Avis Budget Group, Inc.

Greetings and welcome to Avis Budget Group second quarter 2021 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 a 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 Senior Vice President 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, 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 sections of our website. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results, and 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 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. Let me start this call by stating the obvious. What a difference a year makes. Twelve months ago, I had the unbelievable job of coming on this call and reporting that our revenues were down 67% compared to 2019. And that in the second quarter of 2020, we unfortunately posted our largest adjusted EBITDA loss ever. Today, I get to tell you that in the second quarter of 2021, we've delivered the best revenue, the best adjusted EBITDA, and the best margin in our company's 75-year history. Since the pandemic began, we've been consistent with our message. that Avis Budget Group would come out of this disruption a transformed company that are focused on cost discipline and operational efficiencies would position us to take maximum advantage of a rebound in travel. The results we posted yesterday proved that this just wasn't empty rhetoric. Despite being in the early innings of a travel recovery, we are already demonstrating the operating leverage that a post-pandemic business is capable of. Today, I will go over the results of a historic quarter and why this is just the introduction to a new chapter in the Avis Budget Group story. Let's start with the Americas segment. As you recall, last quarter, we said that demand for travel in the U.S. started to materialize in late February, and in March, we started to see the convergence of pent-up demand, tight fleets, and stronger pricing. This positive momentum continued throughout the second quarter, with each month showing sequential improvement in rental days, pricing, and revenue, with June being the strongest as it led up to the July 4th holiday and the busy summer travel season. We saw demand patterns change from previously mostly close-in bookings to a more balanced display of both close-in and further-out reservations. Demand increased at the traditional seasonal locations surrounding beach, mountains, golf, and other outdoor venues. During the quarter, restrictions were lifted in the West Coast locations such as California and Hawaii. which help volume and fleet utilization. Our team was ready using both reservation data, a propriety demand fleet pricing system, combined with years of on-the-ground experience to drive this opportunity. Now, although we are still down roughly 15% in rental days versus 2019, our fleet utilization is actually higher than it was in the second quarter of 2019. This reflects a shortage in vehicles relative to demand that was prevalent across the entire rental car industry. As Brian laid out on our last call, the simple laws of economics state that a supply-demand imbalance will invariably lead to change in price. We saw this reflected in our revenue per day this quarter. RPD was up 32% sequentially and 42% versus the second quarter of 2019. I'm sure RPD will be the focus of many questions given the magnitude of this change, but I'd like to shift gears and talk about something that hasn't changed, which is our focus on cost control. Throughout the pandemic, we had the benefit of focusing 100% of our efforts on becoming the best version of ourselves operationally. We were able to rethink how we do things and implement new processes that allowed us to do more with less. During the downturn, the results of these efforts were reflected in our resiliency, we were able to withstand never before scenes in demand shocks. However, this quarter, when demand was on an upswing, the results of these efforts were reflected in our operating leverage. In the Americas, revenue increased by $1.4 billion year over year. Americas adjusted EBITDA during the same period increased by approximately $870 million for an incremental margin of 62%. On a two-year basis, If you compare our most recent results to the second quarter of 2019, America's revenue increased by roughly $350 million, while adjusted EBITDA increased by $490 million. Our maniacal cost discipline is what gets us through the environment that's tough and enables us to maximize profitability when the environment is in our favor. It's an easy concept to understand, but very difficult to execute. The America's team has demonstrated that they can deliver on this quarter after quarter both during the challenging times this pandemic presented and now as demand levels increased. With that, let's move over to our international segment. While we've reached an inflection point in the Americas, the macroeconomic environment remains largely unchanged from the last quarter internationally. On a percentage basis, rental days for the last four quarters have been down in the mid-40s versus the comparable quarters in 2019. However, Because of the fleet and cost rationalization that the international team has executed on, adjusted EBITDA has gone from $140 million loss in quarter