Avis Budget Group, Inc.

Greetings and welcome to the Avis Budget Group's fourth quarter and full year 2024 conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Calabria, Treasurer and Senior Vice President of Corporate Finance. Thank you, David. You may now begin.

Good morning, everyone, and thank you for joining us. On the call with me are Joe Ferraro, our Chief Executive Officer, Izzy Martins, our Chief Financial Officer, and Brian Choi, our Chief Transformation 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 our 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 fourth quarter and full-year results. For the quarter, we delivered revenue of $2.7 billion, and adjusted EBITDA loss of 101 million. And for the full year, we achieved 11.8 billion of revenue and adjusted EBITDA of 628 million. Let me start by providing additional color around the 2.5 billion non-cash asset impairment and other related charges we disclosed in our earnings release. Izzy will go into the accounting implications surrounding the charge, but I want to explain the business rationale for recently accelerating our fleet rotation strategy, which resulted in this impairment. As you are aware, the auto industry had seen significant movement in price on both new and used vehicles over the post-COVID period in the last few years. The strong retail market for model years 23 and 24 forced us to purchase these vehicles at higher prices than historic norms. Our strategy to address this challenge was to hold these vehicles for a longer period of time. This would have allowed us to depreciate vehicles across a flatter portion of the residual value curve and manage our fleet purchase to an appropriate return on invested capital. However, when we saw prices for model year 25 vehicles return to normalized levels, we had a new decision to make. One option was to hold the course with a fleet largely comprised of model year 23 and 24 vehicles. This would have kept depreciation levels closer to our original assumptions but we would not be taking the opportunity to continue to acquire new vehicles at lower cost base. The other option was to pivot strategies and refresh our Americas fleet by exiting model year 23 and 24 vehicles aggressively and replacing them with new cars purchased at sustainably better prices. We believe accelerating our fleet rotation is the right strategy for our company, creating greater certainty on our fleet costs back to normalized levels and positioning us to increase utilization, and reduce maintenance or repair costs, provide an enhanced customer experience while sustainably growing adjusted EBITDA in 2025 and beyond. Now, none of us took this situation lightly. And for those of you who have followed Avis for some time and are familiar with our company's culture, you can probably surmise that there was only one acceptable option for us. We're not happy taking this impairment, but accelerating our fleet rotation now allows us to position ourselves to better manage our fleet costs and maximize our earnings this year and the years to come. Now let's move to our segment results, beginning with the Americas segment. The Americas generated more than $2.1 billion of revenue in the fourth quarter, with an adjusted EBITDA loss of $63 million, or an adjusted EBITDA of $156 million, if you exclude the year-over-year increase in fleet costs. Rental days in the Americas were consistent with the fourth quarter of 2023. We did see some volume impacts during the week surrounding the hurricanes and the national election. However, our strategy for the quarter was to maximize revenue over the peak leisure periods of the holiday season. The Thanksgiving and December holidays were strong, with Christmas in the US being a record for our company. Pricing was down 2% compared to the fourth quarter of 2023, but improved sequentially throughout the quarter, with December finishing flat the prior year period, showing improving ESGAR trends. In January, we saw a continuation of strong leisure demand associated with the longer holiday season, as well as a robust MLK weekend. As we look further into the first quarter, there are Eurovia comparisons to take into account with the loss of a day due to leap year and Easter falling in April. However, we view a later Easter season as an overall positive because Easter is traditionally much stronger in April due to warmer weather that opens up more destinations for our rental customers to travel than you would have in March. As always, we strive to keep our fleet inside of demand, which allows for the most optimal price outcome. This strategy has resulted in ongoing improvements in our vehicle utilization. For the quarter, our utilization in the Americas was over 67%, which is more than two points higher than the fourth quarter of 2023, with December finishing at the high end of our historic norms. For the Christmas holiday period, vehicle utilization averaged four percentage points higher than last year in our U.S. rental business. Transactions for Christmas far exceeded last year's Christmas peak, which I had mentioned was a record in the U.S., We believe we can continue to improve our vehicle utilization as we implement further transformational enhancements to better understand vehicle dispositions and actions to support more available fleet to optimize supply and demand opportunities. We expect the first quarter of 2025 to continue to show strong vehicle utilization as we started the year with substantially fewer cars than we started in 2024, and we will continue to aggressively exit vehicles while rotating in newer, more cost-effective units. Earlier, I discussed the recent change in our fleet strategy, but I want to take this time to discuss our model year 25 buy in greater detail. The 2025 buy is virtually complete, although we believe we could still take advantage of some attractive spot buys throughout the year, which will also help us cycle in new cars faster. The use of data analytics and enhanced residual value modeling have benefited us in our fleet negotiations. The new 25 model year vehicles are more affordable than in recent years, allowing us to reach more normalized vehicle costs as they rotate into our fleet throughout the year. As we discussed, we will aggressively accelerate our disposal plans on our 2023 and 2024 higher cost vehicles to make room for the new Malia 2025 vehicles in our rental fleet. And by year end, we expect the average age and miles of our America's fleet to be back to pre-pandemic levels. So to recap, the travel environment demand is robust. The