AVIS BUDGET GROUP, INC. 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 2022 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" and "Risk Factors" 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 approximately 621,000 vehicles in first quarter 2023. 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 Our strategy continues to primarily focus on costs and customer experience to strengthen our company, enable resilience, and deliver stakeholder value. During the three months endedMarch 31, 2023 , we generated revenues of$2.6 billion , net income of$312 million and Adjusted EBITDA of$535 million . These results were driven by increased volume and utilization, offset by increased fleet costs and sustained inflationary pressures on costs. We continue to be susceptible to a number of industry-specific and global macroeconomic factors that may cause our actual results of operations to differ from our historical results of operations or current expectations. The factors and trends that we currently believe are or will be most impactful to our results of operations and financial condition include the following: interest rates, inflationary impact on items such as commodity prices and wages, used car values, and an economic downturn that may impact travel demand. We continue to monitor the potential favorable or unfavorable impacts of these and other factors on our business, operations, financial condition, and future results of operations. 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 being 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 period 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 26 -------------------------------------------------------------------------------- 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 (loss) 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; cloud computing costs; other (income) expense, net, and income taxes. 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
•Our net income was
•Our Adjusted EBITDA was
Three Months Ended
Our consolidated condensed results of operations comprised of the following:
Three Months Ended March 31,
2023 2022 $ Change % Change
Revenues $ 2,557 $ 2,432 $ 125 5 %
Expenses
Operating 1,307 1,147 160 14 %
Vehicle depreciation and lease charges, net 265 111 154 n/m
Selling, general and administrative 324 283 41 14 %
Vehicle interest, net 133 77 56 73 %
Non-vehicle related depreciation and amortization 56 58 (2) (3 %)
Interest expense related to corporate debt, net:
Interest expense 73 53 20 38 %
Restructuring and other related charges 4 8 (4) (50 %)
Other (income) expense, net (2) - (2) n/m
Total expenses 2,160 1,737 423 24 %
Income before income taxes 397 695 (298) (43 %)
Provision for income taxes 85 168 (83) (49 %)
Net income 312 527 (215) (41 %)
Less: net income (loss) attributable to non-controlling interests
- (2) 2 n/m
Net income attributable to Avis Budget Group, Inc. $ 312 $ 529 $ (217) (41 %)
___________
n/m - Not Meaningful
Revenues increased $125 million , or 5%, during the three months ended March 31,
2023 compared to the similar period in 2022, primarily due to a 6% increase in
volume and a 1% increase in revenue per day, excluding exchange rate effects,
partially offset by a $37 million negative impact from currency exchange rate
movements.
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Total expenses increased 24% during the three months ended March 31, 2023 ,
compared to the similar period in 2022, primarily due to increased fleet costs
and the impact of inflation. Our effective tax rates were a provision of 21.4%
and 24.2% for the three months ended March 31, 2023 and 2022, respectively. As a
result of these items, our net income decreased by $215 million compared to the
similar period in 2022. For the three months ended March 31, 2023 and 2022, we
reported earnings per diluted share of $7.72 and $9.71 , respectively.
Operating expenses increased to 51.1% of revenue during the three months ended
March 31, 2023 compared to 47.2% during the similar period in 2022, primarily
due to increased volume and inflation. Vehicle depreciation and lease charges
increased to 10.3% of revenue during the three months ended March 31, 2023
compared to 4.5% during the similar period in 2022, primarily due to increased
per unit fleet costs, excluding exchange rate effects, driven by increased fleet
levels and depreciation rates. Selling, general and administrative costs
increased to 12.7% of revenue during the three months ended March 31, 2023
compared to 11.6% during the similar period in 2022, primarily due to inflation.
Vehicle interest costs increased to 5.2% of revenue during the three months
ended March 31, 2023 , compared to 3.2% during the similar period in 2022,
primarily due to rising interest rates and additional funding for vehicles.
Following is a more detailed discussion of the results of each of our reportable segments and reconciliation of net income to Adjusted EBITDA:
Three Months Ended March 31,
2023 2022
Revenues Adjusted EBITDA Revenues Adjusted EBITDA
Americas $ 2,016 $ 516 $ 2,000 $ 810
International 541 50 432 23
Corporate and Other (a) - (31) - (23)
Total Company $ 2,557 $ 535 $ 2,432 $ 810
Reconciliation to Adjusted EBITDA
2023 2022
Net income $ 312 $ 527
Provision for income taxes 85 168
Income before income taxes 397 695
Add: Non-vehicle related depreciation and amortization 56 58
Interest expense related to corporate debt, net 73 53
Restructuring and other related charges 4 8
Other (income) expense, net (b) (2) -
Reported within operating expenses:
Cloud computing costs 7 2
COVID-19 charges, net - (7)
Unprecedented personal-injury and other legal matters, net - 1
Adjusted EBITDA $ 535 $ 810
(a)Includes unallocated corporate overhead which is not attributable to a particular segment.
(b)Primarily consists of fleet related services as well as certain administrative services provided to a former subsidiary.
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--------------------------------------------------------------------------------Americas Three Months Ended March 31, 2023 2022 % Change Revenues$ 2,016 $ 2,000 1 % Adjusted EBITDA 516 810 (36 %) Revenues increased 1% during the three months endedMarch 31, 2023 compared to the similar period in 2022, primarily due to a 3% increase in volume, partially offset by a 2% decrease in revenue per day. Operating expenses increased to 50.5% of revenue during the three months endedMarch 31, 2023 compared to 44.8% during the similar period in 2022, primarily due to increased volume and inflation. Vehicle depreciation and lease charges increased to 8.6% of revenue during the three months endedMarch 31, 2023 compared to 1.3% during the similar period in 2022, primarily due to increased per-unit fleet costs, driven by increased fleet levels and depreciation rates. Selling, general and administrative costs were 9.8% of revenue, consistent with the similar period in 2022. Vehicle interest costs increased to 5.6% of revenue during the three months endedMarch 31, 2023 compared to 3.3% during the similar period in 2022, primarily due to rising interest rates and additional funding for vehicles.
