Avis Budget Group, Inc.

Greetings and welcome to the Avis Budget Group fourth quarter 2021 earnings 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 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 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 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. Yesterday, we released results that reflect our continued operational transformation and the benefits this brings to our bottom line. Back in August, we reported our best-ever second quarter revenue, adjusted EBITDA, and margin in our company's 75-year history. In November, we reported our best-ever third quarter along those same metrics. Today, we report our best-ever fourth quarter and full fiscal year in our company's history. I'd like to start this call by thanking all of our employees for doing their part day in and day out to help make 2021 such a historic year for Avis Budget Group. Each quarter of 2021, presented new challenges for us to overcome. This most recent fourth quarter was no exception, given the disruption caused by the Omicron variant beginning late November. October started off with terrific commercial and leisure demand and elevated price. November continued with much of the same through Thanksgiving, and then the variant started to impact travel and our business. Obviously, the pullback in rental demand was an unwelcome sight, but the silver lining of Omicron was seeing how our team responded to it. We've dealt with COVID variants before and know through the education of hard experience that stringent course discipline combined with operational excellence can surmount even the most daunting macroeconomic challenges. We've been through periods in our recent past where we've been quickly had a pivot from defense to offense or offense to defense. What I found remarkable about December was how we were able to play offense From a position of defense, we found pockets of opportunity and leaned into them. We deployed resources where there was a turn to be made and practiced austerity otherwise. To put it simply, we're getting better. We're becoming better operators, a better management team, and a better organization. I firmly believe that companies like people only grow when truly tested. How do you know what you're capable of if you're not pushed? We were tested in 2020. and I feel we've grown tremendously as an organization throughout 2021. But our team responded in December, shows that we are only just hitting our stride. We enter 2022 ready to challenge ourselves, grow as an organization, and continue to build on the transformation of Avis Budget Group. In the quarters to come, our team will show through our results what I just outlined in rhetoric. But until then, let me recap our historic fourth quarter results, and as usual, Let's start with the Americas segment. As you recall, last quarter we said that demand for travel in the U.S. showed positive momentum through the third quarter. That strength of demand continued into the fourth quarter until December. However, despite the effect of Omicron had to overall demand in December, we were able to redistribute fleet to those regions where travel remained robust, such as warmer climate leisure destinations, as well as the mountain areas where vacations were plentiful, and Christmas holiday was surprisingly strong. By optimizing our fleet supply to demand, the Americas segment was able to achieve more than a 5% growth in rental days this quarter versus the fourth quarter of 2019. We were able to achieve this while maintaining robust RPD given the tightened overall industry supply of rental cars. Speaking of RPD, this is the first quarter in over a year where we saw a sequential decline. RPD in the fourth quarter of 2021 was down 10 percent from the previous quarter, but up 30 percent versus the same period in 2019. This increase was achieved despite the RPD headwinds from our commercial rental days being higher this quarter than the fourth quarter of 2019. On our last call, I mentioned that rate in the marketplace appeared to be returning to normal seasonality. Unfortunately, this statement was made prior to Omicron and due to the new variant, We did not experience the normal seasonality trends this fourth quarter. In normal years, December is the month with the highest RPD in the fourth quarter, given the peakiness of Christmas. However, in 2021, December represented our lowest RPD in the fourth quarter. We believe rate should normalize once we move past Omicron and turn to normal seasonal trends. Utilization for the quarter in the Americas was 70%. Slightly below the 72 percent we achieved in the third quarter, but above where we were in the fourth quarter of 2019. As with the case last quarter, our supply chain teams were able to handle labor and parts challenges extremely well. The fact that our fleet teams were able to achieve a utilization rate higher than the fourth quarter of 2019, despite these hurdles, is truly impressive. In the Americas, revenue increased by 1.1 billion year over year. America's adjusted EBITDA during the same period increased by over $550 million for an incremental margin of 52%. On a two-year basis, if you compare our most recent results in the fourth quarter of 2019, America's revenue increased by $570 million, while adjusted EBITDA increased by $526 million for an incremental margin of 92%. As with the case in the second quarter and the third quarter of 2021, Favorable residual values as it pertains to used cars and a strong rate environment optimized by a proprietary demand fleet pricing system helped achieve these results. But it was our focus on cost discipline that enabled these benefits to fall directly to adjusted EBITDA. There's not much more to say about the fourth quarter in the Americas. The numbers speak for themselves. So instead, let me spend some time over currently seeing the Americas. In a normal year, January has a noticeable drop-off from December in both rental days and RPD. This is understandable given that December has a major holiday geared towards leisure and January is primarily a commercial-heavy month. With many companies reintroducing work-from-home policies for the start of this year, we recognize declines in rental days similar to the seasonal declines from December of 2019 to January of 2020. RPD in January is sequentially down from December, but it's not down nearly as much as we see in a year with normal seasonality. Some of this is a benefit mixed with leisure typically holding a higher RPD than commercial. But some of it also