Q2 2019 Earnings Call
Greetings and welcome to the Avis budget Group second quarter 2019 earnings Conference call.
At this time, all participants will be listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host David Calabria. Please go ahead Sir.
Good morning, everyone and thank you for joining us on the call with me are Larry de Shon, Our Chief Executive Officer, and John North Our Chief Financial Officer before we begin I would like to remind everyone that we will be discussing forward looking information that involve risks uncertainties and assumptions that could cause actual results to differ materially from such forward looking statements and information.
Such risks assumptions uncertainties and other factors are identified in our earnings release and other periodic filings with the FCC as long as the Investor Relations section of our website.
We undertake no obligation to update or revise our forward looking statements.
Our comments today will focus on our adjusted results. We believe that our financial performance is better demonstrated using these non-GAAP financial measures, which are reconciled from the GAAP numbers in our press release and in the new Investor presentation also available on our web site.
With that I'd like to turn the call over to Avis budget group's Chief Executive Officer, Larry de Shon.
Thank you David and good morning, everyone yesterday, we reported record second quarter revenues of $2.3 billion, driven by a 2% increase in rental days, a 2% increase in U.S. rental car pricing and a $6 million increase in ancillary revenue year over year, along with higher revenues, we had an 8% reduction in per unit fleet costs, and a 70 basis point improvement in fleet utilization, we generated adjusted EBITDA of $175 million, a 9% improvement over the second quarter of last year or a 16% improvement in constant currency.
We achieved all of this while still improving our net promoter scores by 990 basis points in the Americas, and 650 basis points in international for the quarter compared to prior year.
We continued our strategy to grow profitable revenue, while investing in mobility initiatives to spur innovation and to unlock incremental profit opportunities. This morning, I will provide an overview of our results in the Americas and international segments discuss some of the progress we have made with innovation and mobility initiatives and then give an update on our outlook for the summer and the remainder of 2019.
Continuing the trend we have experienced for the last several quarters. The Americas delivered strong results with margin expanding more than 250 basis points and adjusted EBITDA growing $45 million compared to the prior year.
The biggest contributor to the outperformance was a 10% reduction in per unit fleet costs due to robust used vehicle values, our growing development and use of alternative disposition channels and the effectiveness of our proprietary fleet management system that optimizes vehicle purchase and disposable decisions. We are beginning to operationalize, our mileage optimization initiative using technology and vehicle connectivity to more effectively manage vehicle usage reduced fleet costs and deploy our right car right customer rental experience.
We have finished implementing our revenue management system across all locations in the United States, which resulted in a 2% increase in overall U.S. rental car pricing website revenue grew 8% in the quarter compared to last year with prepaid reservations accounting for nearly 40% of reservations.
Our strategy to improve ancillary revenue drove the highest quarterly rate since 2016 ancillary sales increased approximately $6 million in the quarter due to more small business rentals and our revised rental sales agent incentive program, which is in place at over 100 locations nationwide. This program is a success for both our customers and our employees as we see increased net promoter scores.
In our international business, adjusted EBITDA was $39 million $21 million lower than prior year in constant currency with a significant portion of the variance due to lower organic rates, we continue to see rate pressure due to reduction in intra European travel and uncertainty around Brexit.
Our international team is taking steps to respond by growing our light commercial vehicle operations, which provide more consistent rental demand the growth of light commercial vehicle business on the integration of our 2018 acquisitions of Marina and tourists car contributed to a 3% growth in rental days in the quarter.
Commercial segment rental day showed positive year over year growth with mid market and small business accounts, both up 9%.
As we pointed out earlier, we delivered a substantial 650 basis point improvement in net promoter scores for the quarter ending June with even higher scores exemplifying our continued focus on improving the overall customer experience.
With that I'd like to update you on the progress we've made on our strategic mobility and innovation initiatives.
Regarding our progress on connected car, we have 165000 vehicles connected globally with plans to reach more than 200000 by year end.
We have expanded our relationship with I'd systems and continental to deploy a third party connected car technology, while collaborating with a number of our OEM partners to achieve connectivity using their end vehicle systems.
We started to see tangible results from our connected fleet.