Adjusted EBITDA decreased 36% during the three months ended
International
Three Months Ended March 31,
2023 2022 % Change
Revenues $ 541 $ 432 25 %
Adjusted EBITDA 50 23 117 %
Revenues increased 25% during the three months ended March 31, 2023 , compared to
the similar period in 2022, primarily due to 14% increase in revenue per day,
excluding exchange rate effects, and a 16% increase in volume, partially offset
by a $32 million negative impact from currency exchange rate movements.
Operating expenses decreased to 52.6% of revenue during the three months ended
March 31, 2023 compared to 56.0% during the similar period in 2022, primarily
due to increased revenues as volume returned. Vehicle depreciation and lease
charges decreased to 16.7% of revenue during the three months ended March 31,
2023 compared to 19.5% during the similar period in 2022, primarily due to
increased revenues and improved utilization, partially offset by a 2% increase
in per-unit fleet costs, excluding exchange rate effects. Selling, general and
administrative costs increased to 17.8% of revenue during the three months ended
March 31, 2023 compared to 16.8% during the similar period in 2022, primarily
due to the expiration of COVID-19 related relief. Vehicle interest costs
increased to 3.8% of revenue during the three months ended March 31, 2023
compared to 2.6% during the similar period in 2022, primarily due to rising
interest rates and additional funding for vehicles.
Adjusted EBITDA was $27 million higher during the three months ended March 31,
2023 compared to the similar period in 2022, primarily due to increased revenues
as volume returned, partially offset by a $7 million negative impact from
currency exchange rate movements.
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.
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--------------------------------------------------------------------------------FINANCIAL CONDITION
March 31,
2023 December 31, 2022 Change
Total assets exclusive of assets under vehicle
programs $ 8,511 $ 8,499 $ 12
Total liabilities exclusive of liabilities
under vehicle programs 9,760 9,656 104
Assets under vehicle programs 18,877 17,428 1,449
Liabilities under vehicle programs 18,069 16,971 1,098
Total stockholders' equity (441) (700) 259
The increases in assets and liabilities under vehicle programs are principally related to the increase in the size and cost of our vehicle rental fleet.
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. InJanuary 2023 , ourAvis Budget Rental Car Funding (AESOP) LLC subsidiary issued$500 million and$350 million of asset-backed notes to investors with an expected final payment date ofApril 2028 andOctober 2026 , respectively, with a weighted average interest rate of 5.36% and 5.31%, respectively. The proceeds from these borrowings were used to repay maturing vehicle-backed debt and the acquisition of rental cars inthe United States . InApril 2023 , ourAvis Budget Rental Car Funding (AESOP) LLC subsidiary issued$450 million and$550 million of asset-backed notes to investors with an expected final payment date ofFebruary 2027 andJune 2028 , respectively, and a weighted average interest rate of 5.67% and 5.76% respectively, and also amended its asset-backed variable-funding financing facilities to increase its capacity by$750 million . The proceeds from these borrowings will be used to repay maturing vehicle-backed debt and the acquisition of rental cars inthe United States . Our Board of Directors has authorized the repurchase of up to$8.1 billion of our common stock under a plan originally approved in 2013 and subsequently expanded, most recently inFebruary 2023 . 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, 2023 , no common stock repurchases were made under the program. As ofMarch 31, 2023 , approximately$1.7 billion of authorization remained available to repurchase common stock under the program. 30 --------------------------------------------------------------------------------
CASH FLOWS
The following table summarizes our cash flows:
Three Months Ended
2023 2022 Change
Cash provided by (used in):
Operating activities $ 819 $ 1,148 $ (329)
Investing activities (1,678) (1,165) (513)
Financing activities 841 30 811Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash
5 (2) 7
Net (decrease) increase in cash and cash equivalents, program and restricted cash
(13) 11 (24)
Cash and cash equivalents, program and restricted cash, beginning of period
642 626 16
Cash and cash equivalents, program and restricted cash, end of period
The decrease in cash provided by operating activities during the three months endedMarch 31, 2023 compared with the similar period in 2022 is primarily due to the decrease in our net income. The increase in cash used in investing activities during the three months endedMarch 31, 2023 compared with the similar period in 2022 is primarily due to the increase in our net investment in vehicles. The increase in cash provided by financing activities during the three months endedMarch 31, 2023 compared with the similar period in 2022 is primarily due to the increase in our net borrowings under vehicle programs and decrease in our repurchases of common stock, offset by the decrease in our corporate borrowings.
DEBT AND FINANCING ARRANGEMENTS
AtMarch 31, 2023 , we had approximately$19.5 billion of indebtedness, including corporate indebtedness of approximately$4.7 billion and debt under vehicle programs of approximately$14.8 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 has in the past been, and could in the future 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 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
31
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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 of March 31, 2023 , 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 2022 Form 10-K.
CONTRACTUAL OBLIGATIONS
Our future contractual obligations have not changed significantly from the amounts reported within our 2022 Form 10-K with the exception of our commitment to purchase vehicles, which increased by approximately$2.6 billion fromDecember 31, 2022 , to approximately$9.3 billion as ofMarch 31, 2023 due primarily to new model year vehicle purchases. 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.
CRITICAL ACCOUNTING ESTIMATES
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 (GAAP), we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they relate to future events and/or events that are outside of our control. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented within the section titled "Critical Accounting Estimates" of our 2022 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 complex judgments that could potentially affect 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.
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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