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 2020 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 in North
America , Europe , Australasia and certain other regions we serve, with an average
rental fleet during 2020 of nearly 533,000 vehicles. 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 in North America , South
America , Central America and the Caribbean , car sharing operations in certain of
these markets, and licensees in the areas in which we do not operate directly;
and International, consisting primarily of our vehicle rental operations in
Europe , the Middle East , Africa , Asia and Australasia , car sharing operations in
certain of these markets, and licensees in the areas in which we do not operate
directly.
Business and Trends
The positive momentum from the fourth quarter of 2020 carried into the first
quarter 2021, during which we generated revenues of $1,372 million , net loss of
$170 million and Adjusted EBITDA of $47 million . These results were driven by
disciplined cost removal achieved in 2020 and continued fleet management. Our
utilization was 67%, a 5.1 point improvement compared to fourth quarter 2020,
showing our ability to align our fleet with demand, and per-unit fleet costs per
month decreased to $205 , or 3% compared to fourth quarter 2020. Revenue per day
increased to $55.24 , or 2%, compared to fourth quarter 2020.
As the world is looking forward to the easing of restrictions put in place due
to COVID-19, there are a number of encouraging developments, such as widespread
distribution of effective vaccines, suggesting a steady return to historic
travel trends, and we have positioned ourselves to capitalize on the expected
surge in travel demand. Although our revenues have yet to reach pre-pandemic
levels, we have taken actions to put us on a path of profitability. We continue
to look for ways to capitalize on the changes prompted by the pandemic and to
expand our business in a post-COVID-19 environment.
Although we have seen substantial improvement, these trends could be delayed if
the ongoing effects of the virus were to bring a significant shift in the
economy and consumer choices or if travel demand does not return to pre-pandemic
levels. 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.
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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 us
with the most relevant metrics in order to manage 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,
non-operational charges related to shareholder activist activity, which include
third party advisory, legal and other professional service fees, gain on sale of
equity method investment in China , COVID-19 charges and income taxes. 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 losses
associated with vehicles damaged in overflow parking lots, net of insurance
proceeds. 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
with U.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$1.4 billion and decreased 22% compared to the similar period in 2020, primarily due to reduced rental volume due to impacts directly related to COVID-19. •Our net loss was$170 million , representing an increased loss of$12 million year-over-year, primarily due to premiums paid for the early redemption of our corporate debt, partially offset by strategic cost reduction initiatives to right size the business.
•Our Adjusted EBITDA was
•We repurchased
•We issued$600 million and$500 million of 5.375% Senior Notes dueMarch 2029 and 4.75% Senior Notes dueMarch 2028 , respectively, with proceeds used to redeem our 10.5% Senior Secured Notes dueMay 2025 , our 6.375% Senior Notes due inApril 2024 and a portion of our 5.25% Senior Notes due inMarch 2025 . 27 -------------------------------------------------------------------------------- Table of Contents Three Months EndedMarch 31, 2021 vs. Three Months EndedMarch 31, 2020
Our consolidated condensed results of operations comprised the following:
Three Months Ended
March 31,
2021 2020 $ Change % Change
Revenues $ 1,372 $ 1,753 $ (381) (22 %)
Expenses
Operating 832 1,058 (226) (21 %)
Vehicle depreciation and lease charges, net 254 459 (205) (45 %)
Selling, general and administrative 182 251 (69) (27 %)
Vehicle interest, net 75 83 (8) (10 %)
Non-vehicle related depreciation and amortization 68 69 (1) (1 %)
Interest expense related to corporate debt, net:
Interest expense 61 48 13 27 %
Early extinguishment of debt 129 4 125 n/m
Restructuring and other related charges 20 44 (24) (55 %)
Transaction-related costs, net 1 2 (1) (50 %)
Total expenses 1,622 2,018 (396) (20 %)
Loss before income taxes (250) (265) 15 6 %
Benefit from income taxes (80) (107) 27 25 %
Net loss $ (170) $ (158) $ (12) (8 %)
__________
n/m Not meaningful.
Revenues decreased during the three months ended March 31, 2021 compared to the
similar period in 2020, primarily due to a 28% decrease in volume as a result of
the impact of COVID-19, partially offset by a 6% increase in revenue per day
excluding exchange rate movements and a $30 million positive impact from
currency exchange rate movements. Total expenses decreased during the three
months ended March 31, 2021 , compared to the similar period in 2020, primarily
due to strategic cost reduction initiatives and reduced operational activities
as a result of the impact of COVID-19. Our effective tax rates were benefits of
32% and 40% for the three months ended March 31, 2021 and 2020, respectively. As
a result of these items, our net loss increased by $12 million compared to the
similar period in 2020. For the three months ended March 31, 2021 and 2020, the
Company reported losses of $2.43 and $2.16 per diluted share, respectively.
