AVIS BUDGET GROUP, INC. quarterly report, Q1 FY2022

AVIS BUDGET GROUP, INC. — Q1 2022 Form 10-Q Summary

Business context and reporting period

Avis Budget Group provides vehicle rental and mobility services through the Avis, Budget, Zipcar and other brands. Operations are reported through the Americas and International segments, with activities in approximately 180 countries. The filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021.

Management reported an average rental fleet of more than 590,000 vehicles. Results benefited from recovering global travel demand, higher rental pricing, disciplined cost management and favorable used-vehicle market conditions.

Financial performance and key metrics

Metric	Q1 2022	Q1 2021	Change
Revenue	$2.432 billion	$1.372 billion	Up 77%
Income before taxes	$695 million	$(250) million	Improved $945 million
Net income	$527 million	$(170) million	Improved $697 million
Net income attributable to Avis Budget Group	$529 million	$(170) million	Improved $699 million
Diluted EPS	$9.71	$(2.43)	Improved $12.14
Adjusted EBITDA	$810 million	$47 million	Up $763 million
Operating cash flow	$1.148 billion	$336 million	Up $812 million

Revenue increased primarily from a 45% increase in volume and a 24% increase in revenue per day, excluding exchange-rate effects. Currency movements reduced revenue by $29 million. Americas revenue rose 85% to $2.000 billion and International revenue rose 48% to $432 million.

Net margin was approximately 21.7%, compared with a negative margin in the prior-year quarter. Adjusted EBITDA margin was approximately 33.3%, compared with approximately 3.4% in Q1 2021. Operating expenses declined to 47.2% of revenue from 60.6%, while vehicle depreciation and lease charges declined to 4.5% from 18.5% of revenue.

Vehicle depreciation and lease charges, net, declined to $111 million from $254 million, reflecting a $303 million net gain on vehicle sales versus a $49 million gain in the prior-year period and substantially lower per-unit fleet costs. The company stated that per-unit fleet costs declined 68% overall and 90% in the Americas, excluding currency effects.

Cash flow, balance sheet, debt and liquidity

Operating activities generated $1.148 billion of cash. Investing activities used $1.165 billion, including $2.727 billion invested in vehicles and $1.616 billion of proceeds from vehicle dispositions.
Financing activities provided $30 million, including $729 million of corporate borrowings, $4.016 billion of vehicle-program borrowings and $1.299 billion of share repurchases.
Total cash and cash equivalents, program cash and restricted cash were $637 million at March 31, 2022, compared with $639 million at March 31, 2021. Cash and cash equivalents excluding program and restricted cash were $550 million.
Total indebtedness was approximately $16.8 billion, consisting of approximately $4.7 billion of corporate debt and $12.1 billion of vehicle-program debt.
In March 2022, the company entered into a $750 million floating-rate term loan due March 2029, bearing interest at one-month SOFR plus 350 basis points; the aggregate rate was 4.00% at issuance.
The senior revolving credit facility had $354 million of available capacity after letters of credit at March 31, 2022. Management reported approximately $904 million of total liquidity, including $550 million of cash and available revolver capacity.
Vehicle-program funding had $1.747 billion of available capacity, subject to sufficient collateral. The company reported compliance with its corporate and vehicle-program financial covenants.
Vehicles, net, increased to $13.987 billion from $12.866 billion at December 31, 2021, reflecting fleet expansion to meet increased demand.
Stockholders’ equity was negative $983 million, compared with negative $209 million at year-end 2021, primarily because of $1.307 billion of share repurchases, partly offset by comprehensive income.

Material changes versus the prior comparable period

Revenue, net income and Adjusted EBITDA improved substantially as travel demand and pricing recovered from pandemic-related weakness.
Total expenses increased only 7% despite 77% revenue growth, reflecting operating leverage and cost discipline.
The prior-year period included $129 million of early extinguishment-of-debt costs; no such cost was recorded in Q1 2022.
Restructuring and other related charges declined to $8 million from $20 million. Management expects no further 2022 restructuring expense under the T21 program.
Share repurchases increased to approximately $1.3 billion, or 6.4 million shares, from $19 million in the prior-year quarter.
Vehicle investment declined to $2.727 billion from $3.032 billion, while the rental fleet expanded.
The company sold its U.S. Virgin Islands operations for $13 million and its Netherlands operations for $15 million, recording a $2 million gain and a $7 million loss, respectively, within restructuring and other related charges.

Guidance, outlook, commentary and risks

The filing does not provide specific quantitative revenue, earnings or Adjusted EBITDA guidance. Management expects continued travel-demand recovery and is focused on cost optimization, core revenue growth, fleet investment and improving fleet utilization.

COVID-19 variants, travel restrictions, staffing constraints and inflation could reduce demand, increase costs and affect liquidity.
Global semiconductor shortages are limiting vehicle supply and causing the company to hold vehicles longer. Vehicle availability, manufacturer repurchase obligations and used-vehicle prices remain important operating variables.
The Russia-Ukraine military conflict and related sanctions could increase fuel and fleet costs, disrupt supply, reduce travel demand and heighten cybersecurity risks.
High leverage, floating-rate debt, potential credit-rating changes and dependence on asset-backed financing create refinancing and interest-rate risks.
The company had commitments to purchase approximately $5.1 billion of vehicles over the following 12 months, primarily financed through vehicle-backed debt and vehicle-sale proceeds.
Current legal proceedings include consumer class actions and other claims. The company estimated aggregate potential exposure from reasonably possible adverse outcomes of current proceedings at up to approximately $35 million above accrued amounts.
Management determined that an interim goodwill or indefinite-lived intangible asset impairment test was not required during the quarter, but adverse changes in operating performance, economic conditions or valuation assumptions could trigger impairment.
Market-risk sensitivity analyses indicated that a hypothetical 10% change in interest rates, foreign exchange rates or gasoline prices would not have a material impact based on March 31, 2022 exposures.

Subsequent events included a $660 million asset-backed note issuance in April 2022, approximately $393 million of additional share repurchases in April 2022 and a $2 billion increase in repurchase authorization approved in May 2022.

Important facts for investors to verify

Whether elevated rental pricing, volume and used-vehicle gains are sustainable as vehicle supply normalizes and competitors rebuild fleets.
The effect of semiconductor shortages, inflation, fuel costs and manufacturer repurchase or guaranteed-depreciation obligations on fleet costs and margins.
Liquidity after vehicle purchases, debt maturities, share repurchases and seasonal changes in rental demand.
Exposure to floating interest rates, refinancing conditions, credit ratings and compliance with leverage and other debt covenants.
The company’s ability to maintain positive operating cash flow while funding approximately $5.1 billion of vehicle purchase commitments.
The effect of COVID-19 developments, geopolitical disruption and travel restrictions on demand and operations.
Potential outcomes and additional accruals related to disclosed litigation and consumer class actions.
Whether negative stockholders’ equity, driven partly by repurchases, affects financial flexibility or covenant capacity.