Including well over one dollar of incremental fuel recovery on each connected car rental which more than pays for the cost of the technology.
Further we have seen a nearly two day improvement in the recovery of overdue vehicles as connectivity allows us to locate our cars faster.
In addition, connectivity facilitates our mileage optimization initiatives and allows us to explore additional use cases, including self service and fleet monitoring and management.
It has been a multi year journey for us to reach this proof of concept at scale, but the returns are there and we see a path towards accelerating monetization in 2020.
We remain at the forefront of railcar App development to enhance our customer experience. We recently added the Industrys first in rental split billing feature into the Avis App, which allows the customer to utilize more than one payment method during our rental since the release of this feature mid may we are already seeing more ancillary products being taken on both the Avis App and Avis Dot com.
This feature is especially useful for our corporate customers looking to extend their travel into a long weekend, allowing them to build the business portion of their rental to their employer and the personal a portion to their own credit card.
We now have over two and a half million transactions on our award winning mobile App and preferred customers, who use the App report on average, 20% higher net promoter scores than those who do not.
We encourage you to download our app and give it a try.
Earlier this year, we discussed our initial partnership with Lyft in the second quarter, we expanded our operations to four new cities, bringing our weekly rental business to nine cities. We have over 3000 vehicles in our lift fleet and plan to continue expansion of this partnership this year.
We believe there are several benefits in our partnership that can improve our overall economic performance first we have created a dedicated fleet for REIT held rentals cascading them out of our fleet of risk cars that have reached the age where they would typically be sold extending the life of our fleet allows us to lengthen ownership of our asset base into the flatter portion of the depreciation curve, resulting in lower per mile fleet costs.
Next our connected fleet allows us to monitor mileage and vehicle performance in real time, thus optimizing utilization and maintain the quality of the vehicles during rental while ensuring mileage accumulation has managed to protect our asset value.
We have fully integrated with the lift driver app, giving drivers a seamless weighted digitally reserve rent and returned vehicles. This quarter, we were able to prove our hypothesis that these are profitable rentals and can be part of our growth objectives in 2020 and beyond.
We continue to grow our REIT health business and we are pleased to announce a new partnership with Uber, where we will be providing a dedicated fleet a connected vehicles for weekly rentals to Hooper drivers. We plan to begin with initial market launches before the end of the third quarter and will provide more details as we move closer to implementation.
Our zipcar flex product in London has completed nearly half a million flex trips this year nearly as many trips as all of 2018 illustrating the significant demand in the market.
Zipcar Flex provides on demand one way mobility throughout London, as well as to and from Heathrow Airport with a fleet of approximately 1200 vehicles.
During the quarter, we enhanced our partnership with Heathrow Airport to have designated parking for the Zipcar flex offering directly at the terminal to reduce time spent navigating around the airport.
The Zipcar flex product is a great complement to the existing zipcar around truck business as we experienced continued growth in both product offerings with round trip, increasing 9% in London as well this year.
Our Zipcar Flex fleet of 325, Volkswagen E costs have driven more than $1 million zero emission miles and over 200000 trips taken by more than 22000 unique members. Overall, we now have over 270000 members in London, making it the largest zip car market globally.
Also during the second quarter, we expanded our partnership with via a leading micro trends and new mobility company. We're supplying both connected vehicles and fleet management services in Seattle, Washington, Newton, Massachusetts, Fort Worth, Texas, and Milton Keynes United Kingdom.
We are excited by the expansion of our partnership with via were drivers are able to digitally rent securely access and safely return our connected vehicles through their mobile phones, which we believe helps to increase the per vehicle rider utilization of ride hailing vehicles to reduce road congestion in these markets.
Last week, we announced a partnership with autonomous the leading global automotive data services platform to generate potential new benefits from our growing connected fleet autonomous is one of the first to create a new marketplace for this information has already gathered a growing number of customers, which will now include anonymized data from our connected cars potential customers and partners include companies like JD powers, who would leverage insights identify customer trends, we look forward to new partnerships and new learnings from this relationship.
In summary, we have started to see real success in our connected car initiatives the development of our technology and mobile apps and fruitful partnerships with other mobility leaders, who are successfully leveraging our vehicles and fleet management capabilities to serve new use cases.
