The following discussion should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes included in this Quarterly Report on Form 10-Q, and with our 2021 Form 10-K. Our actual results of operations may differ materially from those discussed in forward-looking statements as a result of various factors, including those discussed in "Forward-Looking Statements". See "Forward-Looking Statements" for additional information. Unless otherwise noted, all dollar amounts in tables are in millions. OVERVIEW Our Company We operate three of the most globally recognized brands in mobility solutions,Avis, Budget and Zipcar, together with several other brands well recognized in their respective markets. We are a leading vehicle rental operator inNorth America ,Europe ,Australasia and certain other regions we serve, with an average rental fleet of over 590,000 vehicles in first quarter 2022. We also license the use of our trademarks to licensees in the areas in which we do not operate directly. We and our licensees operate our brands in approximately 180 countries throughout the world. Our Segments We categorize our operations into two reportable business segments:Americas , consisting primarily of our vehicle rental operations inNorth America ,South America ,Central America and theCaribbean , car sharing operations in certain of these markets, and licensees in certain areas in which we do not operate directly; and International, consisting primarily of our vehicle rental operations inEurope , theMiddle East ,Africa ,Asia andAustralasia , car sharing operations in certain of these markets, and licensees in certain areas in which we do not operate directly. Business and Trends Over the past year, we have seen a number of encouraging developments, such as a significant increase in global travel demand, which generated an increase in demand for rental vehicles and improved pricing across the industry, suggesting a steady return to historic travel trends. Our strategy continues to focus on cost optimization, core revenue growth and capital investments aimed to allow us to maximize our infrastructure to capitalize on what we believe will be a continued surge in travel demand. During the quarter endedMarch 31, 2022 , we generated revenues of$2.4 billion , net income of$527 million and Adjusted EBITDA of$810 million . These results were driven by increased demand for rental vehicles, improved pricing across the industry, disciplined cost management and continued fleet management. The full extent of the ongoing impact of the COVID-19 pandemic on our long-term operational and financial performance will depend on future developments, including those outside of our control, such as the spread of new variants of the virus and the implementation of new or continued travel restrictions and the overall economic environment. These variants could cause prolonged impacts on the economy, our industry and on us, with reductions in available staffing and increasing inflation, among other impacts. We will continue to monitor these and other impacts and take action in connection with it, by leveraging our technology and reviewing cost mitigating actions, among other actions. Significant events affecting travel have historically had an impact on vehicle rental volumes, with the full extent of the impact generally determined by the length of time the event influences travel decisions. As a consequence, we cannot estimate the impact on our business, financial condition or forecast financial or operational results with reasonable certainty. The global semiconductor shortage is impacting fleet supply, resulting in tighter fleets throughout the industry and causing us to hold cars longer compared to periods prior to the COVID-19 pandemic. We have historically navigated through significant vehicle recalls and worked with our vehicle manufacturers, and believe we have the logistics in place to effectively manage our fleet during this disruption in supply. We continue to purchase new vehicles and believe we can increase our fleet utilization efficiency to capture increased demand. 25
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RESULTS OF OPERATIONS We measure performance principally using the following key metrics: (i) rental days, which represent the total number of days (or portion thereof) a vehicle was rented, (ii) revenue per day, which represents revenues divided by rental days, (iii) vehicle utilization, which represents rental days divided by available rental days, with available rental days defined as average rental fleet times the number of days in the period, and (iv) per-unit fleet costs, which represent vehicle depreciation, lease charges and gain or loss on vehicle sales, divided by average rental fleet. Our rental days, revenue per day and vehicle utilization metrics are all calculated based on the actual rental of the vehicle during a 24-hour period. We believe that this methodology provides management with the most relevant metrics in order to effectively manage the performance of the business. Our calculation may not be comparable to the calculation of similarly-titled metrics by other companies. We present currency exchange rate effects to provide a method of assessing how our business performed excluding the effects of foreign currency rate fluctuations. Currency exchange rate effects are calculated by translating the current-year results at the prior-period average exchange rate plus any related gains and losses on currency hedges. We assess performance and allocate resources based upon the separate financial information of our operating segments. In identifying our reportable segments, we also consider the nature of services