Avis Budget Group, Inc.

Greetings and welcome to AVIS budget group second quarter 2022 conference call. At this time, all participant lines are in a lesson 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, David Calabria, Treasurer and Senior Vice President of Corporate Finance. Please go ahead, sir.

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 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. Yesterday, we reported our best quarterly results in our company's history, making this our fifth consecutive earnings report where we delivered record high adjusted EBITDA for that given quarter. This wouldn't have been possible without the dedication and focus demonstrated by our employees, and I want to thank them for driving record results for 15 months in a row now. Last quarter, I referenced the outside travel demand that began to materialize around President's Day and strengthen throughout the remainder of the first quarter. This demand continued to build globally, and we're currently in the busiest summer travel season I've ever seen. Demand has accelerated, rate has elevated, and advanced bookings are strong. And while there is uncertainty surrounding the economy at large, we have not seen it. Travel is robust. And our key indicators support this, certainly throughout the summer as customers, both leisure and commercial, are dedicating their share of wallet to us. We at Avis are doing everything possible to meet that demand and get our customers on the road again. We built off a record first quarter 2022 and generated over $1.2 billion of adjusted EBITDA in the second quarter. That is a 50% increase over the prior quarter, and the earnings increase exceeded normal quarter-to-quarter seasonal trends. That puts us at over $2 billion of adjusted EBITDA in the first half of 2022 alone. It goes without saying that 2022 is shaping up to be an exceptional year for Avis Budget Group. But before we get into that, let's review our second quarter results, and as usual, let's start with the America segment. The Americas had another outstanding quarter, nearly every business metric, cost control, RPD, rental days, fleet cost, fleet availability, all working together to optimize operations. The results of that was over $1 billion in adjusted EBITDA in the second quarter for the Americas segment alone, or $1.8 billion for the year so far. As I said earlier, demand was accelerated. Rental days were up 28% versus 2021, and up 9% versus 2019, depicting what we believe is a more normalized environment. Leisure was strong surrounding vacation destinations, and commercial came back as corporate customers got back on the road. We have a varied group of products with traditional offerings like Avis, Budget, and Payless, which provide great growth, and other areas like Zipcar, RideHale, and Budget Truck, help diversify our mobility offerings. On our last quarter call, we said that for the quarter, volume would have evolved the second quarter of 2019, and RPD would be above the second quarter of 2021, and we delivered on that promise. If you recall, RPD really started to elevate in the second quarter of 2021 as vaccine distributions grew and virus transmissions declined. But the overall strength and demand in the second quarter of 2022 allowed us to even surpass those 2021 levels. RPD grew by 2 percent versus 2021 and 45 percent versus 2019. We started to see a more normalized trend as it pertained to RPD. Frankly, it's starting to mirror 2019 in its seasonality, but at a much higher level than we saw in 2019. We saw this trend as a more normalized level in both demand and price, which is carrying through to this current quarter as well. Speaking of normal market dynamics, we're also seeing a return of normal seasonality month-to-month in RPD trends. In 2021, RPD in the Americas increased sequentially every month in the first half of the year. Demand was indiscriminate to normal seasonality. In the second quarter of 2022, we saw an increase in RPD in April for Easter and the spring break, a slight decline in the shoulder period of May, followed by an increase into Memorial Day, which continued throughout June. We believe we'll continue to see these seasonal trends throughout the balance of the year as employees return to the office and we settle into a new normal environment. This second quarter sets a new benchmark for what we define as operational excellence, but it wasn't an easy environment to operate. In 2021, the industry was so constrained in vehicle supply that nearly every market was underfleeted. What we're now seeing is not just overall strength across the Americas, but also more distinction between hot markets versus average markets. In other words, more of a return to normal market dynamics, which require positioning fleet across the country. Fortunately, we pride ourselves in our operating proficiency and our ability to make dynamic fleet decisions to ensure that our fleet is slightly inside of demand throughout the country. And that's clearly reflected in our RPD and rental day metrics in this quarter. With the continued uncertainty surrounding a greater number of vehicle recalls, which impacted about a point of utilization, along with uncertain