AVIS BUDGET GROUP, INC. quarterly report, Q2 FY2021

Avis Budget Group, Inc. — Q2 2021 Form 10-Q Summary

Business context and reporting period

Avis Budget Group provides vehicle rental and mobility services under the Avis, Budget and Zipcar brands, with operations and licensees in approximately 180 countries. Reportable segments are Americas and International. This filing covers the quarter and six months ended June 30, 2021; financial statements are unaudited and amounts are generally in millions.

Management reported a significant recovery in travel demand as COVID-19 restrictions eased, supported by stronger pricing, higher rental volumes, disciplined cost management and fleet adjustments.

Financial performance and key metrics

Metric	Three months ended June 30	Six months ended June 30
Revenue	$2,371 million, up 212%	$3,743 million, up 49%
Net income	$398 million, versus $(481) million	$228 million, versus $(639) million
Diluted EPS	$5.63, versus $(6.91)	$3.23, versus $(8.96)
Adjusted EBITDA	$624 million, versus $(382) million	$671 million, versus $(469) million
Income before taxes	$486 million, versus $(609) million	$236 million, versus $(874) million
Cash from operating activities	Not separately provided for the quarter	$1,255 million, versus $350 million

Six-month revenue growth reflected a 32% increase in revenue per day, excluding exchange-rate effects, a 10% increase in volume and a $75 million currency benefit. In the second quarter, revenue per day increased 67% excluding exchange-rate effects and volume increased 84% year over year.

Second-quarter utilization was 71.3%, 50 basis points above second-quarter 2019 and 36.2 percentage points above second-quarter 2020.
Second-quarter revenue per day was $71.74, up 35% from 2019 and 70% from 2020.
Second-quarter per-unit fleet cost was $221 per month, down 17% from 2019 and down 2% from 2020 excluding exchange-rate effects.
Six-month vehicle depreciation and lease charges, net, declined 29% to $592 million, aided by lower per-unit fleet costs and gains on vehicle sales.
Six-month effective tax rate was 3.4%, compared with a 26.9% benefit rate in the prior year.

Balance sheet, cash flow, debt and liquidity

Cash and cash equivalents were $1,324 million at June 30, 2021, compared with $692 million at December 31, 2020. Total cash, program cash and restricted cash was $1,411 million.
Total assets were $22.0 billion, including $12.8 billion of assets under vehicle programs. Vehicle assets increased to $11.7 billion from $8.2 billion as the fleet expanded to meet demand.
Stockholders’ equity improved to $92 million from $(155) million.
Total indebtedness was approximately $14.7 billion, consisting of approximately $4.3 billion of corporate debt and $10.4 billion of vehicle-program debt.
Vehicle-program debt maturities totalled approximately $10.5 billion, including $2.0 billion due within one year and $3.3 billion due between one and two years.
At June 30, the corporate revolving facility had $530 million of available capacity after $1.27 billion of letters of credit. Vehicle-program funding capacity was $3.44 billion.
Management reported approximately $1.3 billion of available cash and approximately $0.5 billion of corporate revolver capacity, or approximately $1.8 billion of total liquidity.
Operating, investing and financing cash flows for the six months were $1,255 million, $(4,035) million and $3,430 million, respectively. Vehicle investment was $6.2 billion, partly offset by $2.3 billion of vehicle disposition proceeds.
The company was in compliance with its corporate and vehicle-program financial covenants as of June 30, 2021.

Material changes versus the prior comparable period

The company moved from substantial losses in 2020 to profitability in both the quarter and year-to-date period, primarily due to recovery in rental demand, higher pricing and cost discipline.
Adjusted EBITDA improved by $1.006 billion in the quarter and $1.140 billion year to date.
Operating expenses increased in absolute dollars with higher activity but declined as a percentage of revenue. Second-quarter operating expense margin was 43.5%, versus 81.9%; vehicle depreciation and lease charges were 14.3%, versus 49.3%; and SG&A was 12.4%, versus 17.4%.
Americas was the primary source of improvement. Second-quarter Americas revenue was $1.974 billion and Adjusted EBITDA was $634 million, versus $(233) million in the prior year. International Adjusted EBITDA improved to $8 million from $(140) million.
The company issued $600 million of 5.375% senior notes due 2029 and $500 million of 4.75% senior notes due 2028, using proceeds and cash to refinance higher-cost debt.
AESOP issued $1.1 billion of asset-backed notes during the first half, including $800 million due in 2026 at a weighted average rate of 1.73% and $304 million of additional notes at a weighted average rate of 3.14%.
The company initiated the T21 restructuring program. Approximately 140 employees had received termination notices and approximately 120 had been terminated by June 30. Approximately $40 million of additional 2021 restructuring expense was expected.
The company sold its Argentina operation in May 2021 and recorded a $14 million loss, net of foreign-currency effects, plus $1 million of severance.

Guidance, outlook, commentary, risks and unusual items

Management did not provide formal quantitative full-year revenue or earnings guidance in the filing. It stated that it expects adequate liquidity beyond the next twelve months under current operating assumptions and intends to finance routine asset-backed debt maturities with program cash, revolver capacity, new term-note issuances and fleet sales.

Management expects continued benefit from recovering travel demand, improved pricing and fleet utilization, while pursuing cost reductions and profitability above pre-pandemic levels.
The semiconductor shortage may constrain new-vehicle deliveries and the company’s ability to meet demand. Management expects tighter industry fleets but believes its fleet-management capabilities can mitigate the disruption.
COVID-19 remains a significant uncertainty, particularly the spread of vaccine-resistant variants, renewed travel restrictions, demand volatility and broader economic deterioration.
Other material risks include competition and pricing pressure, vehicle acquisition and resale costs, manufacturer repurchase obligations, interest rates, foreign exchange, fuel prices, credit-market access, debt covenants, cybersecurity, litigation and regulatory compliance.
The company recorded $18 million of COVID-19-related charges for the first six months of 2021, compared with $80 million in 2020. It recorded $42 million of restructuring and other related charges, compared with $72 million.
A favorable legal development resulted in reversal of approximately $12 million of previously recognized liability, net of insurance recoveries.
Potential exposure from reasonably possible adverse legal outcomes was estimated at up to approximately $35 million in excess of accrued amounts.
The company had commitments to purchase approximately $5.7 billion of vehicles over the following 12 months, primarily financed through vehicle-backed debt and vehicle disposition proceeds.
Subsequent to quarter end, the company repurchased approximately 4.1 million shares for $318 million from July 12 through August 3, increased repurchase authorization by $1 billion, and called its remaining $235 million of 5.25% senior notes due 2025 for early redemption.

Important facts for investors to verify

Whether elevated rental pricing, utilization and vehicle resale values remain sustainable as vehicle supply improves and travel demand normalizes.
The effects of semiconductor-related fleet shortages and manufacturer performance under repurchase and guaranteed-depreciation agreements.
The company’s ability to refinance or repay substantial vehicle-program maturities while maintaining adequate collateral and funding capacity.
The pace and total cost of the T21 restructuring program and whether projected cost savings are realized.
The impact of COVID-19 variants, travel restrictions and macroeconomic conditions on rental volumes, pricing and liquidity.
The effect of post-quarter-end share repurchases and debt redemption on cash balances, leverage and future interest expense.
Potential goodwill or indefinite-lived intangible-asset impairment if recovery assumptions, market multiples or discount rates deteriorate.