Avis Budget Group, Inc.

Greetings and welcome to the AVIS Budget Group's first quarter 2020 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Calabria, Treasurer and Senior Vice President of Corporate Finance for AVIS Budget Group. Thank you. You may begin.

Good morning, everyone, and thank you for joining us. On the call with me are Joe Ferraro, our interim 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 involves risks, uncertainties, and assumptions that could cause actual results to differ materially from such forward-looking statements and information. Such risks and assumptions, uncertainties, and other factors are identified in our earnings release and other periodic filings with the SEC, as well as the investor relations section of our website. We undertake no obligation to update or revise our forward-looking statements. On this call, we will discuss certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website, for how we define these measures and reconciliations to the closest comparable GAAP measures. With that, I'd like to turn the call over to Joe. Thank you, David, and good morning, everyone.

First, I hope everyone is staying safe and healthy, and I'd like to thank all the medical workers, first responders, essential service providers, and in particular, our frontline employees who are ensuring people around the world can still access critical transportation solutions during these challenging times. This morning, I'd like to first provide an update on our safety protocols, and then I will discuss our operational actions and cost removal efforts in more detail. along with our outlook for the second quarter and the rest of the year. After that, John will discuss liquidity and our current cash position, which is sufficient to take us through the balance of 2020 and into 2021. Our first priority remains the health and well-being of our employees and our customers. We are laser focused on emphasizing safety, trust, and empathy in all our actions. Car rental is one of the most hygienic forms of transportation, and it empowers our customers to control their own environment. We have a strong legacy of providing clean vehicles and improving the customer experience. In times of uncertainty, our customers can count on us to get them wherever they need to go, both safely and conveniently. We demonstrated this in March and April as we provided transportation options for customers looking to leave crowded metro areas or avoid mass transit as they return home from vacations or business travel. We removed fees associated with younger driving ages to assist students returning from school. We created a national discount program for frontline medical workers to safely get to where they need to go. We offered complimentary trucks from our budget truck fleet for food delivery throughout the city of New York and provided free vehicle rentals to the University of California, San Francisco School of Medicine for their outreach efforts in the Navajo Nation. We promoted unprecedented flexibility in waiving cancellation fees to allow people to alter their travel plans, and we announced an extension of our loyalty program, given the significant reduction in travel activity. We are most proud of the differentiated rental experience that we offer, as it is ideal for the current environment. Our multi-year investment in technology, including our Avis app, the highest-rated car rental travel app by J.D. Power, enables our customers enrolled in Avis Preferred to bypass the counter, maximizing social distancing and allowing a best-in-class, no-touch, high-quality rental experience. We also offer counter-bypass options for our budget fast-break members to allow for additional convenience and certainty. Over the last 60 days, we've augmented and enhanced our operating procedures to ensure maximum focus on both facility and vehicle cleanliness, with special attention paid to the most critical interior customer touchpoints. We do not just clean our vehicles, we disinfect and sanitize them before and after each rental transaction with products that are CDC recommended and EPA certified to be effective against human coronavirus, including the one responsible for COVID-19, to provide customers with peace of mind and ensure the continued health of our employees and our customers. We have sourced additional personal protective equipment for our frontline staff, including gloves, masks, and hand sanitizers, and installed plexiglass sneeze shields in airports to safeguard both employees and customers. We've implemented social distancing and additional hand washing procedures and ensure we meet or exceed all CDC state and local guidelines. You can see a video demonstrating our enhanced sterilization and safety protocols on our website. We are working tirelessly to ensure our employees and customers have a safe and convenient environment to access private transportation solutions and to stay healthy in these unprecedented times. Now I'd like to discuss our operational results and the action we have taken in response to the pandemic. In January and February, we continued the strong momentum we had from the end of 2019. We were pacing towards a record first quarter and record year. Through February, all our key operating metrics improved with revenues up 9%, driven by a 15% improvement in the Americas, with increased volume, higher revenue per day, significantly better utilization, and continued record low per unit fleet cost. At the end of February, we were $60 million ahead of prior year in adjusted EBITDA. However, the pandemic impacted travel and shelter-in-place requirements caused significant deterioration in revenue beginning in March. We were off to a record start for the year, and in less than a week, we pivoted the entire organization to respond to these unprecedented effects in our business and our economy. We took dramatic action, including significant reductions in personnel, shrinking the size of our fleet, and halting all non-essential spending, initially targeting $400 million in annualized cost savings, which we materially improved upon over the last month. We took early actions to accelerate the number of cars sold, as evidenced by U.S. auction reporting in the month of March. We believe this positioned us well to adjust our fleet size before demand for