Avis Budget Group, Inc.

Hello, and welcome to the Avis Budget Group second quarter 2020 conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to David Calabria, Treasurer and Senior Vice President of Corporate Finance. David, please go ahead.

Good morning, everyone. and thank you for joining us. On the call with me are Joe Ferraro, our Chief Executive Officer, and John North, our Chief Financial Officer. Before we begin, I would like to remind everyone that we'll 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, 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. Good morning, everyone. And thank you for joining us today. I would like to start by saying that I could not be more proud of our team, and I want to thank everyone for their leadership, support, and dedication to the organization during a very challenging time for both our company and our families. We will look back on the second quarter of 2020 as an extraordinary three-month period filled with achievements that, at the beginning of April, we weren't sure were possible. However, we had remarkable success in so many areas, and as a result, I've never been more confident that we will not only make it through this crisis, but come out stronger on the other side. This morning I will provide an update on the significant actions we took in the second quarter to respond to the pandemic. Then I will share with you our commitments to cleanliness and safety through the Avis Safety Pledge and the budget worry-free promise, additional protective actions we have taken, and our innovative touchless rental experience. Finally, I will discuss business trends and our outlook for July and beyond. After that, John will discuss our liquidity and cash position, which is sufficient to take us through the balance of 2020 and into 2021. The second quarter was clearly the most difficult quarter in our history, far eclipsing what we experienced during either 9-11 or the great financial crisis of 2008. Our total revenues were down 67% year over year, and resulted in a net loss of $481 million. Adjusted EBITDA for the second quarter was a loss of $382 million, but was significantly better than our expectations heading into April. In fact, we saw strong sequential improvement in EBITDA each month as we right-sized our fleet to market demand and removed substantial costs. The quarter culminated with a small adjusted EBITDA loss of $28 million for June, highlighted by positive adjusted EBITDA of $3 million for the Americas segment. We believe this is a remarkable recovery and speaks to the flexibility and discipline in our organization, which allows us to quickly reduce expenses to match revenue changes. In March, we initially targeted $400 million in cost removal. As the pandemic unfolded, it became clear that we needed to do more. As a result, we increased the magnitude of our cost removal actions. and we announced an annualized target of $2 billion in May. Since then, we have continued to increase our efforts and are currently targeting more than $2.5 billion in annualized savings. Because of our decisive actions, second quarter expenses finished 47% lower than prior year as we removed over $1 billion of cost in just the last three months. We are confident we can continue this momentum and find additional opportunities in the balance of the year. We were able to achieve this magnitude of cost removal in three areas. First, we significantly reduced the size of our workforce and the costs associated with our remaining staff. We offered comprehensive separation packages and furloughed employees around the world, totaling over 60% of our pre-pandemic workforce. We reduced compensation for our senior leadership, froze merit increases, eliminated the 401 match for highly compensated employees, and suspended hiring. While these actions are the most difficult, as they affect our most important asset, our people, they were necessary to ensure the future health of the organization. Second, we evaluated every expense globally, challenged the team to eliminate any non-essential spend. Additionally, we collaborated with our vendors, airports, landlords, and service providers to find creative solutions in an environment with significant revenue declines. We are incredibly appreciative of all our partners for the overwhelming positive response we received as we navigated through this disruption. Finally, we took immediate action to shrink the size of our fleet. We capitalized on a rapidly recovering used car market and sold nearly double the number of vehicles targeted in our second quarter operational plan at a significant gain on disposal per unit. Altogether, we disposed of over 100,000 vehicles and canceled over 185,000 incoming orders around the world. These efforts demonstrated our ability to rapidly reduce our fleet to scale the business to current demand trends. In the month of June, our U.S. disposals were 30% higher than the same month last year. Ending fleet size at the quarter end was down 26% year over year, exceeding the commitment we made on our last earnings call to be down 20% by June 30th. Per unit fleet costs were $221 per month, a 17% reduction year over year as we deploy mileage optimization, enhanced data analytics, and increased use of alternate disposition channels for vehicle sales. We finished June with global utilization in the 50% range and maintained the ability to flex off fleet size up or down, allowing us to react to increased demand or further travel disruptions. Because of these dramatic actions, we were able to significantly improve our expected cash burn for the quarter. We initially targeted a burn of $900 million, but improved our results by 36%, resulting in a cash burn of $580 million for the quarter. This provides additional liquidity and insulates us in the event of further disruptions or impacts to our business in the back half of the year. We responded in the quarter by quickly identifying the impact of COVID would have on our business and taking immediate actions to reduce headcount, cut expenses, and shrink our fleet to improve utilization. We believe our quick and targeted action has positioned us to both navigate the pandemic and capitalize on consumer demand when it returns. Throughout this crisis, we have never