fleet deliveries and flight cancellations, we made the prudent decision to hold onto fleet to ensure we had the capacity to meet demand in the peak summer months. This caused a slight decline in our utilization for the quarter by 2.6 points year over year. but ensured our ability to take full advantage of the opportunities presented to us at the end of the quarter and into July and maximize our revenue opportunities. Excluding recalls, we were in line with 2019 utilization levels. As you recall, 2021 was solely about infleeting. We're back to operating an environment with improved fleet rotation, allowing us to delete older, more mileage vehicles. We pride ourselves on our fleet management and proven over the years that we keep fleet size slightly under consumer demand and will ensure that this is the case going forward. By now, most of the fleet moves have been completed for the summer, and we believe our utilization metrics will return to normalized levels in the third quarter. I'll be getting into details around fleet later in this call, but I do want to point out that in the Americas, we dispose of more fleet than we initially anticipated at the start of the quarter. We were able to do this thanks to our OEM partners who helped us grow our fleet in advance of the summer season, enabling us to dispose of targeted high mileage fleet at attractive gains. Given macroeconomic uncertainties, we believe it's prudent to trim vehicles in order to ensure a proper return on invested capital on our fleet asset base. Therefore, similar to the first quarter, fleet sale gains resulted in monthly per unit fleet costs in the Americas to be significantly lower than our straight line depreciation in the second quarter. Moving on to the income statement results of these metrics, in the Americas, revenue increased by roughly $590 million year-over-year. America's adjusted EBITDA during this period increased by roughly $410 million for an incremental margin of 69 percent. If you compare our most recent results to the first quarter of 2019, America's revenue increased by roughly $940 million, while adjusted EBITDA increased by $890 million for an incremental margin of 95 percent. Gains on disposed vehicles contributed to these results, but less so than in the first quarter of 2022. That's not the secret of our success here. It's our consistent and relentless focus on cost control, which allows us to maximize the revenue and depreciation benefits that drop to the bottom line. So, I'll close the second quarter results of the Americas the way I began. Demand exceeded 2019 levels and RPD improved over 2021. That, along with operational excellence and favorable market dynamics, resulted in America's adjusted EBITDA of over $1 billion. I wanted to repeat that one last time now. It's in our rearview mirror. We're on to the third quarter, where the America's team looks to continue the incredible momentum we've built since the pandemic. With that, Let's move over to our international segment, which posted record results as well. For the past few quarters, we've been seeing how the stringent cost control in our international segment sets us up for outsized EBITDA recovery when top line recovers. The second quarter results for international reflect the magnitude of this transformation. What we're currently seeing in EMEA is similar to what we saw in the Americas in the early stages of the recovery, which is significant travel demand across all regions combined with vehicle supply shortages. This led to sequential RPD and rental day growth throughout the quarter and adjusted EBITDA of 183 million. Let's put that number in perspective. Compared to the second quarter of 2019, international revenue has gone from 710 million to 677 million, a decline of 33 million. However, adjusted EBITDA has grown from 40 million to over $180 million in the same period, despite that lower revenue base. They've been able to accomplish this without the benefit of significant monthly depreciation gains through the structural nature of program cards and EMEA, which means that in the first half of 2022, our international segment has already recorded more adjusted EBITDA than the full year of 2019, despite headwinds from foreign currency. With the return of inbound travelers from the U.S. as COVID restrictions were removed, we see trends strengthening in the peak of the summer. It's been a long and difficult struggle for our international team since the pandemic began. But despite the prolonged downturn in that region, our employees continue to remain confident that the work we put in would bear fruit. We're hopeful this marks the beginning of an extended period of recovery for our international segment. Moving on to fleets. but consistent with last quarter, we'll focus more on the Americas segment. In the Americas, our average fleet size in the quarter was sequentially higher at 500,000 vehicles. This average is a combination of management decision to hold fleet due to fleet delivery uncertainty in April and the decision to dispose of aged fleet in May and June as deliveries arrived. In the first quarter of 2022, our average fleet size was 12 percent higher than the first quarter of 2019. This quarter, our