provided by our operating segments, the geographical areas in which our segments operate and other relevant factors. Management evaluates the operating results of each of our reportable segments based upon revenues and "Adjusted EBITDA," which we define as income from continuing operations before non-vehicle related depreciation and amortization, any impairment charges, restructuring and other related charges, early extinguishment of debt costs, non-vehicle related interest, transaction-related costs, net, charges for unprecedented personal-injury and other legal matters, net, which includes amounts recorded in excess of$5 million related to class action lawsuits, non-operational charges related to shareholder activist activity, which include third party advisory, legal and other professional fees, COVID-19 charges, net and income taxes. Net charges for unprecedented personal-injury and other legal matters are recorded within operating expenses in our consolidated results of operations. Non-operational charges related to shareholder activist activity include third party advisory, legal and other professional service fees and are recorded within selling, general and administrative expenses in our consolidated results of operations. COVID-19 charges include unusual, direct and incremental costs due to the COVID-19 pandemic, such as minimum annual guaranteed rent in excess of concession fees for the period, overflow parking for idle vehicles and related shuttling costs, incremental cleaning supplies to sanitize vehicles and facilities and other charges, and losses associated with vehicles damaged in overflow parking lots, net of insurance proceeds, and are primarily recorded within operating expenses in our consolidated results of operations. We believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our operating businesses and in comparing our results from period to period. We also believe that Adjusted EBITDA is useful to investors because it allows them to assess our results of operations and financial condition on the same basis that management uses internally. Adjusted EBITDA is a non-GAAP measure and should not be considered in isolation or as a substitute for net income or other income statement data prepared in accordance withU.S. GAAP. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.
During the three months ended
•Our revenues totaled$2.4 billion , an increase of 77% compared to the similar period in 2021, primarily due to a significant increase in pricing and increased demand for rental vehicles. The significant increase in revenues was a direct result of the global effort to combat the incidence and spread of the COVID-19 virus, which led to a significant increase in global travel demand, suggesting a steady return to historic travel levels. •Our net income was$527 million , representing an increase of$697 million year-over-year, primarily due to significantly higher revenues, as described above, in addition to disciplined cost management. •Our Adjusted EBITDA was$810 million , representing a significant increase of$763 million year-over-year, primarily due to significantly higher revenues and disciplined cost management.
•We repurchased approximately
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Three Months Ended
Our consolidated condensed results of operations comprised the following:
Three Months Ended March 31, 2022 2021 $ Change % Change Revenues$ 2,432 $ 1,372 $ 1,060 77 % Expenses Operating 1,147 832 315 38 % Vehicle depreciation and lease charges, net 111 254 (143) (56 %) Selling, general and administrative 283 182 101 55 % Vehicle interest, net 77 75 2 3 % Non-vehicle related depreciation and amortization 58 68 (10) (15 %) Interest expense related to corporate debt, net: Interest expense 53 61 (8) (13 %) Early extinguishment of debt - 129 (129) n/m Restructuring and other related charges 8 20 (12) (60 %) Transaction-related costs, net - 1 (1) n/m Total expenses 1,737 1,622 115 7 % Income (loss) before income taxes 695 (250) 945
n/m
Provision for (benefit from) income taxes 168 (80) 248 n/m Net income (loss) 527 (170) 697 n/m Less: net loss attributable to non-controlling interests (2) - (2)
n/m
Net income (loss) attributable to Avis Budget Group, Inc.$ 529 $ (170) $ 699 n/m ___________ n/m - Not Meaningful Revenues increased$1.1 billion , or 77%, during the three months endedMarch 31, 2022 compared to the similar period in 2021, primarily due to a 45% increase in volume as the mobility industry recovers from the pandemic and a 24% increase in revenue per day, excluding exchange rate effects, partially offset by a$29 million negative impact from currency exchange rate movements. Total expenses increased 7% during the three months endedMarch 31, 2022 , compared to the similar period in 2021, primarily due to increased demand, partially offset by cost discipline as volume returned. Our effective tax rates were a provision (benefit) of 24.2% and (32.0)% for the three months endedMarch 31, 2022 and 2021, respectively. As a result of these items, our net income increased by$697 million compared to the similar period in 2021. For the three months endedMarch 31, 2022 and 2021, we reported earnings (losses) per diluted share of$9.71 and$(2.43) , respectively. Operating expenses decreased to 47.2% of revenue during the three months endedMarch 31, 2022 compared to 60.6% during the similar period in 2021, primarily due to the increased revenues and cost discipline as volume returned. Vehicle depreciation and lease charges decreased to 4.5% of revenue during the three months endedMarch 31, 2022 compared to 18.5% during the similar period in 2021, primarily due to increased revenues and a 68% lower per unit fleet cost, excluding exchange rate effects, driven by the continued favorable trend in the used-vehicle market. Selling, general and administrative costs decreased to 11.6% of revenue during the three months endedMarch 31, 2022 compared to 13.3% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle interest costs decreased to 3.2% of revenue during the three months endedMarch 31, 2022 compared to 5.5% during the similar period in 2021, primarily due to increased revenues. 27