speaks to the fact that despite Omicron and its effect on commercial demand, and despite there being no major holidays to spur leisure, the overall rental car industry still has more demand than supply. For competitive reasons, that's about as much detail as we're comfortable getting into. But given the current trends, we are cautiously optimistic about what a rebound in demand could mean once COVID is behind us. With that, let's move to our international segment, where we're seeing a very different story. I mentioned on our last call that APEC was hit with very strict lockdowns in the third quarter due to rising virus transmissions in Australia and New Zealand. However, on a positive side, I stated on our last call that EMEA was starting to see the green shoots in demand. Unfortunately, the APAC lockdown story continued during the fourth quarter, and those green shoots in EMEA never blossomed. Given the importance of Christmas and the ski season in December for Europe, the restrictions implemented due to Omicron capped any sort of potential upside. And yet, once again, despite these headwinds, our international segment was able to achieve positive adjusted EBITDA of $32 million. On a total international basis, adjusted EBITDA has gone from negative $28 million in the fourth quarter of 2020 to positive $32 million in this most recent quarter. That is over a $60 million improvement in adjusted EBITDA on $143 million of revenue gains, representing a contribution margin of 42%, despite there being a headwind in depreciation costs. That's impressive. but their achievement is much more notable when compared to the fourth quarter of 2019. Despite having over $160 million in lower revenue, adjusted EBITDA in the fourth quarter of 2021 was actually $16 million higher than the fourth quarter of 2019. Yes, rate contributed, but not enough to overcome the volume declines. This was made possible entirely by cost mitigation. Our international team, based out of the UK, perfectly embodies the keep calm and carry on spirit. They never complain about those factors out of their control and instead spend all their energy fighting for every last penny of cost savings. I have no doubt that eventually, international will see latent consumer travel demand materialize, strengthening rental days. Their focus on cost mitigation, operational excellence to survive these lean times will translate to outside adjusted EBITDA drop throughs when better days arrive. Until then, They'll keep executing the same playbook that enabled them to get through this death pandemic. Moving on to fleet. Consistent in the last quarter, we'll focus more on the Americas segment. In the Americas, our average fleet size in the quarter was 435,000 vehicles, the largest amount of vehicles since the pandemic and higher than 2019. We have a solid history of aligning fleet with demand, and this year was no different, achieving higher utilization in the fourth quarter of 2021 than we did in the fourth quarter of 2019 with more cars. Unfortunately, much like the 2021, there is some degree of uncertainty when it comes to receiving new vehicles these days. Our OEM partners are doing everything they can do to hit production schedules, but supply chain issues, labor shortages due to Omicron, and pressure on new car inventories are making that difficult, and visibility has become closer in of late. In terms of our model year 2022 fleet buy, there haven't been many new developments. Consistent with my commentary last quarter, given chip shortages and choke points throughout the global supply chain, many OEMs are still working through their 2022 planning and delivery schedules, and we are working with them on solutions. The relationships we develop with our OEM partners over decades allows us to iterate quickly with the goal of mutually optimizing 2022 fleet delivery. We are continuing our strategy of growing our relations with key OEM partners while maintaining a disciplined fleet buy relative to consumer demand. Next, I would like to discuss the continued improvements with our technology and customer experience. We continue to expand our use of technology with our AVUS QuickPass offering. For those unfamiliar with the product, this enables our preferred customers upon arrival to select from a choice of vehicles on their phone, proceed directly to their car, and then utilize a unique QR code to exit via our automated express exit for a completely contactless experience. Additionally, upon vehicle return, customers can close out their rental themselves enabled by our connected car technology for an expedited and automated completion of their rental. We are working towards deploying QuickPass at all of our major ramparts. Next, let me comment on Avis commitment to safety and our latest views around industry disruptions caused by COVID-19. Our Avis safety pledge and budget worry-free promise remain in full effect and provides both our customers and our employees industry-leading protocols to keep everyone safe. The disruption from Omicron that I mentioned earlier is obviously not unique to Avis. The entire travel sector has seen a pullback to start this year as Omicron has had a negative effect on early quarter demand. Forward bookings, however, are strengthening and leisure demand increasing. Reservation booking patterns close in at the start of the quarter are changing to be more further out as consumer confidence grows, suggesting a strong underlying travel demand through the end of the quarter and beyond. 2021 is a historic and banner year for Avis. We overcame certain macroeconomic headwinds and capitalized on other macroeconomic tailwinds. But underpinning the puts and takes of the macroeconomic environment was our internal ability to optimize those factors within our control, such as cost savings, fleet management and distribution, and supply chain optimization. These core competencies are pillars of strength in any environment, both good and bad. We've learned so much about ourselves through these past two years that I can confidently say that we as a company are forever changed. 2021 showed us what's possible. It's now on us to prove that structurally higher earnings are repeatable year after year. We begin with the first quarter of 2022, which I believe will be the most profitable first quarter in the history of the company, despite the disruption of Omicron. There are challenges ahead of us, but as we've shown throughout 2021, we at Avis work to find a way. With that, I'll turn it over to Brian to discuss liquidity and our outlook.