leisure holiday of Thanksgiving and Christmas was strong. And we saw this continue into January with the MLK holiday weekend. The extra day last year and the calendar switch of Easter will impact the quarter. but we believe will be more than made up next quarter with Easter falling in April. And while the results of this quarter were negatively impacted by the non-cash charges we recorded in connection with the recent change in our fleet strategy, we believe these actions create more certainty surrounding future fleet costs and position us for sustainable growth going forward. Our model year 2025 fleet buy is well positioned with lower holding costs, and we'll continue to accelerate our fleet rotations as we transition through the first quarter and beyond. As always, our goal is to be disciplined in allowing our fleet size with demand, driving higher utilizations in the first quarter and throughout the year. The Americas is well positioned to take advantage of what we believe to be a strong travel environment and an enhanced summer peak. Let's shift gears to internationally. International generated over $590 million of revenue and a loss of $11 million for adjusted EBITDA in the fourth quarter, largely due to non-recurring higher vehicle-related operating costs as we accelerated rotating out of fleet in the region. As a result, vehicle utilization was over 68%, up nearly three points compared to prior year. This allowed us to start 2025 with fewer cars than we did in 2024. Revenue was down 1% compared to prior year, driven by a 1% decrease in rental days. Price was flat in the fourth quarter as compared to the same period last year, which is an improvement from the negative 4% year-over-year in the third quarter of 2024. We continued our strategy that we discussed on previous calls to build on the robust international inbound and inter-European cross-border leisure travel as it generates higher margin business while exiting lower price volumes. This drove a year-over-year increase in our leisure business, which helped propel our overall revenue per day. As noted on our previous call, our proprietary demand fleet pricing system is fully operation in our European business, which allows for improved contribution margin by generating increased vehicle utilization and improved revenue per day. We're in the process of implementing this system in our Pacific region and expect to see similar benefits there as well. Our international regions continue to be a popular destination for cross-border travel, and I believe we are well positioned here to capture this demand. Moving on to technology and marketing. As I mentioned on our last call, we launched a new customer app in October. This new app offers a more dynamic user experience, providing our customers with a new rental dashboard as well as quick and easy access to their trip details on their travel journey. We're getting a lot of great customer feedback so far and are planning further app enhancements in the first half of 2025, which we will integrate with our touchless rental and ancillary product offerings. We're confident this new app makes our customers' car rental experience smoother and more enjoyable and will continue to differentiate our company in the market by delivering exceptional customer service. With that, I'm also proud to mention we finished the full year with record net promoter scores. In addition, Following Xander Shopley's successful 2024 season, where he won two major PGA championships as an Avis ambassador, we're expanding our partnership with the launch of Xander Embedded, an exclusive content series presented by Avis. This monthly series premiered in December 2024 and will air throughout the 2025 PGA season, offering a behind-the-scenes look at Xander's life and the planning and preparation that fuels his success. aligning with our Avis Plan On Us brand campaign. We've also continued the development of proprietary in-life fleet technologies, which will drive operational efficiencies. As I've discussed before, we've been piloting digital tools in key cities throughout the U.S. that we believe will drive better vehicle utilization. These pilots have gone well, and we are operationalizing these tools with the intent to continue to scale across the U.S., These tools will allow for a better understanding of vehicle dispositions, drive more timely repairs, and improve vehicle movements, all designed to create more available fleet. So to conclude, we took the necessary actions to create more certainty around future fleet-related expenses and best position us for sustainable growth going forward. Our 2025 model year buy came in much closer to pre-pandemic levels. Leisure peak period travel was especially strong around the holidays with the U.S. record at Christmas, and we saw this strength continue over the MLK holiday weekend. Overall, travel is strong, and we expect this to continue into the summer peak, and our brands are well positioned to take advantage of this. Year-over-year pricing in the fourth quarter sequentially improved for the Americas, allowing us to exit December flat the prior year. We will continue to aggressively rotate our fleet by adding lower-priced new model year vehicles while exiting older, more expensive fleet. We expect utilization to be well over per year in the first quarter, and we expect to continue to see improved utilization throughout the remainder of the year. Izzy will address more about our future outlook, but I want to affirm that based on our strategy and current line of sight, we expect to generate no less than $1 billion of adjusted EBITDA in 2025. Now, before I turn it over to Izzy, I want to comment on a succession plan announcement of last evening. I've had the privilege to work at this company for the past 45 years and the honor of being the CEO for the last five. After careful consideration and conversations with our board, I will be transitioning out of my current role on June 30th and stay on as an advisor to the board. Brian Choi, the company's chief transformational officer and previous CFO, who I've worked with for many years now, will take over as CEO effective July 1st. Jack D. Powell, who served as board member since 2018 and chairman since 2024, will become the executive chairman. I will continue to run the company as CEO through June and will ensure an orderly transition to Brian as he takes over effective July 1st. These succession planning actions will position us well, drive performance throughout 2025 and beyond. I'll now turn it over to Brian for say a few words.