Avis Budget Group, Inc.

Greetings and welcome to the AVIS Budget Group third 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. It is now my pleasure to introduce your host, David Calabria, Treasurer and SVP of Corporate Finance. Thank you. You may begin.

Good morning, everyone, and thank you for joining us. On the call with me are Joe Ferraro, our Chief Executive Officer, and Brian Choi, our Chief Financial Officer. 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, and thank you for joining us today. I also want to introduce and welcome Brian Choi, who has recently joined our executive team as our new Chief Financial Officer, who has been with us for quite some time as an investor and longtime board member. Brian and I have worked together for the last 10 years, and I'm excited to be able to leverage his experience and depth of knowledge as we grow this business profitably for the years to come. When we first started to feel the impact of this pandemic, it was impossible to guess how things might play out. While the future revenue environment remains uncertain, what has become increasingly clear is our company's ability to adapt, react, and thrive through adversity. In the second quarter, we mitigated the impact of an unprecedented decline in travel, and in the third quarter, we've begun to show what our business is capable of as travel returns. I am incredibly proud of our team, not only for their heroic efforts to protect our customers, but also their ability to improve our financial performance with a lean cost structure, enabling us to profit even with moderate market improvements. This morning I'll provide an update on the actions we took in the third quarter to remove costs and right-size our fleet while improving our revenue since the start of this pandemic. Then I'll remind you of our commitments to cleanliness and safety throughout the Avis Safety Pledge and the Budget Worry-Free Promise, including our innovative safety partnerships and Touchless Rental Experience. Finally, I will discuss business trends and our outlook for October and beyond. After that, Brian will discuss our liquidity and cash position, which illustrates the strength of our company. In the quarter, as stated on our last call, we achieved both positive adjusted EBITDA of $220 million and generated $100 million in positive adjusted free cash flow. While revenue remained challenged, and others. Due to the pandemic's effect on travel, our cost removal efforts since March have enabled us to benefit from sequential revenue improvements throughout the summer. This culminated with the Americas generating more adjusted EBITDA this September than September of 2019 on more than 30% less revenue. During the quarter, we right-sized our fleet and profitably sold 75,000 cards in the United States, the most we ever sold in any quarter in this company's history. This included record quarterly sales to our direct-to-consumer channel, which we continue to expand with the recent opening of our largest retail location in Irving, Texas. Through our increased use of data and analytics, we capitalized on a strong used car market to take advantage of peak used car prices throughout the summer, with August being the single largest fleet sales month we've ever achieved to date. As you can see in our investor presentation, we have a strong history of aligning our fleet with demand, which we demonstrated again this quarter to achieve peak utilization rates close to 70% in the Americas. Our cost removal efforts were not limited to our fleet. Globally, we reduced our total expenses in the quarter by approximately another $1 billion, bringing our total cost removal for the year to more than $2 billion. We expect to remove more than $2.5 billion before this year is over, as we persistently evaluate every line item of expense and find creative ways to work with suppliers and partners to find efficiencies. We've been fortunate to have many great partners who have worked with us along the way. We've become a leaner and more efficient organization which will continue to benefit our bottom line even after the impacts of this pandemic have subsided. While overall travel demand remains down, revenues in the third quarter continue to show sequential improvement Down 50% from prior year in July, 43% in August, and finished down 37% in September. Airport travel has been recovering moderately, and our on-airport volume is still performing better than passenger screening data released by the TSA. Similar to last quarter, non-flying customers are still coming to airports to rent vehicles, and flying customers appear to be more comfortable renting one of our vehicles and taking alternative forms of transportation. Our off-airport operations continue to provide stability driven by local market business like commercial vehicles, ride hail, package delivery and Zipcar. These areas performed especially well during the quarter. Ride hail business is up significantly year over year with active rentals back above pre-pandemic levels. Additionally, revenue from our local market operations exceeded prior year levels in the quarter. A particular note, our package delivery business in the U.S. has nearly doubled, and we have increased our fleet to match further demand as we head into the holiday and peak package delivery season in the fourth quarter. Zipcar also improved sequentially as urban customers seek private transportation to run errands or vacation outside the city. The pricing environment has improved dramatically as competitive fleet levels have tightened. In the Americas, revenue per day turned positive by the end of the quarter, driven by strong leisure pricing on the weekends, offsetting drags from the mixed ships to domestic longer-lane business. Longer rental lanes