Operating expenses increased to 60.6% of revenue during the three months ended
March 31, 2021 compared to 60.3% during the similar period in 2020, primarily
due to impacts directly related to COVID-19. Vehicle depreciation and lease
charges decreased to 18.5% of revenue during the three months ended March 31,
2021 compared to 26.2% during the similar period in 2020, primarily due to 20%
lower per-unit fleet costs per month, excluding exchange rate effects. Selling,
general and administrative costs decreased to 13.3% of revenue during the three
months ended March 31, 2021 compared to 14.3% during the similar period in 2020,
primarily due to strategic cost reduction initiatives to right size the
business. Vehicle interest costs increased to 5.5% of revenue during the three
months ended March 31, 2021 compared to 4.7% during the similar period in 2020,
primarily due to impacts directly related to COVID-19.
Following is a more detailed discussion of the results of each of our reportable segments and reconciliation of net loss to Adjusted EBITDA:
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Three Months Ended March 31,
2021 2020
Revenues Adjusted EBITDA Revenues Adjusted EBITDA
Americas $ 1,080 $ 108 $ 1,257 $ (30)
International 292 (50) 496 (40)
Corporate and Other (a) - (11) - (17)
Total Company $ 1,372 $ 47 $ 1,753 $ (87)
Reconciliation to Adjusted EBITDA
2021 2020
Net loss $ (170) $ (158)
Benefit from income taxes (80) (107)
Loss before income taxes (250) (265)
Add: Non-vehicle related depreciation and amortization 68 69
Interest expense related to corporate debt, net:
Interest expense 61 48
Early extinguishment of debt 129 4
Restructuring and other related charges 20 44
COVID-19 charges (b) 18 7
Non-operational charges related to shareholder activist activity (c) - 4
Transaction-related costs, net 1 2
Adjusted EBITDA $ 47 $ (87)
__________
(a)Includes unallocated corporate overhead which is not attributable to a
particular segment.
(b)For three months ended March 31, 2021 , consists of $17 million within
operating expenses and $1 million within selling, general and administrative
expenses in our consolidated condensed results of operations, primarily
consisting of $19 million of minimum annual guaranteed rent in excess of
concession fees, $5 million of other charges and $(6) million associated with
vehicles damaged in overflow parking lots, net of insurance proceeds. For the
three months ended March 31, 2020 , consists of $7 million within operating
expenses, primarily consisting of $5 million associated with vehicles damaged in
overflow parking lots, net of insurance proceeds and $2 million of incremental
cleaning supplies to sanitize vehicles and facilities, and over flow parking.
(c)Reported within selling, general and administrative expenses in our
consolidated condensed results of operations.
Americas
Three Months Ended
March 31,
2021 2020 % Change
Revenues $ 1,080 $ 1,257 (14 %)
Adjusted EBITDA 108 (30) n/m
__________
n/m Not meaningful.
Revenues decreased 14% during the three months ended March 31, 2021 compared to
the similar period in 2020, primarily due to a 23% decrease in volume, partially
offset by a 12% increase in revenue per day as a result of the impacts of
COVID-19.
Operating expenses decreased to 57.9% of revenue during the three months ended
March 31, 2021 compared to 58.7% during the similar period in 2020, primarily
due to strategic cost reduction initiatives to right size the business. Vehicle
depreciation and lease charges decreased to 17.0% of revenue during the three
months ended March 31, 2021 compared to 26.4% during the similar period in 2020,
primarily due to 22% lower per-unit fleet costs. Selling, general and
administrative costs decreased to 10.6% of revenue during the three months ended
March 31, 2021 compared to 12.3% during the similar period in 2020, primarily
due to strategic cost reduction initiatives to right size the business. Vehicle
interest costs increased to 5.8% of revenue during the three months ended March
31, 2021 compared to 5.6% during the similar period in 2020, primarily due to
impacts directly related to COVID-19.
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Adjusted EBITDA was $138 million higher during the three months ended March 31,
2021 compared to the similar period in 2020, primarily due to strategic cost
reduction initiatives to right size the business, lower per-unit fleet costs and
increased revenue per day.
International
Three Months Ended
March 31,
2021 2020 % Change
Revenues $ 292 $ 496 (41 %)
Adjusted EBITDA (50) (40) 25 %
Revenues decreased 41% during the three months ended March 31, 2021 , compared to
the similar period in 2020, primarily due to a 38% decrease in volume and a 13%
decrease in revenue per day excluding exchange rate movements as a result of the
impacts of COVID-19, partially offset by a $28 million benefit from currency
exchange rate movements.
Operating expenses increased to 71.2% of revenue during the three months ended
March 31, 2021 compared to 63.9% during the similar period in 2020, primarily
due to impacts directly related to COVID-19. Vehicle depreciation and lease
charges decreased to 24.0% of revenue during the three months ended March 31,
2021 compared to 25.6% during the similar period in 2020, primarily due to 16%
lower per-unit fleet costs, excluding exchange rate effects. Selling, general
and administrative costs increased to 19.0% of revenue during the three months
ended March 31, 2021 compared to 16.0% during the similar period in 2020,
primarily due to impacts directly related to COVID-19. Vehicle interest costs
increased to 4.4% of revenue during the three months ended March 31, 2021
compared to 2.6% during the similar period in 2020, primarily due to impacts
directly related to COVID-19.