We feel good about our results so far and feel that our earnings will be consistent with our earlier expectations for the remainder of the year. We continue to see strength in the leisure segment, where we have delivered eight straight quarters of year over year growth and underlying leisure pricing and July will be our largest leisure rental day month in our history. So I will also be our 26th consecutive month of increased dotcom bookings.
Fleet costs continued to be a benefit resulting from strong residual values and through our use of alternative disposition channels, while international pricing is still challenging in the summer months. We are currently seeing pricing up slightly from prior year.
We are continuing to offset some of these pressures through our diversification to light commercial vehicles and through acquisitions based on these trends we are reaffirming our full year revenue and EBITDA guidance.
Finally, I'd like to comment on the announcement of my departure from Avis budget group at the end of this year. During my 13 years at Avis budget I had been inspired by the talent performance and dedication of our team and their steadfast commitment to delivering a seamless experience to our customers.
I'm looking forward to the continued success of the strategic initiatives, we have put in place as we further our transformation into mobility solutions provider and believe we are well positioned for success, both now and in the years to come it's been an honor to lead the team for the last four years I'd like to say, thank you to each of our 30000 employees who have made this all possible.
I'd like to turn the call over to John to take you through the financial results.
Thanks, Larry and good morning, everyone.
My comments today discussing changes in revenue per day pricing and per unit fleet costs will all refer to changes in constant currency or excluding exchange rate effects. My comments will also focus on our adjusted results, which are reconciled from our GAAP numbers in both our press release and Investor presentation.
I'd like to start with an overview of the second quarter for the total company as Larry mentioned, we had a strong quarter. We ended with a record $2.3 billion of revenue, which included a 46 million dollar headwind from currency and 2% higher volume.
Overall per unit fleet costs were 8% lower will vehicle interest expense increased by $10 million. This resulted in our adjusted EBITDA, increasing by 14 million to $175 million in the quarter after a $13 million adverse impact from foreign exchange movements.
Moving to the Americas, and excluding exchange rate effects.
Revenue per day was up 1% compared to the prior year with a 2% increase in volume leading to an overall positive revenue impact as Larry mentioned ancillary revenue had a $6 million increase which was attributable to growth in small business rentals and our revised rental sales agent incentive program.
With the eighth straight quarter of year over year growth leisure pricing continues to grow with the help of our revenue management system.
Along with strong ancillary performance leisure pricing help increase us rental car pricing by 2% in the quarter.
We saw growth in both volume and pricing within our marketing Association partner channels with our major partnership is performing well.
Per unit fleet costs decreased by 10% as we continue to utilize alternative disposition channels to take advantage of strong residual values. We continue to be focused on the growth of our alternative disposition channels, particularly our direct to consumer sales.
Each vehicle, we disposed through alternative channels says as hundreds of dollars and disposal costs and each vehicle, we sell direct to consumer generates more than a $1000 of additional benefit.
We disposed of nearly 70000 vehicles in the quarter and sold 61% of these through alternative disposition channels.
We now have 12 operating car sales locations, including our first in California, and will continue to benefit from the significant opportunity to complete improve fleet costs through further success in this initiative.
Average days to sell was also reduced by 2.1 days or 19% from the prior year, improving utilization and fleet costs.
As Oems increasingly shift new inventory toward sport utility vehicles residuals for any senses sedans remains strong, but noncore CV residuals will face pressure, we believe our strategy to be competitive fleets to market in the third quarter will help to minimize the potential impact.
As we anticipated vehicle interest continues to be a headwind increasing by $10 million in the quarter across a similarly sized fleet and we expect it to continue to be a headwind throughout the year.
In total revenue per day up 1% combined with significantly lower per unit fleet cost resulted in the Americas, adjusted EBITDA, increasing to $152 million in the quarter with margin expanding by more than 250 basis points.
In our international business, we saw strong volume growth in our segment growing 3% from both our existing operations and acquisitions completed throughout 2018.
Pricing pressure has continued as evidenced by 1% lower revenue per day. This resulted in revenue increasing by 2% in constant currency, but decreasing by 4% after foreign exchange movement.