used vehicles started to wane. As a result, we were able to dispose of 35,000 cars in the month. In addition, we took unprecedented steps to cancel 80% of our incoming rental vehicle orders in the United States for the remainder of the year. Given our quick and decisive action to reduce the number of units being added to our fleet, we anticipate needing to dispose of fewer vehicles over the next three months and throughout the balance of 2020. We expect revenues to be down significantly in the second quarter with a gradual recovery thereafter when we've taken actions to reduce our costs as well as to maintain the 75% variable and 25% fixed cost mix. As you will find in our investor presentation, we have a history of quickly matching our fleet size with our rental demand to find the proper balance to service our customers while maintaining effective utilization. Given fewer vehicle rentals, we are not creating as many miles across the fleet, which will allow additional flexibility in the length of time we hold vehicles compared to our historical trends. As a result of the decisive action and extraordinary effort undertaken around the world, we will achieve over $2 billion in annualized savings, including $500 million of fixed cost removal alone, driven by significant reductions in personnel, shrinking the size of the fleet and Halt, all non-essential spending. We're estimating for the second quarter we have reduced costs by more than 40% compared to the same quarter last year. Based on our current expectation, the second quarter will be the most difficult quarter this year. We have seen revenue declines of 80% in April and expect similar in May. We expect demand to begin to recover in June with further improvement throughout the year as travel restrictions are lifted and leisure demand begins to recover. Our current reservations show improvement in June and over the balance of the summer. In markets where shelter-in-place restrictions are being lifted, we're seeing early indications of improving demand, leaving us hopeful for a recovery beginning in the third quarter, and we set our strategy so the team is ready to maximize the recovery as this situation improves. Should our outlook prove to be too optimistic, or if we see a change in behavior, We are prepared with additional actions to remove costs and scale the business to match the demand. We will be ready and adapt to any further changes in the business environment and will stay vigilant to focus on matching our costs with revenue levels around the world. A local market business has provided more stability for us while airport travel demand remains low. RF airport rental operations, ride hail, package delivery, and Zipcar business are less impacted by the outbreak. and are down less than 50% in April compared to prior year. We expect these businesses to remain more stable for the rest of the year as food, package and healthcare delivery as well as localized travel remains essential. As evidenced by recent rental data in markets where restrictions have been lifted, our leisure business is recovering due to pent-up demand from customers. In the Americas, we anticipate fleet to be reduced by 20% in June compared to prior year. The majority of our disposals will be through alternative channels, including direct-to-dealer and direct-to-consumer. We operate 14 retail locations in five states, as well as online direct-to-consumer sales, offering ultimate test drive. In fact, during the second half of April, our retail sales to consumer more than doubled from the levels we were achieving at the beginning of the month as demand for used vehicles recovered. We will continue to investigate different ways to dispose of vehicles to reduce our dependence on physical auctions and potential disruptions in used car values in this channel. We would also highlight that in North America we maintain approximately 20% of our fleet value as programmed vehicles, which insulates us from residual risk as prices we receive for the inventory at time of sale is guaranteed by the manufacturers. This is a differentiated advantage that we have and will utilize throughout the balance of the year. April revenue for international is down around 80% below prior year. However, our off-airport long-term business, including our light commercial vehicles, are proving more resilient. We are beginning to see European countries starting to ease current lockdown restrictions with the recovery commencing in May. International fleet actions are on track to reduce April closing fleet by more than 50,000 units compared to prior year. for tight management of program vehicle returns versus purchase commitments for the balance of the year. Program vehicles are on the majority of our fleet in the international segment, reducing the impact of residual value declines around the world. We've taken dramatic actions to remove costs from the business, and we continue to scrutinize every expense line for additional opportunities. In conclusion, we're emphasizing safe rentals with sanitized facilities and vehicles for all our customers and offering a touchless experience to allow our customers and our employees to maintain social distancing and remain healthy. We have taken quick and decisive actions to reduce headcount, right-size the fleet, and remove unprecedented amount of both fixed and variable costs exceeding $2 billion annually. We're optimistic that demand will begin to recover in June and over the summer, and we're seeing initial indications of improvement in markets and countries where shelter-in-place requirements are lifted. Additionally, it appears that consumers may be choosing to rent vehicles as a safe alternative to other modes of transportation, given the ability for our customers to control their environment and maintain personal space. We have sufficient liquidity for 2020 and into 2021, launched a 400 million secured notes offering yesterday, and continuing to investigate additional capital market transactions or government assistance where we may be eligible around the world. We will navigate through these challenging times and are preparing the company to dynamically respond and generate improved adjusted EBITDA and cash flows as the world returns to normal. With that, I turn it over to John to discuss our liquidity and cash position.