just a follow up kind of in the same kind of direction.
John: When you think about the business if your fleet costs next year are lower your financing costs are lower.
John: Does that create a situation where maybe investors should be thinking about you know.
John: You're thinking about the spread in the business on rental as opposed to a metric like pricing as being important next year. So you know what.
John: If we're talking about inventory costs going lower.
John: Is it misguided for investors that have an expectation that our P D levels should be similar or going higher.
Speaker Change: It's flat RPT, the new op in a you know a deflating inventory cost model for you guys.
Speaker Change: Hi, there I think the way I would think of it is how we measure the business and call. It those metrics really shouldn't change so you're going to have to take everything into Italian <unk> right. So obviously fleet and interest is is one important thing.
Speaker Change: Also have rent expense that increases people cost, although all those operational efficiencies. We talk about is suppose to is not supposed to do is mitigating and we continue to mitigate it and I think it's all of the components of the expense lines, you know offset by the the revenue and the most important thing.
Being that revenue per day stabilizes and I think you could see in the actions we took in the quarter that positions us for for quarters to come in and our discipline around that it's really always going to come down to all the metrics and not.
Speaker Change: Over indexing on one over the other but importantly, how they all contribute to more margin on the bottom line.
Alright, thank you.
Speaker Change: Thank you. Our final question is from the line of Dan Levy with Barclays. Please proceed with your questions.
Speaker Change: Hi, good morning, Thanks for taking the questions.
Speaker Change: Wanted to start with a question on your fleet.
Speaker Change: Fleet by I think we know that the backdrop in the auto industry right. Now is that there is a few automakers that are heavier on on the inventory side, especially amongst.
Speaker Change: The <unk> three and I'm wondering to what extent, there's maybe an extra willingness from.
Speaker Change: Some of the Oems to be a bit more aggressive on the pricing side and then just as a follow up on that is there any risk that.
Speaker Change: You you seem to be fairly disciplined on your fleet side, but that maybe some of your competitors are getting exceedingly good deals and could take an extra week. Because you are the Oems that are a little more keen on clearing inventory.
Speaker Change: I'll take that.
Speaker Change: Okay.
Speaker Change: We have we have.
Speaker Change: Extremely diverse portfolio, we deal with all the Oems and we have different makes and models that we are that we procure and put into our fleet.
Speaker Change: And there are deals that are that are happening that's why I say, where we are.
Speaker Change: Almost complete because there are deals that are happening as we speak.
Speaker Change:
Speaker Change: This is what I think about the overall the overall industry allocation, which I think is important.
Speaker Change: It's it's basically give or take a certain amount of vehicles going to be the same in 'twenty five as it wasn't as it wasn't 24 and that's my opinion.
Speaker Change: So it's not going to be like there's this enormous amount of vehicles that are going to be provided to industry as it seems as it stands right to today they'll always be outliers that suggests hey, I have a couple of cars you guys want to take them or not if that happens we'll be participating in that as well so.
Speaker Change: I do think that there's discipline by the Oems on what they provide to the to the rental industry.
Speaker Change: You can look at the SAR is an indication of what.
Speaker Change: What we believe is going to be Oh it was.
Speaker Change: You're going to be sold as you know just nationally and you know for the industry. As you know I see it is as is relatively unchanged year over year give or take and.
Speaker Change: So like I said, we are a participant in any and all deals that come as long as they meet our criteria our return on capital investment.
Speaker Change: It's where I as why I see it in and twenty-five fleet by.
Speaker Change: It looks to me you know started off really well and we're back to historic norms, where deals work that way work best for both parties. So.
Speaker Change: I don't see that you know that.
Speaker Change: There's a whole lot of Oems that are willing to just dump cars, but you know there there had been spot buys I believe there'll be more.
Speaker Change: As time goes on I think the fleet sizes will be relatively what they sell to the industry relatively in line and.
Speaker Change: You know I like I said earlier I'm very pleased with our 25 by it we got it.
Speaker Change: At least the buy back to historic norms, which works for all of us.
Speaker Change: Great. Thank you and as a follow up.
Speaker Change: Somewhat related.
You are clearly committed to having a tight fleet maybe you could just talk about what youre seeing from your competitors on.
Speaker Change: The tightness.
Speaker Change: No one is facing maybe some questions on <unk>.
Speaker Change: On liquidity I don't know to what extent.
Speaker Change: Impacting the fleet types and you know the other one is just.
Speaker Change: On you know that is maybe a little heavier on the fleet and it moved some cars from off airport contracts. So just maybe the broader industry fleet tightness environment any color would be appreciated yeah.
Speaker Change: Sure as I said.
Speaker Change: I said a little bit earlier.
Speaker Change: Yeah, everyone bought cars that were highly higher priced in 'twenty, three and 'twenty four and probably went in with more cars than they.
Speaker Change: They would like largely due to the challenges of residual lives towards the end of last year.
Speaker Change: We did we decided to get out of those cars and get out of them quickly and that was right for our business.
Speaker Change: With the with the new cars coming in that are that are that are more advantageous than they had in the past it makes sense.
For everyone to kind of get their hands around that and do that as well. So as I said earlier I think over time.
Speaker Change:
That starts to rationalize so.
Speaker Change: And I do believe that we have businesses. It's just for us that we have brands that allow us to participate well in all areas of our industry, we have the avis brand that.
It appeals to both the business and consumer and business and leisure customer.
Speaker Change: We have the budget brand that's predominantly leisure we have to pay with brands that people want to rent.
Speaker Change: More infrequently. So I do think we have the brand and the positioning and the investment in our App in our in our direct channels plus.
Speaker Change: The relationships that we have with exclusive partners both airlines of proprietary relationships with big associations, I think that bodes us well for our ability to to allow us to put cars on the road in a meaningful way.
Speaker Change: So you.
Speaker Change: The combination of of you know our book of business. The brands that we have as far as full as well as I believe the fleets will start to rationalize into our industry. The fact that I don't believe the fleet buys are going to be much different year over year, I think that bodes well for all of us.
Speaker Change: Great. Thank you that's helpful.
Speaker Change: Thank you.
Speaker Change: At this time, we've reached the end of our question and answer session I'd like to turn the floor back to Joe Ferraro for closing remarks.
Joe Ferraro: Yes. Thank you so to recap we reported a strong third quarter with improved vehicle utilization through ongoing fleet discipline. Our model year 2020 by by is largely complete and we expect to have substantially lower holding costs. As these vehicles rotate our fleet will continue to prioritize high margin business, we're balancing volume the holiday demand looks strong and we have.
Speaker Change: Price the transition seasonally our teams around the world are well positioned and prepared to close out the year and as always I want to thank you for your time and interest in our company.
Speaker Change: Yeah.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation you may now disconnect your lines at this time.