two of 2020 to an $8 million gain in the most recent quarter. That's nearly $150 million improvement in adjusted EBITDA on $200 million of revenue gains. Perhaps a more impressive way to look at it is comparing to the second quarter of 2019. Despite revenue being over $300 million lower, the international segment was able to mitigate adjusted EBITDA decline to roughly $30 million. We were able to deliver these results without the benefit of substantial RPD gains or vehicle depreciation tailwinds versus 2019. What changed was the structural cost base of our international operations, which gives me the confidence to say whenever travel restrictions are lifted in EMEA, our international segment we'll see a similar step change in profitability that we're seeing in the Americas. Through shopping trends and forward bookings, we can say that the underlying travel demand in Europe is improving, and there is a clear customer intent to travel whenever it is possible. Our battle-tested international team is eagerly awaiting the chance to service that demand. Moving on to fleet, we'll focus more on the Americas segment due to the relatively stable dynamics of the international segment Let me direct you to the sequential growth in average fleet size for the Americas. During the first quarter of 2021, we had an average fleet size of 295,000 vehicles. In the second quarter, we had an average fleet size of 378,000 vehicles. That reflects an 83,000 increase in vehicles on an absolute basis and a 28% increase on a percentage basis from quarter one 2021 average fleet size. By comparison, The sequential period of Quarter 1, 2019 to Quarter 2 of 2019, we only had a 58,000 increase in vehicles on an absolute basis and a 15% increase on a percentage basis. Our fleet size increased sequentially every month with June being the highest as new fleet arrived to our locations. So how did we add more vehicles this quarter despite the ongoing semiconductor shortage? Two main factors. we worked hand in hand with our OEM partners to make sure we received the deliveries that were slated for the ramp up to the summer period. This required flexibility and creative solutions from both our side and from the manufacturers. The deep relationships we have allowed us to mitigate potential cancellations and capitalize on unforeseen production opportunities. I want to thank our OEM partners for their efforts and reiterate our commitment to doing everything we can to be their partner of choice. Separately, We continued to do the self-help required to maximize our existing fleet. Despite record-breaking used car values, we sold fewer vehicles than the first quarter to help serve the spike in consumer demand. We also invested heavily in reconditioning our vehicles and were diligent in our preventive maintenance. This allowed us to increase the amount of usable fleet due to less out-of-service cars as compared to 2019 and improved our overall fleet utilization. We were able to have fleet available in those cities that had the most demand to capitalize on both rate and volume. I've always said that fleet management is at the heart of what we do. It touches every part of our organization, operations, supply chain, shared services, corporate, everyone working together. I'm proud of how our team delivered on maximizing the availability of fleet this quarter and expect us to continue this area of excellence going forward. I'd like to wrap up this section by commenting briefly on the model 2022 year buys. In a normal year, we'd be almost complete with our annual fleet purchases by now. However, we're not in a normal year, and this is still a fluid situation. We believe that conversations will continue late into the third quarter as the manufacturers get more clarity on their production forecasts. I'd like to close with Avis's commitment to safety on our latest views around the Delta variant. We've been closely tracking the reported COVID cases on a local market basis since this pandemic began. What we're following is no different from what you've been reading, an increase in COVID cases in certain geographies. However, at this time, we are seeing no impact from the Delta variant to our current bookings. Bookings for the third quarter are continuing the positive momentum we saw throughout the second quarter, with the summer looking strong. While this may change in the future, currently our upward demand trajectory remains stable. The travel industry has been normalizing over the past few months, but our company has been just as vigilant around our AVIS safety pledge and our budget worry-free promise. We will continue to offer best-in-class safety measures, providing peace of mind to our customers and our workforce. So let me wrap this up where I began. What a difference a year makes. We've gone from losing nearly $400 million in adjusted EBITDA in the second quarter of 2020 to making over $600 million in adjusted EBITDA in the second quarter of 2021. That's a billion-dollar turnaround in just one year. This wouldn't have been possible without the tireless effort of our entire team, and I want to take this moment to thank all our employees for delivering a record quarter. With that, I'll turn it over to Brian to discuss our leverage and liquidity.