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Following is a more detailed discussion of the results of each of our reportable segments and reconciliation of net income (loss) to Adjusted EBITDA:
Three Months Ended March 31, 2022 2021 Revenues Adjusted EBITDA Revenues Adjusted EBITDA Americas$ 2,000 $ 810$ 1,080 $ 108 International 432 23 292 (50) Corporate and Other (a) - (23) - (11)Total Company $ 2,432 $ 810$ 1,372 $ 47 Reconciliation to Adjusted EBITDA 2022 2021 Net income (loss)$ 527 $ (170) Provision for (benefit from) income taxes 168 (80) Income (loss) before income taxes 695 (250) Add: Non-vehicle related depreciation and amortization (b) 60 68 Interest expense related to corporate debt, net: Interest expense 53 61 Early extinguishment of debt - 129 Restructuring and other related charges 8 20 Unprecedented personal-injury and other legal matters, net (c) 1 - Transaction-related costs, net - 1 COVID-19 charges (d) (7) 18 Adjusted EBITDA$ 810 $ 47
(a)Includes unallocated corporate overhead which is not attributable to a particular segment.
(b)Includes cloud computing costs of
(c)Reported within operating expenses in our consolidated condensed results of operations.
(d)The following table presents the unusual, direct and incremental costs due to the COVID-19 pandemic: 2022 2021 Minimum annual guaranteed rent in excess of concession fees, net$ (7) $ 19 Vehicles damaged in overflow parking lots, net of insurance proceeds - (6) Other charges - 5 Operating expenses (7) 17 Selling, general and administrative expenses - 1 COVID-19 charges, net$ (7) $ 18 Americas Three Months Ended March 31, 2022 2021 % Change Revenues$ 2,000 $ 1,080 85 % Adjusted EBITDA 810 108 650 % Revenues increased 85% during the three months endedMarch 31, 2022 compared to the similar period in 2021, primarily due to a 52% increase in volume and a 21% increase in revenue per day. Operating expenses decreased to 44.8% of revenue during the three months endedMarch 31, 2022 compared to 57.9% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle depreciation and lease charges decreased to 1.3% of revenue during the three months endedMarch 31, 2022 compared to 17.0% during the similar period in 2021, primarily due to increased revenues and a 90% decrease in per-unit fleet costs, driven by the continued favorable trend in the used-vehicle market. Selling, general and administrative costs decreased to 9.8% of revenue during the three months endedMarch 31, 2022 compared to 10.6% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle interest costs decreased to 3.3% of revenue during the three months endedMarch 31, 2022 compared to 5.8% during the similar period in 2021, primarily due to increased revenues. 28
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Adjusted EBITDA was$702 million higher during the three months endedMarch 31, 2022 compared to the similar period in 2021, primarily due to increased revenues, lower per-unit fleet costs and cost discipline as volume returned. International Three Months Ended March 31, 2022 2021 % Change Revenues $ 432$ 292 48 % Adjusted EBITDA 23 (50) 146 % Revenues increased 48% during the three months endedMarch 31, 2022 , compared to the similar period in 2021, primarily due to a 26% increase in volume and a 25% increase in revenue per day, excluding exchange rate effects, partially offset by a$29 million negative impact from currency exchange rate movements. Operating expenses decreased to 56.0% of revenue during the three months endedMarch 31, 2022 compared to 71.2% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle depreciation and lease charges decreased to 19.5% of revenue during the three months endedMarch 31, 2022 compared to 24.0% during the similar period in 2021, primarily due to increased revenues and a 1% decrease in per-unit fleet costs, excluding exchange rate effects, driven by the continued favorable trend in the used-vehicle market. Selling, general and administrative costs decreased to 16.8% of revenue during the three months endedMarch 31, 2022 compared to 19.0% during the similar period in 2021, primarily due to increased revenues and cost discipline as volume returned. Vehicle interest costs decreased to 2.6% of revenue during the three months endedMarch 31, 2022 compared to 4.4% during the similar period in 2021, primarily due to increased revenues. Adjusted EBITDA was$73 million higher in first quarter 2022 compared to the similar period in 2021, primarily due to increased revenues, cost discipline as volume returned and decreased per-unit fleet costs. 29
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES We present separately the financial data of our vehicle programs. These programs are distinct from our other activities as the assets under vehicle programs are generally funded through the issuance of debt that is collateralized by such assets. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation or acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of our vehicle programs. We believe it is appropriate to segregate the financial data of our vehicle programs because, ultimately, the source of repayment of such debt is the realization of such assets.