Per unit fleet costs were flat in constant currency for the quarter, while utilization increased by 60 basis points.
Which reflects our tight operational control.
Second quarter EBITDA of $39 million was $21 million lower than prior year in constant currency. The international team is taking steps to mitigate the softness of revenue per day through further improvements in utilization and per unit fleet costs.
Our adjusted free cash flow was a $59 million outflow through June thirtyth compared to a $68 million inflow last year as the timing benefiting vehicle programs. We saw in the prior year and reverse of vehicle programs being about $67 million last year over year.
Our financial position remains strong with approximately $2.4 billion of available liquidity this comprised and in the quarter with $534 million of cash having $575 million of unused capacity on our revolving credit facility plus an additional $1.3 billion availability under our vehicle programs.
Our net corporate leverage of 3.8 times is within our targeted range of three to four times and 130 basis points lower than it was at the same time last year.
In April we issued $650 million, a five year term ABS notes at a blended rate of 3.44%. This is on top of our February issuance of $600 million of three or ABS notes at a blended rate of 3.56%.
In late June the settlement in July we issued $400 million of eight year high yield senior unsecured term notes at a rate of 5.75% the proceeds of which were used to retire $400 million of outstanding 5.5% bonds due 2023.
We continue to look to opportunistically extend our maturity schedule and ensure our capital structure remains strong with no near term maturities.
In the second quarter, we entered into an equity derivative contract involving the use of a $16 million capped call option and tended to offset dilution from equity award grants. Additionally received an increase of $100 million authorization from our board and additional share buyback authority, bringing our available capacity to $250 million or approximately 9% of our outstanding shares. We will continue to take an aggressive approach to share repurchases whenever there is an opportunity to allocate capital and take advantage of the highest return possible.
As Larry mentioned, we have reaffirmed our 2019 revenue and EBITDA guidance with revenue expected to be between $9.2 billion in $9.5 billion and adjusted EBITDA to remain between $750 million and $850 million.
With the frequency of personal auto claims being lower than prior year period insurance industry statistics cars that would have been utilized for insurance replacement. We believe are now being put into the rental car fleet with that slight softening, we narrowed our Americas guidance on revenue per day to a range of flat to up 1.5% offsetting this is a strong residual market in the Americas, we are improving our fleet cost per unit to down 3% to down 7%.
For the additional guidance, we provided refer you to our earnings release published last night.
In summary, the Americas had strong results in the quarter and the international market remains competitive, but we continue to invest to improve our efficiency and target strategic growth opportunities underpinning. All of this we are investing in new technologies mobility solutions and ways to improve our customers experience.
With that Mary and I'd be happy to take some questions.
Thank you, we'll now be conducting a question and answer session.
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Once again, ladies and gentlemen, this star one to ask a question and we do ask you ask one question one follow up several turns of the Q.
Our first question today is coming from Chris Woronka from Deutsche Bank. Your line is alive.
Hey, good morning, guys.
I was hoping maybe talk a little bit about the opportunities you see on the on the delivery from using your fleet I know you still have the.
Budget truck fleet, and you've done some acquisitions overseas.
Can you talk about how big of an opportunity that Kim can be for you.
Hi, Chris This is Larry.
I think it's actually going to be a pretty significant opportunity for us as we're going forward as you can see we're developing a lot of other use cases and new partnerships.
To take advantage of take advantage our fleet, particularly our connected car fleet, we have a hedge pilot going on with budget truck, which allows people to rent trucks seamlessly and the self service mode. We have in a few locations for the pilot test, but it's an indication of how different use cases are developing out there, particularly for this last mile delivery as well so as we look at some of the partners that were working with and others that were discussing opportunities, but I do think that there is a potential for a significant amount of business in the future as it relates to this kind of delivery activity both on the car side as well as the truck side.
Okay. That's helpful and just as a follow up.
As you look at the different possibilities for capital allocation between.
I guess share repurchase deleveraging acquisitions, and kind of reinvesting in the business or growth initiatives.
How do you look at those different buckets right now what would make you essentially pivot towards one or the other.
Hey, it's Jon good morning.
I think our philosophy of capital allocation has been pretty consistent it's a balanced approach.
