Avis Budget Group, Inc.

Greetings, and welcome to the AVIS Budget Group fourth quarter 2020 conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to David Calabria. 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 Brian Choi, 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 is subject to 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. Accordingly, forward-looking statements should not be relied upon as prediction of actual results in any or all of our forward-looking statements may prove to be inaccurate and we can make no guarantees about our future performance. 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 release, which is available on our website, for how we define these measures and reconciliations to the closest comparable gap 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. It goes without saying that 2020 was the most difficult year in our company's history. However, as I look back on a year in review, I believe that 2020, while challenging, will also prove to be one of Avis Budget Group's most formative years. When faced with unprecedented adversity, we found it in ourselves not only to persevere, but to structurally improve our business so that we exit this trial a more resilient and efficient company than when we entered it. This wouldn't have been possible without the efforts of our entire organization. They came to work day in and day out throughout this pandemic and proved that no matter what the challenges, we at Avis still try harder. I'm sincerely grateful for the amazing efforts of our employees. It's been 40 years since I joined Avis, and I've never been more proud to be a part of this team. This morning, I will start by highlighting many of the accomplishments the team made during the year, then provide an update on the actions we took in both the Americas and international regions. After that, I will discuss our continued commitment to cleanliness and safety through the Avis Safety Pledge and budget worry-free promise. including our innovative safety partnerships and touchless rental experience. Finally, I will discuss business trends and then hand it off to Brian to discuss our liquidity and cash position, which illustrates the overall strength of our company. Yesterday, we reported our fourth quarter and full year results, closing the books on a year that certainly tested our resolve. However, while 2020 was difficult, it also demonstrated the strength, flexibility, and future capabilities in our company. When the pandemic first hit, we acted quickly. We immediately called our OEM partners to work with us to stop incoming new vehicles. We took quick, decisive actions with our property obligations and our vendors. We also made the hard decision to reduce staff and salaries. We're also very proud of the safety protocols we established and our exclusive partnership with RB, the makers of Lysol. to ensure the safety of our employees and our customers. After our initial actions, we put out a release stating that we removed approximately $400 million in expenses, but we quickly realized it wasn't enough and challenged our team to do more by continuing to align our cost savings with that of our revenue declines. This was the key to our survival, and they did not disappoint. Ultimately, we removed over $2.8 billion of expenses and aligned our fleet to demand, removing 31% of our fleet while capitalizing on the strong demand in the off-airport operations. At the end of the third quarter, we showed our ability to take advantage of operating opportunities as travel returned with fleet utilizations peaking back in the 70% area. October continued that momentum, and it was the lowest year-over-year revenue decline since this pandemic started. Rates were positive and fleets were tight. November looked to continue that trend and Thanksgiving weekend was developing into a good revenue opportunity for us, as well as with some strong bookings leading up to this week. However, with the resurgence of the virus occurring at this time, we saw a dramatic spike in reservation cancellations and ultimately no-shows. To put this in perspective, we had more vehicles out on rent during the Saturday of Columbus Day weekend than we did on the Saturday of Thanksgiving weekend, something that has never happened before in the history of our company. Christmas, although better than Thanksgiving, was still challenged due to virus transmission and government restrictions on travel. As a result of our cost removal actions and the early alignment of fleet levels, we were able to remain agile and react quickly to those demand changes. We have talent and operators who know how to adapt to the challenges we face. We continue to look for, find, and remove additional costs and keep our fleet aligned with customer demand. As a result, we achieved positive adjusted EBITDA for the second consecutive quarter since the pandemic began, driven by significant cost reductions globally and culminating in higher year-over-year margins in the Americas as a result of these diligent efforts. As we stated previously, we ended the third quarter with the Americas generating more adjusted EBITDA this September than September of 2019. October continued that trend, delivering continued year-over-year improvements As mentioned, October was the best month year over year since the pandemic began, down only 28% year over year. But then the second wave of the virus came and brought reduced demand. The Americas delivered just over a billion in revenue, the lowest fourth quarter total in our history. But despite the reduction in revenue, the team delivered their third best adjusted EBITDA of 113 million. Ultimately, the Americas finished the quarter with rental days down 35%, with a strong increase in pricing, up three, helping to offset the reduction and allowing us to finish with revenue down 33%. However, the impacts of the virus were certainly greater out west in states like California and Hawaii, which saw the most severe travel reductions, with rental day reductions of more than 50%. Volumes at local market stores continue to outperform airport volumes, but even with the reduced volumes on airport, we continue to see an overperformance of our volumes against TSA check-in data. Our strongest segments in the quarter were off-airport operations, including local market rental locations, budget truck package delivery, Zipcar, and ride hail. These areas performed especially well during the quarter. Our profitable ride hail business has doubled year over year, confirming our strategy to expand and grow this business. Revenues from our local market operations exceeded prior year levels in the quarter, and our decision to optimize our business for last mile delivery has been outstanding. On our last call, we announced that we had increased our package delivery fleet to capitalize on the additional demand from holiday peak package delivery season. This business improved significantly over an already strong 2019, culminating in our best season on record. Zipcar also improved sequentially, delivering one of the strongest years as urban customers sought private transportation to run errands or vacation outside the city. The strong recovery of these operations resulted in us finishing the year with 46% of our revenue coming from non-airport activity, an increase from 30% in 2019. During the quarter, our strategy to dispose of