FINANCIAL CONDITION
March 31, 2022 December 31, 2021 Change Total assets exclusive of assets under vehicle programs$ 8,437 $ 8,581$ (144) Total liabilities exclusive of liabilities under vehicle programs 9,883 8,933 950 Assets under vehicle programs 15,136 14,019 1,117 Liabilities under vehicle programs 14,673 13,876 797 Stockholders' equity (983) (209) (774) The increase in liabilities exclusive of liabilities under vehicle programs is principally related to the increase in long-term debt from the issuance of Floating Rate Term Loan dueMarch 2029 . See "-Liquidity and Capital Resources" and Notes 10 to our Consolidated Condensed Financial Statements.
The increases in assets under vehicle programs and liabilities under vehicle programs are principally related to the increase in the size of our vehicle rental fleet to meet increased rental demand.
The decrease in stockholders' equity is primarily due to our share repurchases, partially offset by comprehensive income.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand and our ability to generate cash through operations and financing activities, as well as available funding arrangements and committed credit facilities, each of which is discussed below. InMarch 2022 , we entered into a$750 million Floating Rate Term Loan dueMarch 2029 , at a price of 97% of the aggregate principal amount, with interest paid monthly, which is part of our senior credit facilities. The Floating Rate Term Loan dueMarch 2029 bears interest at one-month SOFR plus 350 basis points for an aggregate rate of 4.00%. Our Board of Directors has authorized the repurchase of up to$5.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded, most recently inMarch 2022 . Our stock repurchases may occur through open market purchases, privately negotiated transactions or trading plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, restricted payment capacity under our debt instruments and other factors. The repurchase program may be suspended, modified or discontinued at any time without prior notice. The repurchase program has no set expiration or termination date. During the three months endedMarch 31, 2022 , we repurchased approximately 6.4 million shares of common stock at a cost of approximately$1.3 billion under the program. As ofMarch 31, 2022 , approximately$652 million of authorization remained available to repurchase common stock under the program. 30
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CASH FLOWS
The following table summarizes our cash flows:
Three Months Ended
2022 2021 Change
Cash provided by (used in):
Operating activities$ 1,148 $ 336 $ 812 Investing activities (1,165) (1,366) 201 Financing activities 30 914 (884)
Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash
(2) (10) 8
Net increase (decrease) in cash and cash equivalents, program and restricted cash
11 (126) 137
Cash and cash equivalents, program and restricted cash, beginning of period
626 765 (139)
Cash and cash equivalents, program and restricted cash, end of period $
637
The increase in cash provided by operating activities during the three months endedMarch 31, 2022 compared with the same period in 2021 is primarily due to the increase in our net income.
The decrease in cash used in investing activities during the three months ended
The decrease in cash provided by financing activities during the three months endedMarch 31, 2022 compared with the same period in 2021 is primarily due to an increase in repurchases of common stock, offset by proceeds from borrowings.