lost sight of the fact that our highest priority has and always will be the health and safety of our staff and our customers. With this guiding principle, I'd like to share with you some of the industry-leading safety measures we have implemented to protect everyone visiting our locations. Early this month, we announced the launch of a coalition designed to enhance the cleanliness and disinfection of our rental facilities and our vehicles. This coalition includes RB, which is the maker of Lysol, medical professionals with expertise in public health and COVID-19, and Hip Hop Public Health, a national nonprofit organization that creates engaging content to drive behavioral change and supplements our employee training for consistent, responsible habits. A team of scientists from Lysol, which manufactures the first products to receive EPA approval and validation as effective against COVID-19, is providing guidance to enhance the effectiveness of our cleaning protocols. Furthermore, we are using Lysol products to replace or supplement Existing CDC-recommended and EPA-certified products currently in use. This provides our customers peace of mind knowing they're getting into a clean, safe, and disinfected car, enabling control over their environment and superior safety experience compared to other modes of transportation. For more on how we clean our vehicles, you can find videos on avis.com and budget.com detailing how we clean and sanitize our vehicles before and after every rental. Utilizing input from both the medical professionals we partnered with and Hip Hop Public Health to create training and communication materials for our team, we've also taken significant steps to enhance the cleanliness of our rental facilities and to encourage proper use of personal protective equipment and social distancing to protect our staff and our customers. Some of the many improvements we have made include ensuring our facilities utilize plexiglass shields along with signage and floor markings to encourage distancing. We provide our staff with masks, hand sanitizers, and gloves, and are making that protective equipment available to all customers. Our employees have received enhanced safety protocols. We instituted daily health self-assessments before each shift. We encourage anyone who feels ill to stay home with enhanced sick leave policy. and in the U.S., we check staff temperatures before beginning work and we offer free COVID-19 testing for all employees. Our commitment to safety goes beyond just cleaning our facilities and vehicles. Years of investment in technology and innovation put us at the forefront of contactless rentals. Our mobile select product allows our Avis Preferred customers upon arrival to select their specific car on their phone, proceeding directly to their selection. and utilize a unique QR code to exit via an automated gate exit. This process is fast, simple, and most importantly, contactless. Customers are overwhelmingly positive on the experience, and we are accelerating the installation of additional automated gate exits on our facilities around the country. Additionally, for customers who have not yet experienced our award-winning app, we launched Express Digital Check-In for our dot-com customers allowing them to expedite transaction time while picking up their sanitized vehicle. We look forward to further expanding unique and differentiated offerings using technology in the future. Now I'll provide an update on our business trends and our outlook for the summer. Revenues for the second quarter showed sequential improvement from down 78% from prior year in April, 68% in May, and finished down 59% in June. While airport travel remains depressed, our latest rental data shows even non-flying customers are coming to airports to rent vehicles. For example, in the U.S., we have seen consistent recovery approximately 10 percentage points above passenger screening data released by the TSA. Our local market business continues to provide stability, driven by off-airport operations, light commercial vehicles, ride hail, package delivery, and Zipcar. These areas performed especially well during the quarter, in many cases generating revenue in June at or near prior year levels. Of particular note, our package delivery business in the U.S. is up double digits in the second quarter, and we are increasing our fleet to match further demand. Zipcar has seen sequential improvement in both the Americas and the U.K. as urban customers seek private transportation to run errands or vacation outside the city. Internationally, we had success in reducing the fleet to more closely match the current demand, with June fleet down 40% from prior year and are seeing utilization in the low 70 range in July. In general, rental patterns have switched to higher leisure compared to corporate travel, skewed towards local versus out-of-town customers, and are primarily at off-airport location. Reservation demand is closer to the date of travel surrounding weekend checkout days. We have seen consistent sequential week-over-week rental volume increases since early April, with both the Americas and International having their best volume to date last week due to increased leisure activity. We expect the velocity of recovery to moderate in the third quarter, but expect utilization will continue to improve as we further match fleet with demand. We anticipate both positive cash flow and adjusted EBITDA for the remainder of 2020. I would be remiss if my comments on the second quarter did not address our stance on racial injustice given the tragic events that transpired in the spring and the subsequent robust discourse in our nation. I want to emphasize we take pride in our highly diverse workforce, we are committed to equality and inclusion, and we are taking action within our company to meet our commitment. In closing, I am extremely proud of our team and their performance. I'd like to express my sincere gratitude to our frontline employees for their hard work during these uncertain times. Their tireless efforts ensure our cars and locations are clean and sanitized and are ready to allow customers around the world to access safe transportation. With that, I'll turn it over to John to discuss our liquidity and cash position.