Avis Budget Group, Inc.

Greetings. Welcome to the Avis Budget Group Q4 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. Please note this conference is being recorded. I will now turn the conference over to David Calabria, Senior Vice President, Corporate Finance and Treasurer. Thank you, David. You may begin.

Good morning, everyone, and thank you for joining us. On the call with me are Brian Choi, our Chief Executive Officer, and Daniel Cunha, 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 Brian.

Thanks, David, and thank you to everyone joining us today for our fourth quarter and full year 2025 earnings call. If you've reviewed our earnings release and financial supplement, you'll have seen that this was a difficult quarter. I've said before that delivering on quarterly results is foundational, and when operational performance speaks for itself, we earned the right to focus on the bigger picture. This quarter, we didn't earn that right. We fell significantly short of guidance. That's unacceptable, and I have no excuses to offer. What I will say is that the decisions we made were grounded in the information we had at the time. The outcomes were not what we expected, but the process was disciplined, and I think that distinction matters as we look forward. What I owe you today is a clear, fact-based explanation of what happened, how we're now responding, and where this means we're headed as a company. I'm going to structure my remarks around three horizons. Horizon 1 is a backward-looking view focused on what drove our fourth quarter miss. Horizon 2 is the present, the actions we're taking now to position the business for 2026. Horizon 3 looks briefly at how this all fits into our longer-term strategy. I'll get into a fair bit of detail on Horizon 1 because that's what this quarter demands. Let's start with what we're bridging. On our October earnings call, we got it to full-year adjusted EBITDA of $900 million, implying roughly $157 million in the fourth quarter. Yesterday, we reported full-year adjusted EBITDA of $748 million. That means we missed our fourth quarter forecast by approximately $150 million inside the span of three months. I'll walk you through the specific drivers of how that happened, but first, it's important to note that this miss was entirely in our Americas segment. Our international business executed a meaningful turnaround in 2025 and performed as expected in the fourth quarter. The issues we're discussing today are concentrated in the Americas. In October, we expected America's rental days to grow about 3% in the fourth quarter. That was consistent with third quarter trends and supported by TSA passenger growth of roughly 3% year over year in the month of October. So while government travel immediately declined sharply following the shutdown, overall commercial demand initially held up. That changed abruptly in November. FAA flight reductions, Air traffic control disruptions and extended TSA wait times materially reduced discretionary travel as it increased both uncertainty and inconvenience. Commercial rental days went from mildly down in October to down 11% in November. December stabilized, but by then the damage to the quarter was done. As a result, instead of growing rental days by 3%, we delivered flat volume for the quarter. That whipsaw of demand created our second challenge, fleet size. When demand weakens, the right response is to reduce fleet. The problem was timing. The fourth quarter is the most difficult period to sell used vehicles as dealers focus on clearing new model year inventory. Aggressive new car incentives pressure used car pricing, which is why under normal circumstances, we defer meaningful defleeting until the first quarter of the following year. This year, we couldn't wait. Given the speed and magnitude of the demand decline, we chose to defleet in November despite unfavorable market conditions. Used vehicle prices reflected that reality. The Mannheim rental index price per vehicle declined nearly $1,000, or 4.3%, from October to November. That impacts us in two ways. Lower gains on vehicles sold and a lower valuation mark on the fleet we retained. As a result, monthly net depreciation per unit in the Americas came in at $338 in the fourth quarter. Our initial estimate in October was slightly lower than $300. The silver lining is that used vehicle prices stabilized in December, recovering most of the November decline. We believe selling fleet aggressively was still the correct decision from an asset management standpoint, even though it came at a cost. Not acting and carrying excess fleet into a soft demand environment would have created greater operational and financial issues. This was the right call, even though the timing made it painful. But despite us taking decisive action, industry capacity remained elevated relative to demand in the fourth quarter, which leads us to our third unforeseen factor, pricing. Through the first three quarters of 2025, RPD on a two-year stack had been sequentially improving. Based on early fourth quarter trends, we expected that improvement to continue. Instead, November reversed that progress. Weakened demand and excess industry supply pressured pricing across the market. Length of rent restrictions were largely absent industry-wide, and RPD deteriorated more than expected. In the Americas, RPD finished the quarter down 3.7%. When we guided in October, we thought this would be closer to 2%. I don't believe this was an Avis-specific dynamic. Industry capacity remained elevated, and pricing pressure was evident across competitors as well throughout November and early December. For how this all impacted our results, let me pass it over to Daniel.