tend to have lower rates, however, are accompanied by higher margins due to fewer touchpoints. Longer rentals mean you move one shuttle or car less, you need to clean the car less, you gas the car less, and you have less transactions associated with the vehicle. Ultimately, this means you have less costs associated with these rentals. Due to this increase in mix, revenue per transaction has been especially strong, up 14% in the Americas, as the pricing environment has improved while customers continue to hold our vehicles for longer lengths of rent. With improved market conditions, we were able to leverage our prior technology investments in demand fleet pricing and maximize the profitability of our transactions. We also optimized our fleet positioning so that our vehicles were well positioned to capitalize on the most promising demand opportunities. We achieved similar improvements in the international business, right-sizing the fleet for average utilization in the quarter near 70%, while the lack of cross-border inbound business continues to create a drag on revenue per day due to less ancillary sales opportunities. We are proud of the way we've been able to navigate through these uncertain times, but even prouder of our industry-leading efforts to protect our employees and our customers. We launched our ABG Medical Advisory Council with five well-established medical professionals from leading institutions charged with reviewing and advising on our COVID-19 protocols. While I won't go into as much detail around the holistic safety efforts as I did last quarter, we have further enhanced our protocols and training. We are also expanding our partnership with RB and are proudly using their well-known Lysol products across our locations to benefit from their proven effectiveness against COVID-19. We continue to expand our use of technology to deliver contactless mobile experiences. We have been a pioneer for years across our brands. We have an award-winning app, and through our mobile select offering, our Avis Preferred customers, upon arrival, can select their specific car on their phone proceed directly to their vehicle, then utilize a unique QR code to exit via our automated express exit for a completely contactless experience. All of our Avison Budget customers can also take advantage of our digital check-in on our websites, reducing their transaction time at our counters to quickly and safely get on the road. Given the differentiated experience we provide, we are not surprised that many of those currently traveling are choosing our vehicles over other mobility options available. We continue to innovate with our Zipcar brand. We have streamlined both our back-end platform and front-end enrollment process with instant access, enabling new members to access a car with a smartphone and drive within minutes of joining. This allows anyone near our Zipcar vehicles, especially in urban centers, another completely contactless option to get on the road quickly. Now we'll provide an update on our current business trends and our outlook for the rest of the year. Rental patterns continue to be driven by higher leisure compared to corporate and skew towards local versus out-of-town customers. Reservation demand remains closer to the date of travel surrounding weekend checkout days. While we have limited visibility into the future as customers are primarily booking close in, we have more confidence in our current reservations. We no longer have significant pre-pandemic reservations and thus seen cancellation and no-show rates come back down to pre-pandemic levels. We are also seeing positive revenue per day on reservations recently booked for travel into the fourth quarter. Our efforts to protect both the financial health of our company and our customers have put us in a strong and competitive position and appear to be paying off. We have adequate vehicles to service our customer base today and also a strong financial position to give customers confidence in our ability to provide them with the vehicles and service they deserve even into an uncertain future. We have had great success with small business where our long-length monthly rentals in the Americas grew over 10% in the quarter compared to prior year and nearly 30% in September. We were busy in the quarter working with our OEMs on our fleet buy for 2021 to refresh our fleet Get back to a more normal fleet cycle and to ensure our customers have new low miles vehicles that meet their quality expectations as we further align supply with demand. Given our now proven ability to sell vehicles at scale, we are confident that even if 2021 proves more challenging than anticipated, we have the flexibility to continue to match our fleet levels with demand. Going into the fourth quarter, while we see a traditional decrease and many more. We continue to anticipate both positive adjusted EBITDA and positive adjusted free cash flow from our operations. In closing, I am extremely proud of our team and their performance. I must continue to express my sincere gratitude to our frontline employees for their unrelenting hard work during these uncertain times. Their tireless efforts ensure our locations and vehicles are ready to allow customers around the world to access safe and efficient transportation. Travel demand recovered throughout the quarter and we met our objectives, achieving positive adjusted EBITDA of $220 million and positive adjusted free cash flow and earn more in adjusted EBITDA this September than the prior in the Americas. We moved more than $2 billion in costs this year so far and will remain diligent in keeping FIS costs at a minimum while simultaneously finding new ways to be more efficient. With that, I'll turn it over to Brian to discuss our liquidity and cash positions.