Avis Budget Group, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Avis Budget Group provides vehicle rentals, car sharing and ancillary services through Avis, Budget and Zipcar brands in approximately 175 countries. Reportable segments are Americas and International. This unaudited filing covers the three months ended March 31, 2015, compared with the same period in 2014. Segment results were recast following a management-structure change; consolidated results were unaffected.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net revenues | $1.850 billion | $1.862 billion | Down 1% |
| Vehicle rental revenue | $1.319 billion | $1.329 billion | Down 1% |
| Income (loss) before taxes | $(16) million | $5 million | Down $21 million |
| Net income (loss) | $(9) million | $4 million | Down $13 million |
| Diluted EPS | $(0.09) | $0.03 | Declined |
| Adjusted EBITDA | $117 million | $117 million | Flat |
| Operating cash flow | $503 million | $390 million | Up $113 million |
| Net change in cash | $230 million | $148 million | Up $82 million |
Net loss margin was approximately 0.5%, compared with a 0.2% net profit margin in the prior-year quarter. Adjusted EBITDA margin was approximately 6.3% in both periods. Operating expenses declined to 53.2% of revenue from 53.7%; vehicle depreciation and lease charges increased to 23.4% from 23.2%; SG&A increased to 13.4% from 13.3%; and vehicle interest increased to 3.7% from 3.5% of revenue.
- Rental days increased 5%, while the rental fleet increased 6%.
- Americas revenue increased 3% to $1.375 billion, while Adjusted EBITDA was unchanged at $115 million.
- International revenue declined 11% to $475 million, primarily because of currency effects, while Adjusted EBITDA increased 14% to $16 million.
- Cash and cash equivalents were $854 million at March 31, 2015, compared with $624 million at December 31, 2014.
- Vehicle-program assets were $11.451 billion, including $10.777 billion of vehicles, compared with $11.058 billion at year-end.
- Corporate debt was $3.725 billion, including $3.481 billion of long-term debt. Vehicle-program debt was $8.341 billion, for total indebtedness of approximately $12 billion.
- Available corporate committed capacity was approximately $1.1 billion, and available vehicle-program capacity was approximately $4.0 billion.
Material Changes Versus the Prior Comparable Period
- Revenue remained broadly stable because 5% rental-day growth offset approximately $85 million of unfavorable currency effects.
- Expenses increased overall despite lower operating costs, primarily due to higher transaction-related costs, fleet growth and increased vehicle interest.
- Transaction-related costs rose to $31 million from $8 million, primarily reflecting a $22 million non-cash charge for reacquired Scandinavian license rights and related acquisition activity.
- Restructuring expense fell to $1 million from $7 million. The company expects approximately $9 million of additional T15 restructuring expense in 2015.
- Operating cash flow improved principally because of working-capital timing. Vehicle-program investing outflows remained significant at $700 million, consisting primarily of $3.195 billion of vehicle purchases offset by $2.444 billion of vehicle-sale proceeds.
- The company issued $375 million of 5.25% senior notes due 2025. The Euro-denominated senior-notes balance declined principally because of currency translation.
- Stockholders’ equity declined to $521 million from $665 million, primarily because of currency translation losses and share repurchases. The company repurchased approximately 0.5 million shares for $31 million; $254 million remained available under the repurchase authorization at quarter-end.
Guidance, Outlook, Risks and Unusual Items
Management continued to anticipate increased worldwide demand for vehicle rental and car sharing services in 2015, against a backdrop of modest and uneven global economic growth. The company expected vehicle availability to remain adequate and intended to pursue pricing increases, optimize fleet levels, strengthen its global position and control costs. No quantitative full-year revenue or earnings guidance was provided in the filing.
- Key risks include intense competition, travel-demand volatility, used-vehicle prices, manufacturer recalls or failures to honor repurchase and guaranteed-depreciation arrangements, borrowing costs, access to vehicle-backed financing, foreign-exchange movements, fuel prices, economic disruption, information-system failures, litigation and substantial indebtedness.
- The company was in compliance with its debt covenants at March 31, 2015. Vehicle-backed financing capacity is subject to maintaining sufficient collateral.
- The French Competition Authority issued allegations concerning information exchanges and train-station surcharges. The company stated that it has valid defenses; potential losses could be material but were not estimable.
- The Canadian Competition Bureau sought approximately $25 million in penalties, plus customer reimbursements, concerning alleged deceptive marketing practices. The company stated that it has valid defenses; the outcome and potential additional losses were not estimable.
- The company had commitments to purchase approximately $5.3 billion of vehicles over the following 12 months, primarily subject to manufacturer repurchase or guaranteed-depreciation arrangements, and approximately $114 million of other purchase obligations through 2018.
- In April 2015, the company redeemed the remaining $223 million principal amount of its 9.75% senior notes due 2020 for $243 million plus accrued interest and expected approximately $23 million of debt-extinguishment costs.
- In April 2015, the company completed the approximately $160 million acquisition of Maggiore Group in Italy and amended its European fleet securitization program to extend maturity, lower cost and increase capacity to €1.0 billion.
Most Important Facts for Investors to Verify
- Whether rental-day growth and planned pricing actions offset currency pressure and higher fleet-related costs.
- The sustainability and quality of the $503 million in operating cash flow, including working-capital effects and vehicle-sale proceeds.
- Refinancing requirements and covenant headroom for approximately $12 billion of total debt, including $1.791 billion of vehicle-program debt due within one year.
- Actual costs and outcomes of the French and Canadian competition proceedings.
- Execution and integration of the Scandinavian and Maggiore acquisitions, including the effect of acquisition-related charges.
- Progress and remaining cost of the T15 restructuring program, including the expected $9 million of additional 2015 expense.