AVIS BUDGET GROUP, INC. annual report, FY2022

Avis Budget Group, Inc. — 2022 Form 10-K Summary

Business context and reporting period

Avis Budget Group provides global mobility services through Avis, Budget, Zipcar and other brands, including vehicle rental, truck rental, car sharing and licensing. The company and its licensees operate in approximately 180 countries, with an average 2022 rental fleet of approximately 655,000 vehicles, more than 36 million rental transactions and nearly 10,250 locations.

The filing covers the fiscal year ended December 31, 2022, compared primarily with the year ended December 31, 2021. The reportable segments are Americas and International. The filing is an annual report rather than a quarterly filing; it does not provide a separate Q4 income statement summary in the supplied text.

Financial performance and key metrics

Metric	2022	2021	Change
Revenue	$11.994 billion	$9.313 billion	Up 29%
Net income	$2.756 billion	$1.283 billion	Up $1.473 billion
Net income attributable to Avis Budget Group	$2.764 billion	$1.285 billion	Up $1.479 billion
Diluted EPS	$57.16	$19.44	Up $37.72
Adjusted EBITDA	$4.133 billion	$2.411 billion	Up 71%
Cash flow from operating activities	$4.707 billion	$3.491 billion	Up $1.216 billion
Total debt, approximately	$18.5 billion	Not clearly provided in the same presentation
Cash and cash equivalents	$570 million	$534 million	Up $36 million

Calculated margins were approximately 23.0% for net income and 34.5% for Adjusted EBITDA in 2022, compared with approximately 13.8% and 25.9%, respectively, in 2021. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP net income.

Revenue growth reflected a 23% increase in rental volume and an 8% increase in revenue per day, excluding currency effects. Currency movements reduced revenue by $327 million.
Americas revenue increased 25% to $9.474 billion and Adjusted EBITDA increased 55% to $3.660 billion.
International revenue increased 44% to $2.520 billion and Adjusted EBITDA increased to $560 million from $118 million.
Vehicle depreciation and lease charges declined 31% to $828 million. Per-unit fleet costs declined 41%, excluding currency effects, primarily because of favorable used-vehicle market conditions.
Operating expenses were 44.1% of revenue versus 45.7% in 2021; selling, general and administrative expenses were 11.2% versus 12.3%.
The company invested $10.491 billion in vehicles and received $6.606 billion from vehicle dispositions. Non-vehicle capital expenditures were $246 million.
Year-end total assets were $25.927 billion, including $15.961 billion of net vehicles under vehicle programs. Stockholders’ equity was negative $700 million, principally reflecting substantial share repurchases.

Liquidity, debt and capital allocation

At December 31, 2022, corporate debt was approximately $4.7 billion and debt under vehicle programs was approximately $13.8 billion.
Available liquidity was approximately $1.6 billion, consisting of approximately $0.6 billion of cash and $1.0 billion of available borrowings under the senior revolving credit facility.
The company entered into a $750 million floating-rate term loan due March 2029, bearing interest at one-month SOFR plus 350 basis points.
During 2022, the company issued approximately $2.1 billion of asset-backed notes with a weighted average interest rate of 4.94%.
Approximately $5.8 billion of outstanding debt was unhedged interest-rate-sensitive debt at year-end; seasonal peak unhedged interest-rate-sensitive debt was approximately $7.2 billion.
The company repurchased approximately 16.7 million shares for approximately $3.3 billion in 2022. Approximately $691 million remained available under the authorization at December 31, 2022; the authorization was increased by $1 billion in February 2023.
No cash dividends were declared or paid in 2022 or 2021, and the company did not anticipate paying cash dividends in the near term.
Management stated that the company was in compliance with applicable financial covenants at December 31, 2022.

Material changes versus the prior comparable period

Strong travel demand, higher pricing, increased rental volume and disciplined cost management drove substantial increases in revenue, net income and Adjusted EBITDA.
Used-vehicle market conditions materially reduced fleet-related costs and increased gains on vehicle sales. This benefit is exposed to potential declines in used-vehicle prices.
Vehicle-program assets increased $3.4 billion and related liabilities increased $3.1 billion, reflecting a larger fleet and higher vehicle financing needs.
Corporate liabilities increased principally because of the new 2029 floating-rate term loan, while stockholders’ equity declined by $491 million after share repurchases.
The company initiated a 2022 cost-optimization restructuring program focused on consolidating operations, redesigning processes and implementing new systems. Approximately 200 employees were terminated, and the company recorded $9 million of related restructuring expense.
In 2022, the company sold its U.S. Virgin Islands and Netherlands operations and recorded restructuring-related gains and losses on those transactions.
Effective September 1, 2022, the company deconsolidated Avis Mobility Ventures LLC after SRS Mobility Ventures increased its ownership to 51%. The company recorded a $10 million gain on deconsolidation, $7 million of service income and $10 million of equity-method losses during 2022.

Outlook, management commentary, risks and unusual items

For 2023, management expects to focus on cost control and customer experience, supported by marketing, technology, streamlined reservations and pickup processes, increased electric-vehicle offerings and related charging infrastructure. The filing does not provide specific 2023 revenue, EBITDA or earnings guidance. Non-vehicle property and equipment additions are expected to be approximately $325 million in 2023.

Key risks include weaker travel demand, recessionary conditions, inflation, higher fuel and labor costs, geopolitical disruption, COVID-19 effects and intense price competition.
Approximately 88% of the average rental fleet consisted of risk vehicles in 2022, exposing results to used-vehicle residual values and disposition prices.
The company had commitments to purchase approximately $6.7 billion of vehicles over the following 12 months, primarily financed through vehicle-backed debt and vehicle-sale proceeds.
Debt refinancing, variable interest rates, collateral requirements, asset-backed financing availability and compliance with restrictive covenants are material liquidity risks. Substantially all vehicle-program debt and certain corporate debt mature within the next five years.
Legal proceedings include consumer class actions and other litigation. The company estimated aggregate reasonably possible exposure from current proceedings of up to approximately $40 million above accrued amounts.
Self-insurance liabilities for public liability and property damage claims were approximately $391 million at year-end. Estimates depend on actuarial assumptions and may change with claims experience.
No goodwill or other intangible-asset impairment was recorded in 2022, 2021 or 2020. Vehicle residual values, goodwill, taxes and insurance reserves remain significant areas of accounting judgment.
In January 2023, Avis Budget Rental Car Funding issued $850 million of asset-backed notes at a weighted average interest rate of 5.34%.

Important facts for investors to verify

Whether used-vehicle prices remain sufficiently strong to support the favorable fleet depreciation and vehicle-disposition results achieved in 2022.
The company’s ability to refinance significant corporate and vehicle-program maturities, particularly as interest rates and financing costs remain elevated.
Actual 2023 travel demand, rental pricing, utilization and revenue per day relative to the strong 2022 baseline.
The effect of continued share repurchases on leverage, liquidity, share count, stockholders’ equity and change-of-control provisions.
Progress and capital requirements for electric vehicles, charging infrastructure, technology modernization and cost-optimization initiatives.
Developments in litigation, self-insurance claims, manufacturer repurchase obligations, tax matters and other contingencies.