DEBT AND FINANCING ARRANGEMENTS
AtMarch 31, 2022 , we had approximately$16.8 billion of indebtedness, including corporate indebtedness of approximately$4.7 billion and debt under vehicle programs of approximately$12.1 billion . For information regarding our debt and borrowing arrangements, see Notes 1, 10 and 11 to our Consolidated Condensed Financial Statements. LIQUIDITY RISK Our primary liquidity needs include the procurement of rental vehicles to be used in our operations, servicing of corporate and vehicle-related debt and the payment of operating expenses. The present intention of management is to reinvest the undistributed earnings of our foreign subsidiaries indefinitely into our foreign operations. Our primary sources of funding are operating revenue, cash received upon the sale of vehicles, borrowings under our vehicle-backed borrowing arrangements and our senior revolving credit facility, and other financing activities. Our liquidity position was impacted by COVID-19 as a result of significant volume declines. However, since 2021, travel advisories and restrictions were eased, which led to a significant increase in global travel demand, resulting in increased demand for rental vehicles and improved pricing across the industry. However, the full extent of the ongoing impact of this virus on our long-term operational performance and liquidity will depend on future developments, including those outside of our control, such as the spread of new variants of the virus, which may be resistant to currently approved vaccines and the implementation of new or continued travel restrictions. Our liquidity could be negatively affected by any financial market disruptions or the absence of a recovery or worsening of theU.S. and worldwide economies, which may result in unfavorable conditions in the mobility industry, in the asset-backed financing market and in the credit markets generally. We believe these factors have affected and could further affect the debt ratings assigned to us by credit rating agencies and the cost of our borrowings. Additionally, a worsening or prolonged downturn in the worldwide economy or a disruption in the credit markets could further impact our liquidity due to (i) decreased demand and pricing for vehicles in the used-vehicle market, (ii) increased costs associated with, and/or reduced capacity or increased collateral needs under, our financings, (iii) the adverse impact of vehicle manufacturers being unable or unwilling to honor their 31
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obligations to repurchase or guarantee the depreciation on the related program vehicles and (iv) disruption in our ability to obtain financing due to negative credit events specific to us or affecting the overall debt market.
As of
Our liquidity position could also be negatively impacted if we are unable to remain in compliance with the consolidated first lien leverage ratio requirement and other covenants associated with our senior credit facilities and other borrowings. As ofMarch 31, 2022 , we were in compliance with the financial covenants governing our indebtedness. For additional information regarding our liquidity risks, see Part I, Item 1A, "Risk Factors" of our 2021 Form 10-K, as well as the "Risk Factors" section in this quarterly report.
CONTRACTUAL OBLIGATIONS
Our future contractual obligations have not changed significantly from the amounts reported within our 2021 Form 10-K with the exception of our commitment to purchase vehicles, which decreased by approximately$0.8 billion fromDecember 31, 2021 , to approximately$5.1 billion as ofMarch 31, 2022 due to seasonality. Changes to our obligations related to corporate indebtedness and debt under vehicle programs are presented above within the section titled "Liquidity and Capital Resources-Debt and Financing Arrangements" and also within Notes 10 and 11 to our Consolidated Condensed Financial Statements.
ACCOUNTING POLICIES
The results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex. However, in presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions that we are required to make pertain to matters that are inherently uncertain as they relate to future events. Presented within the section titled "Critical Accounting Policies" of our 2021 Form 10-K are the accounting policies (related to goodwill and other indefinite-lived intangible assets, vehicles, income taxes and public liability, property damage and other insurance liabilities) that we believe require subjective and/or complex judgments that could potentially affect 2022 reported results. There have been no significant changes to those accounting policies or our assessment of which accounting policies we would consider to be critical accounting policies.Goodwill and Other Indefinite-lived Intangible Assets. We perform our annual goodwill and other indefinite-lived intangible assets impairment assessment in the fourth quarter of each year at the reporting unit level, or more frequently if events or circumstances indicate that the carrying amount of goodwill and other indefinite-lived intangible assets may be impaired. For ourEurope ,Middle East andAfrica ("EMEA") reporting unit, the percentage by which the estimated fair value exceeded the carrying value as ofOctober 1, 2021 was 10% and the amount of goodwill allocated to our reporting unit was$488 million . We evaluated qualitative factors and determined that an interim impairment test was not required this quarter as we believe it is more likely than not that the fair value of our goodwill and other indefinite-lived intangible assets exceeds the carrying value. We will continue to closely monitor actual results versus our expectations as well as any significant changes in events or conditions, including the impact of COVID-19 on our business and the travel industry, and the resulting impact to our assumptions about future estimated cash flows, the discount rate and market multiples. In the future, failure to achieve our business plans, a deterioration of the general economic conditions of the countries in which we operate, or significant changes in the assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets (such as the discount rate) could result in significantly different estimates of fair value that could trigger an impairment of the goodwill of our reporting units or intangible assets.
New Accounting Standards
For detailed information regarding new accounting standards and their impact on our business, see Note 1 to our Consolidated Condensed Financial Statements.
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