Over the past four years Weve split our cap allocation between.
Capex or investment in the business, we bought back a significant amount of stock I think almost $1.5 billion worth.
And then we've done a number of acquisitions, especially internationally and then also picking up a number of our licensees in the Americas. So.
We're capitalists at heart, we're looking for the best return at all times, and Thats, where were going to direct the capital so.
I would say that it continues to be in flux.
I would also point out that this morning, we increased our share repurchase authorization by $100 million, we now have over $250 million available to repurchase shares and.
We are prepared to come in and buy stock at we think Thats the highest return or if there is a compelling acquisition, we'll look at that but.
I think first and foremost we're going to continue to invest in the business and these mobility use cases, we think are just really the tip of the iceberg get started here.
Thank you. Our next question today is coming from Brian Johnson from Barclays. Your line is now live.
Hi, This is Jason still dragged on for Brian just a quick question around the guidance.
So vis-a-vis the topline guidance reiterated.
As we lowered the the RPD outlook in the Americas I was just wondering is there any other offset either international or maybe that you're seeing in volume that maybe wasn't implied.
In in those other revised metrics that might cause an offset to revenue, allowing you to reiterate the range or should we just assume maybe the midpoint of that range might be a little lower.
Yes. This is John again good morning.
I think were comfortable that were within the range.
Maybe I guess to your point on another we're going to call out anything else, specifically I think the two areas that we thought were probably worth adjusting was just a slight decrease in RPD.
And then obviously a pretty significant change in our per unit fleet cost per month based on what we've seen so far year to date.
So I think we still think we are going to fall within the revenue range. We gave within within your own estimates are modeling work. If you wanted to bring down your revenue estimate I think thats your call, but I think we don't see anything that indicates we're going to have a big departure from where we expected to be.
Overall.
Okay. Thank you and then just one follow up maybe a longer term question.
I think it was a very exciting announcement around the autonomy partnership.
Should investors be thinking in the next.
Call it two to three years any.
Material.
Incremental benefits from from record revenues through that data monetization efforts and if so is there any way to sort of frame up what the potential revenue benefit could be.
Jason I think its early stages, yet with our autonomy partnership we are getting revenue stream coming in now from them.
We have signed with they have signed with a couple of customers that will be using our data obviously as our connected car fleet grows that will provide even more data opportunities into autonomy. So that they can aggregate with other card data that they're getting from other suppliers of this data. So I do I do believe that there is a lot of upside potential here how much at this point I'm not really willing to go out and say, but I think we just need to let the partnership developed at the cars connected and then over time, we can see the demand for that kind of data by do think it will be over time, it should be fairly significant.
Understood. Thank you.
Thank you. Our next question today is coming from Derek Glynn from consumer Edge Research. Your line is now live.
Yes, good morning, and thanks for taking my questions.
Can you provide additional details around that Hooper partnership are there any material differences with the list partnership program and your expectations for how large that ride hailing fleet and the expected contribution from that program in 2019 or looking out to 2020.
Yeah. This is Larry first of all I'd say that now that we've had some experience with lyft and we've got to over 3000 cars now out on rent.
We're pleased with what we're seeing so we have had taken some time to take a look at the profitability of this business and how mileage and damage and so forth has been.
He has been performing we do use connected fleet. So that we do monitor the fleet and we have the ability to make sure that we can monitor the mileage on it and so forth that protect the asset value of the fleet. We only do weekly rentals. So we have an opportunity to review it at the end of every week. So I think we put it in the right kind of parameters around it to make sure that we are pleased with the results of it and so far we're pleased with the results.
We want to continue growing it will and we're planning to continue to grow with lift from the number of airports are a number of us city locations now with Lyft and continue to grow with them and the over business will be I think.
We will follow pretty much the same the same parameters. The same guidelines as we go forward. So overtime between both of them I don't see any reason why this wouldn't be in the tens of thousands of cars over time as we continue to rollout the.
The network for both companies.
Okay, Great and then as it relates to the recent 400 million notes offering in the subsequent redemption of a portion of those 2020 threes.
John can you just speak to the rationale behind those transactions and then also how are you thinking about the ideal leverage ratio.