Adjusted EBITDA was $10 million lower in first quarter 2021 compared to the
similar period in 2020, primarily due to a $9 million negative impact from
currency exchange rate movements, as lower revenues directly related to COVID-19
were offset by strategic cost reduction initiatives to right size the business
and lower per-unit fleet costs.
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, 2021 December 31, 2020 Change
Total assets exclusive of assets under vehicle
programs $ 8,474 $ 8,365 $ 109
Total liabilities exclusive of liabilities
under vehicle programs 9,160 9,053 107
Assets under vehicle programs 10,135 9,173 962
Liabilities under vehicle programs 9,765 8,640 1,125
Stockholders' equity (316) (155) (161)
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 comprehensive loss.
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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.
In March 2021 , we issued $600 million of 5.375% Senior Notes due March 2029 , at
par. We used the proceeds, together with cash on hand, to redeem all of our
outstanding 10.5% Senior Secured Notes due 2025. In March 2021 , we issued $500
million of 4.75% Senior Unsecured Notes due March 2028 . We used the proceeds,
together with cash on hand, to redeem all of our outstanding 6.375% Senior Notes
due in 2024 and $140 million in aggregate principal amount of our 5.25% Senior
Notes due in 2025. We have no meaningful corporate debt maturities until 2023.
The Company's Board of Directors has authorized the repurchase of up to $1.8
billion of its common stock under a plan originally approved in 2013 and
subsequently expanded, most recently in August 2019 . The Company's stock
repurchases may occur through open market purchases or trading plans pursuant to
Rule 10b5-1 of the Securities Exchange Act of 1934. The amount and timing of
specific repurchases are subject to market conditions, applicable legal
requirements 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 ended
March 31, 2021 , we repurchased approximately 0.1 million shares of our
outstanding common stock for approximately $10 million .
CASH FLOWS
The following table summarizes our cash flows:
Three Months Ended
2021 2020 Change
Cash provided by (used in):
Operating activities $ 336 $ 370 $ (34)
Investing activities (1,366) (1,482) 116
Financing activities 914 962 (48)Effect of changes in exchange rates on cash and cash equivalents, program and restricted cash
(10) (29) 19
Net decrease in cash and cash equivalents, program and restricted cash
(126) (179) 53
Cash and cash equivalents, program and restricted cash, beginning of period
765 900 (135)
Cash and cash equivalents, program and restricted cash, end of period $
639
The decrease in cash provided by operating activities during the three months endedMarch 31, 2021 compared with the same period in 2020 is principally due to the increase in our net loss. The decrease in cash used in investing activities during the three months endedMarch 31, 2021 compared with the same period in 2020 is primarily due to reduced licensee acquisition activity and capital spend. The decrease in cash provided by financing activities during the three months endedMarch 31, 2021 compared with the same period in 2020 is primarily due to a decrease in net borrowings under vehicle programs. DEBT AND FINANCING ARRANGEMENTS AtMarch 31, 2021 , we had approximately$12.1 billion of indebtedness, including corporate indebtedness of approximately$4.3 billion and debt under vehicle programs of approximately$7.8 billion . For information regarding our debt and borrowing arrangements, see Notes 1, 10 and 11 to our Consolidated Condensed Financial Statements. 31 -------------------------------------------------------------------------------- Table of Contents 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 has been impacted by COVID-19 as a result of significant volume declines and we expect the impact of COVID-19 on theU.S. and worldwide economies to continue to affect our volumes even after the outbreak is contained. Our liquidity could be further 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 ofMarch 31, 2021 , we had access to$0.6 billion of available cash and cash equivalents and available borrowings under our revolving credit facility of approximately$0.6 billion , providing us with access to an approximate$1.2 billion of total liquidity. See Note 1 to our Consolidated Condensed Financial Statements for detailed information on liquidity and management's plans. Our liquidity position could also be negatively impacted if we are unable to remain in compliance with our liquidity covenant, the consolidated first lien leverage ratio requirement after the end of the waiver period onJune 30, 2021 and other covenants associated with our senior credit facilities and other borrowings. As ofMarch 31, 2021 , 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 2020 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 2020 Form 10-K with the exception of our commitment to purchase vehicles, which decreased by approximately$2.3 billion fromDecember 31, 2020 , to approximately$6.4 billion atMarch 31, 2021 due to the COVID-19 impact on our business. 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 2020 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 2021 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 32 -------------------------------------------------------------------------------- Table of Contents 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, 2020 was 17% and the amount of goodwill allocated to our reporting unit was$488 million . During the quarter endedMarch 31, 2021 , we continued to observe impacts of COVID-19 on our business. 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. Further deterioration in the general economic conditions in the travel industry may result in an impairment charge to earnings in future quarters. 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 weighted average cost of capital and market multiples. If our expectations of the operating results, both in magnitude or timing, do not materialize, or if our weighed average cost of capital increases or if market multiples decline, we may be required to record goodwill and indefinite-lived intangible asset impairment charges, which may be material. 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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