AVIS BUDGET GROUP, INC. annual report, FY2021

Avis Budget Group, Inc. — 2021 Form 10-K Summary

Business context and reporting period

Avis Budget Group provides global mobility services through Avis, Budget, Zipcar and other brands, including car and truck rental, car sharing and licensing. The company operates or licenses its brands in approximately 180 countries through the Americas and International segments. This Form 10-K covers the fiscal year ended December 31, 2021; fourth-quarter information is included but not separately presented in the supplied filing text.

More than 28 million vehicle rental transactions during 2021.
Average global rental fleet exceeded 590,000 vehicles in the fourth quarter.
Approximately 10,400 rental locations worldwide, including approximately 4,000 licensee locations.
Approximately 21,000 employees at year-end.

Financial performance and key metrics

Metric	2021	2020	Change
Revenue	$9.313 billion	$5.402 billion	Up 72%
Income before taxes	$1.708 billion	$(956) million	Improved by $2.664 billion
Net income attributable to Avis Budget Group	$1.285 billion	$(684) million	Improved by $1.969 billion
Diluted EPS	$19.44	$(9.71)	Returned to profitability
Adjusted EBITDA	$2.411 billion	$(175) million	Improved by $2.586 billion
Cash provided by operating activities	$3.491 billion	$691 million	Up $2.800 billion
Cash and cash equivalents, program and restricted cash	$626 million	$765 million	Down $139 million

Revenue growth reflected a 27% increase in rental volume, a 35% increase in revenue per day excluding foreign exchange effects, and an $80 million foreign exchange benefit. Revenue per day was $69.14, up 29% from 2019. Per-unit fleet cost per month was $189, a 27% improvement from 2019.

Operating expenses declined to 45.7% of revenue from 61.5% in 2020. Vehicle depreciation and lease charges declined to 12.9% of revenue from 25.3%, while selling, general and administrative expenses declined to 12.3% from 13.0%. The effective tax rate was 24.9%, compared with a 28.4% tax benefit rate in 2020.

Americas revenue was $7.557 billion, up 91%; Adjusted EBITDA was $2.364 billion versus $72 million.
International revenue was $1.756 billion, up 22%; Adjusted EBITDA was $118 million versus a $202 million loss.
Licensing royalty revenue was $105 million.
Fleet utilization ranged from approximately 67% in the first quarter to 72% in the third quarter; the average quarterly fleet ranged from approximately 412,000 to 600,000 vehicles.

Liquidity, capital resources and debt

Total indebtedness was approximately $15.4 billion at December 31, 2021, comprising approximately $4.0 billion of corporate debt and $11.4 billion of vehicle-program debt.
Corporate long-term debt was $3.990 billion; vehicle-program debt was $11.390 billion.
Available liquidity was approximately $700 million, consisting of $500 million of cash and cash equivalents and approximately $200 million of available revolving-credit capacity.
The senior revolving credit facility was increased to $1.95 billion and extended to 2026; approximately $223 million was available after letters of credit.
Management reported compliance with applicable financial and restrictive covenants at year-end.
Corporate debt refinancing reduced near-term maturities; the filing states there were no meaningful corporate debt maturities until 2024.
Vehicle-program debt maturities totaled approximately $2.025 billion in 2022, $2.890 billion in 2023 and $3.004 billion in 2024.
Approximately $5.9 billion of vehicle purchases were committed over the following 12 months, primarily financed through vehicle-backed debt and vehicle-disposition proceeds.

Cash used in investing activities was $6.306 billion, driven principally by $10.054 billion of vehicle purchases partially offset by $4.077 billion of vehicle-disposition proceeds. Non-vehicle capital expenditures were $108 million, and management expected approximately $200 million of such additions in 2022.

Material changes versus prior comparable periods

Results rebounded sharply from the COVID-19-affected 2020 loss as travel demand, rental volume and pricing improved.
Vehicle fleet assets increased to $12.866 billion from $8.153 billion, while liabilities under vehicle programs increased to $13.876 billion from $8.640 billion.
The company issued $600 million of 5.375% Senior Notes due 2029 and $500 million of 4.750% Senior Notes due 2028, using proceeds and cash to redeem higher-cost or nearer-term debt.
Early extinguishment of debt costs increased to $136 million from $9 million.
The company repurchased approximately 14.3 million shares for approximately $1.4 billion in 2021. Approximately $959 million remained available under the $4.1 billion authorization at year-end.
Accumulated deficit declined to $185 million from $1.470 billion, but total stockholders’ equity remained negative at $(209) million, primarily because of share repurchases and treasury stock.
The company initiated the T21 restructuring program, recorded $32 million of related restructuring expense, communicated terminations to approximately 460 employees and expected approximately $5 million of additional expense in the first quarter of 2022.
The company completed the sale of its Argentina operation and entered into an agreement to sell its Netherlands operations. The Argentina transaction resulted in a $14 million loss recorded in restructuring and other related charges.

Guidance, outlook, commentary and risks

Management did not provide specific 2022 revenue or earnings guidance in the supplied filing text. Its stated strategy for 2022 emphasizes cost optimization, core revenue growth, customer-experience initiatives, systems and operational investments, and expanded electric-vehicle capabilities.

Management expects continued travel recovery but cautions that future COVID-19 variants, travel restrictions and macroeconomic conditions could materially affect demand, staffing, cash flow and liquidity.
The global semiconductor shortage constrained vehicle supply, caused tighter fleets and increased vehicle holding periods. Inflation and higher vehicle acquisition costs may increase fleet costs.
Approximately 78% of the average rental fleet consisted of risk vehicles in 2021, exposing the company to used-vehicle residual-value and disposition-price risk.
Interest-rate risk is significant: approximately $4.1 billion of debt was unhedged interest-rate-sensitive debt at year-end.
Key risks include intense competition, economic and travel volatility, fuel and labor costs, vehicle recalls, manufacturer performance, refinancing and covenant compliance, cybersecurity and privacy, litigation, insurance claims, foreign exchange, regulatory changes and potential goodwill or intangible-asset impairment.
No goodwill or other intangible-asset impairment was recorded in 2021. The EMEA reporting unit’s estimated fair value exceeded carrying value by 10% at the annual testing date, with $488 million of allocated goodwill.
Potential exposure from reasonably possible adverse legal outcomes was estimated at up to approximately $35 million above amounts accrued, in aggregate.
The company reported effective disclosure controls and internal control over financial reporting, and Deloitte & Touche issued unqualified audit opinions.

Most important facts for investors to verify

Whether elevated rental pricing and utilization persist as vehicle supply constraints ease and competitors rebuild fleets.
The sustainability of the $2.411 billion Adjusted EBITDA result, including the impact of the company’s non-GAAP adjustments.
Liquidity coverage and refinancing capacity for approximately $2.0 billion of vehicle-program maturities in 2022 and additional maturities in 2023–2024.
Exposure to used-vehicle residual values, manufacturer repurchase obligations and semiconductor-related fleet shortages.
The effect of higher interest rates on approximately $4.1 billion of unhedged interest-rate-sensitive debt.
Progress and remaining costs of the T21 restructuring plan and 2022 capital-investment program.
Whether continued share repurchases are consistent with the company’s negative stockholders’ equity and approximately $700 million of reported liquidity.
Developments in COVID-19, travel demand, litigation contingencies, tax matters and the proposed Netherlands sale.