For the company going forward.
Thanks This is John .
I think what we saw was a nice opportunity.
To take out a piece of the $675 million notes that were due in 2023.
One of the things that was most I think exciting for me when I when I joined the company about four months ago is that we really had a very.
Well thought out capital structure, and I think the companies historically done a really good job of managing maturities and making sure that we're not sort of sitting there with a gun to our head having to do something.
And I think this is a great example of us opportunistically paying about a about a quarter point more on that $400 million relative to what we retired but getting an additional four years of duration, which I think is a pretty good trade, particularly were kind of the rate environment is today.
I think the other thing it accomplishes that really knocked down the size of that one tower, so 675 million.
I think frankly was.
From from David collaborate and my perspective, a little bit higher than we would like.
We like to keep them, just a little bit more manageable and so this gives us the ability to put 400 out there.
And then leaves the 275, which is a much more manageable size for the 2020 threes.
So overall I think the execution was good and we were just able to take advantage of that little blip in kind of the rate environment and put together a pretty compelling transaction and we've been waiting about a month or so to get that done and when rates. Finally came in we launched it and at the same day close so it was all pretty easy.
In terms of your question around leverage we've talked a lot about.
Our range being kind of three to four times.
I think this goes back to one of the earlier questions around capital allocation, which is just where do we think.
You know is the best utilization of of money.
Thats coming in and the beauty of this business is the cash flow and how much cash. We generated reminder, we're going to do between 250 and $300 million of free cash flow. This year and so we've got a wonderful annuity stream and we're going to put it to work. We think is best I think we're really comfortable 3.8 times levered.
But if we think there is a good opportunity for us to potentially bring that down a bit piece of the other stuff you know we'll look at it.
But I have to say I'm pretty excited about our opportunities to invest internally.
And then also the success, we're starting to see with the connected car with the partnerships uplift to Nubera with autonomy, though and then you know that some of the miles optimization and things that we're doing there and so if we can accelerate any of that I think.
We are willing to do so and you probably noticed we bumped up our range for capital allocation in terms of Capex. This year, just a little bit to kind of reflects some of that so I think that's that's how we're thinking about the world.
Thank you. Our next question today is coming from David Tamberrino from Goldman Sachs. Your line is now live.
Great.
Morning, Larry morning, John .
Utilization looks like an improved pretty nicely year over year and Americas and then also within the international segment, how much of that can be driven by.
Just improved turning of the vehicles and operations versus the connected car fleet.
It's a combination this is Larry de Shon, David Good morning, It's a combination of a lot of initiatives that are going on in the business to kind of drive utilization first of all.
There's a number of use cases that we're developing in the business that.
Really go for a longer length of rental type of transactions. So its a revenue per transaction play versus the revenue per day play.
And as those use cases grow in numbers you know that we will continue to help utilization.
Also the connected car fleet is helping us.
Shave time off of idle idle time off of the fleet.
And that's whether it's just an overdue getting an overdue back faster a couple of days faster than what we would normally would if it wasn't connected.
I think really matters also alternative channels is really helping us shorten the length of time to sell for our fleet.
And the and the team has been really aggressive in managing the utilization this past quarter and into the summer and taking advantage of opportunities to.
Whether it's in the retail market to sell cars.
Where they think is the right thing to do but based on the data analytics that are coming out of the company at this at this stage. So there's a number of initiatives going on that continue to really really well.
Make the the fleet work harder and I think connected car will be.
The ongoing technology that will allow us to continue to find opportunities in the business to drive some efficiency.
That will continue to improve that as well so I'm pretty excited about what connected cars and able to yield for us so far in this area.
Got it and then just a follow up I know there's been a couple of questions on ride hailing wanted to get your view on the profitability per unit of one of those vehicles being cascaded down versus your typical on rent to leisure first 18 months vehicle versus I guess this.
18 to 36 month year old vehicle Thats going into the Red Hills side.
Yes. This is John .
I think.
A couple of things and you touched on the key the first is that this is really about extending the length of the vehicle that we're going to own right. So this is taking a car that would be at the point of being de Fleeted and really coming up with an alternative use for it and its a flatter part of the depreciation curve. So I think we're pleased with where the rates are I think we mentioned in the prepared remarks that.