more fleet through alternative channels paid dividends We continue to capitalize our alternative channel strategy to take advantage of this used car market. We sold more than 69% of our vehicle sales in the quarter, although alternative channels and a record 26% of those vehicles sold directly to consumers. In fact, we sold more than 22,000 vehicles directly to consumers for the year, significantly more than the 13,000 we sold in 2019, capitalizing our increasing capabilities in retail sales. As you can see in our investor presentation, we have a strong history of aligning our fleet with rental demand, which we demonstrated again this quarter and this year to achieve peak utilization rates of approximately 70% in the Americas. The fact that our fleet is mostly risk enables us to dispose of vehicles profitably, showing our strength in managing logistics on fleet and on utilizations. During the quarter, the Americas fleet was in a healthy position and utilization rates held stable following similar trends from the third quarter, peaking on weekends with business travel recovering slower than leisure. With the U.S. fleet down nearly 30% and utilization rates holding steadily in the 60% range on average, we started to inflate vehicles from our recently finished model 2021 fleet purchase. This vehicle rotation uniquely positions ourselves with lower mileage, refreshed fleet to serve our customers. I would like to take a moment to address the semiconductor shortage that several OEMs have recently mentioned. We do believe this will have an impact on fleet deliveries and availability in our industry. We have always had strong relationships with the OEMs, and even in normal times, we work with them daily on any dynamics they are seeing from their production schedules. Currently, and based on our initial discussions, we believe we have the logistics and sophistication within our team to manage our fleet size appropriately. Keep in mind, a tightness of fleet in the industry usually bodes well for not only the used car market, but for yielding opportunities. The aligning of our fleet to demand has certainly improved our revenue per day of 3%, even with the continued increase in our monthly rentals. As always, we've been managing our revenue per day as a strong measurement of profitability, and during the pandemic, we've been focused on longer-length rentals as well. As customers rent cars for longer, there's a more significant drop-through because of fewer touchpoints. On longer-term rentals, you clean a car once, move a car once, and refuel a car once, driving out variable costs and increasing efficiency. This has been an integral part of our business this year. The international market continued to remain challenged, constricted by renewed lockdowns in numerous countries in Europe and travel restrictions in the region. The impact primarily impedes cross-border travel, resulting in a greater percentage of intercompany travel. This domestic customer segment usually has a lower ancillary attachment rates, negatively impacting overall revenue per day. Revenue for the quarter declined to $326 million, approximately 48% lower than prior year, driven mostly by volume decline and rate impacts from reduced ancillary take rates. Volumes held generally stable at 44% below prior year. However, they were significantly better than the 65% declines we'd seen in the first wave. As in the Americas, our international team continues to remove costs from the business with an average fleet in the quarter down 39% versus prior year. We profitably disposed of nearly 14,000 risk vehicles, while utilization peaked in the mid-70% range. The team did a great job matching cost savings with revenue declines. With the change in business mix, the international team had overcome a greater decline than just the one related to volume. By proactive operational management and utilizing government furlough programs, they were able to reduce expenses by more than 42%, to closely align with the 48% reduction in revenues. The team has set themselves up to take advantage of opportunities as they arise during the recovery in both EMEA and Asia-Pac. When we first started reacting to this pandemic, the most important initiative for us was to ensure the safety of our employees and our customers. 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 established the Avis Safety Pledge and the budget worry-free promise to set what we believe is the higher standard of safety in our industry. Additionally, we launched our ABG Medical Advisory Council with well-established medical professionals from leading institutions charged with reviewing and advising on our COVID-19 protocols. We continue to enhance these protocols and training while relying on our exclusive partnership with RB on our proudly using their well-known Lysol products across our locations to benefit from their proven effectiveness against COVID-19. In addition to our safety partnerships, we continue to innovate through our award-winning app and mobile select product, now available at our top airports. Our Avis Preferred customers, upon arrival, can select their specific car on their phone, proceed directly to their vehicle, and then utilize our unique QR code to exit our automated express exit for a completely contactless experience. I would encourage all our members to sign up for Avis Preferred. But if you're not an Avis Preferred member, you could still take advantage of our digital check-in on our websites, reducing transaction times and lines at our counters to quickly and safely get you on the road. Our employees are critical to our every success, and I would like to thank them for keeping our customers, families, and each other safe throughout this pandemic. In closing, I'd like to highlight an achievement in the fourth quarter that I'm particularly proud of. When a second wave of restrictions suddenly materialized before the key holidays, we were able to quickly flex our costs to this shock in demand and mitigate the impact of reduced revenue. Last quarter, we told you that we were building a leaner, more efficient organization. But we made that statement in an environment of sequentially improving demand. It's easy to be bold. when the winds are turning in your favor, for what happens when things go against you. I'm proud to say that when we were tested in this fourth quarter, we delivered. In fact, the Americas achieved their highest fourth quarter margins in the company's history, despite revenue being down 33%. I view this as not just a proof point validating our early assertions, but a stepping stone for what I believe will come when the impacts of this pandemic subside. Because of this, I feel even more confident saying today that as the economy continues to recover, you will continually see meaningful improvements in our earnings and margins. Now, I know you're all asking right now, what exactly does that mean? At this time, Brian and I are not ready to fully lay out our exact path. There are still significant uncertainties around when revenue normalizes, and we're still in the process of refining our steady state cost structure. What I can tell you today is this. Whenever the economy does normalize and we're back to the 2019 revenue levels, we believe we will be at or above the $1 billion in adjusted EBITDA. With that, I turn it over to Brian to discuss our liquidity and cash positions.