average fleet size was 10 percent higher than the second quarter of 2019, a sequential decline in growth rate versus 2019. As I mentioned earlier, as we continue to receive new deliveries from our OEM partners, we will continue to dispose of aging fleet to a more normalized rotation and strike the appropriate balance between industry demand and supply. The disposal of these older units resulted in outside fleet gains again this quarter. Our consolidated monthly depreciation cost per vehicle in the second quarter of 2022 was $117. That's sequentially up from the 62 we posted in the first quarter of 2022, but substantially lower than the 260 monthly depreciation costs we saw in the full year of 2019. We had $194 million in gains from dispositions in the quarter, and we expect that number to moderate as the quarters progress and we deplete our older model vehicles. If you adjust for fleet gains, you'll see that our straight-line depreciation is still set at over $210 per month per vehicle, which we believe accurately reflects the current state of the market and our vehicle asset base. We are working with our OEM partners on our model year 2023 buy, and while it's early, all indications are that industry supply challenges will continue to exist and demand for used carb will remain strong. Next, I want to give an update from where I last spoke about our electrical vehicle integration. We have been hard at work to meet our ESG goals of reducing our carbon footprint by 30% over the next 10 years, and we're focused on meeting both our corporate and leisure customers' desire to rent EVs. We've been growing our EV fleet with a number of OEMs, and we are deploying level two EV charges across select airports and local market stores. We know that our average customer length of rental is more than four days, and we want to scale our EV fleet to match the infrastructure build to provide comfort and confidence to our customers traveling in unfamiliar cities. We are doing this at a fast pace already, but expect it to grow significantly in the back half of the year. As usual, we are working on maximum utilization, whereas a prerequisite for demand We are also diversifying our vehicles through our OEM partners in order to provide options to our customers and more certainty surrounding vehicle parts and repairs. We're excited for this growth we see in this area, and we'll continue to talk about it in the quarters to come. Moving on to technology. Due to strong consumer feedback and efficiencies we've seen in our workflow, we've been dedicating additional resources to expand our AVUS QuickPass offering. For those unfamiliar with this product, It enables our customers 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. These industry-leading capabilities completely puts our customers in control of their rental. 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've been deploying QuickPass at all the major airports and have seen an over 10-point increase in net promoter scores for those customers utilizing the service. In addition to this service and revenue-generating offering, we continue to use technology to power additional capabilities. As you know, we've been optimizing the use of vehicle telematics in our cars for some time now. Gas collections at an all-time high helping to neutralize the higher gas prices we've seen them late. In addition, we've seen many other benefits as it pertains to asset controls surrounding use of all vehicles. Also, productivity enhancing systems are being utilized to help reduce both labor and waste pressures, and we will continue to roll these out across our operating network. DFP, a proprietary demand fleet pricing system, enables us to place vehicles in the most optimal locations and price them in a way that provides maximized contribution margins. We are consistently iterating this process to enhance our revenue generation, and the results can be seen in our earnings. Mileage optimization, rolled out in the latter part of 2019, provides a more even distribution of mileage throughout the fleet, making sure the best available vehicle is served up to our customers that fit their customer use criteria. Our system identifies based on our customers' rental patterns, which vehicle is best utilized for that need. This allows us to lengthen the life of the vehicle while not lengthening the mileage accretion. You will continue to see us develop the use of technology to drive additional services, revenue, and cost control. 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. While there has been an increase in cases over the past few months, we have not seen any impact to our booking demand and we're not ready for any future variants and the potential impact on our travel industry. Let me wrap up my prepared remarks by saying how proud I am of our team and the results we've delivered thus far in 2022. But we're not done yet. We have the back half of 2022 to go, and our organization is ready for what I believe will be the busiest travel season in recent memory, with demand strong and significantly higher RPD than 2019, even as travel patterns continue to normalize. With that, I'll turn it over to Brian to discuss our liquidity and our outlook.