You know we've done to look at both utilization mileage mileage accrual and also damage and everything seems to be within tolerances and you know we saw a business case, where you have this was profitable and we think as Larry mentioned to you know a couple of questions. Again, we think this can grow into the tens of thousands and so I think it's just another opportunity for us to use our fleet in different way.
And really this was the underpinnings of of what I saw when I joined the company, which is I think that there are multiple use cases and those use cases are changing and this is a great example of how we're going to go and pivot our fleet.
To unlock new opportunities to grow revenue and I think the the financial kind of metrics makes sense for us.
As a reminder, if you'd like to be placed into question queue. Please press star one on your telephone keypad. Our next question is coming from John Healy from Northcoast Research. Your line is now live.
Thank you.
Wanted to ask a little bit more about what I thought the bright spot was as the quarter on fleet costs.
The initiatives that you guys have been working that for a while there how much more tailwind is there on those initiatives I think you said, 61% of the cars sold in the quarter with their alternative channels, where do you think that number can get to ultimately and you'd be comfortable with and can these tailwinds.
Potentially cause 2020 fleet cost.
Maybe not that different than what you're experiencing this year in 2019.
No I think.
Look I think we've got a lot of headway a lot of runway still in front of us.
John on the alternative disposition channels. So we're at 61% and that's up from 52% same quarter last year.
Still a significant amount of that is direct to dealer, which is giving us about $450 benefit per car that we sell direct to dealer versus auction.
And we have grown direct to consumer significantly, but we have a long ways to go direct to consumers so even within that 61% of alternative channels.
Penetration, we can change the balance of how we're selling within those channels within the alternative channels. So the more that we can continue to sell direct to consumer which we more than doubled what we saw in the quarter. What we sold six direct to consumers last year. The more that we can continue to grow that that will give us over $1500 benefit per car versus 450. So not only can you take the 61% higher and every single month, we continue to grow that penetration of alternative channels. You can change the mix inside the channels and so that those benefits will are still significant that are out in front of us. So I'm not sure exactly what number the alternative channels can be I'm sure will always be in the auction market as some some percentage, but I think we have a long ways to go overall for the 61% to grow and then we have a big opportunity in the mix as we continue to roll out more retail locations and and develop each one of those retail loss.
Great and then just.
Any perspective that you might have Larry just in terms of how the July season seems in terms of.
Tom just leisure travel in the U.S. and now have over the.
Have the competitive dynamics and in a more stable or rather unstable.
No I would not characterize as unstable at all in fact July will be our largest leisure volume month ever in the history of the company.
So we have very strong volume in the month of July , which we're very pleased that northeast seems to be a bit weak.
So we are seeing just overall the industry revenue to the airports.
As we've been watching the northeast pretty much all year continues to be a little sluggish.
We feel like there is a not as many yielding opportunities in the in the month of July that we would normally want to see.
But it's it's nothing critical but it is something that we did notice as we went through the month.
So volume is really strong leisure volume and particularly strong we are seeing corporate volume turnarounds, we had a good corporate volume month, and it's nice to see corporate coming back and particularly small business was up.
Up in the second quarter.
See that.
From a volume perspective, so I would say yielding opportunities not as much but overall volume very strong and and leisure just booming.
And I hate to be.
Pinpoint to this question, but would you say that.
Yield opportunity was.
Inside of the range you gave for revenue per day for Americas or would it be softer year over year.
Yeah. This is John .
We brought down the RPD as you saw by about a half a point on the low end so from from up a half to flat basically and then on the upper end I think we're up two and a half we brought it down to one and a half and we were within the range.
Thank you. We appreciate of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.
Thanks summaries I'd say, we had a strong second quarter. Despite the competitive pressures, we're facing internationally continued higher leisure pricing in the Americas lower per unit fleet costs combined with a shift in rentals to our dot com channel have enabled us to expand our margins by more than 90 basis points in constant currency. We have made significant progress on key strategic initiatives in the second quarter and remain focused on improving our profitability with that I want to thank you for your interest in our company.
Thank you Weve reached end of our question. We should have this teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.