Avis Budget Group, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Avis Budget Group provides vehicle rental, car-sharing and related mobility services through Avis, Budget, Zipcar and other brands in approximately 180 countries. Reportable segments are Americas and International. This filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Financial performance and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $1.372 billion | $1.753 billion | Down 22% |
| Adjusted EBITDA | $47 million | $(87) million | Improved $134 million |
| Net loss | $(170) million | $(158) million | Loss increased $12 million |
| Diluted loss per share | $(2.43) | $(2.16) | Higher loss per share |
| Cash flow from operations | $336 million | $370 million | Down $34 million |
| Ending cash, including program and restricted cash | $639 million | $721 million | Down $82 million |
Revenue declined primarily because rental volume fell 28% as a result of COVID-19, partly offset by a 6% increase in revenue per day excluding currency effects. Reported net loss margin was approximately negative 12.4%; Adjusted EBITDA margin was approximately 3.4%.
- Americas revenue was $1.080 billion, down 14%; Adjusted EBITDA was $108 million versus $(30) million.
- International revenue was $292 million, down 41%; Adjusted EBITDA was $(50) million versus $(40) million.
- Utilization was 67%, up 5.1 percentage points from Q4 2020. Revenue per day was $55.24, up 2% from Q4 2020, and per-unit fleet costs were $205 per month, down 3% from Q4 2020.
- Operating cash flow remained positive, while investing cash use was $1.366 billion, including $3.032 billion invested in vehicles and $1.679 billion of vehicle disposition proceeds.
Balance sheet, debt and liquidity
- Total assets were $18.609 billion, including $10.135 billion of assets under vehicle programs. Stockholders’ equity was negative $316 million, compared with negative $155 million at December 31, 2020.
- Total indebtedness was approximately $12.1 billion: $4.3 billion of corporate debt and $7.8 billion of vehicle-program debt.
- Corporate long-term debt was $4.264 billion. Vehicle-program debt had $7.840 billion of contractual borrowings, with approximately $4.834 billion of available capacity, subject to collateral requirements.
- Cash and cash equivalents were $576 million, and approximately $570 million was available under the senior revolving credit facility, providing approximately $1.2 billion of total liquidity.
- The Company reported compliance with its debt covenants at March 31, 2021. The leverage covenant waiver under the senior credit agreement extended through June 30, 2021, subject to liquidity, reporting and other conditions.
- Management stated that it expects adequate liquidity beyond the next twelve months under current operating assumptions and has no meaningful corporate debt maturities until 2023.
Material changes versus the prior comparable period
- Cost reductions and fleet management materially improved Adjusted EBITDA despite lower revenue. Vehicle depreciation and lease charges declined 45%, and selling, general and administrative expense declined 27%.
- Net loss increased because the Company recorded $129 million of early extinguishment costs related to debt refinancing, compared with $4 million in the prior-year quarter.
- In March 2021, the Company issued $600 million of 5.375% notes due 2029 and $500 million of 4.75% notes due 2028. Proceeds and cash on hand were used to redeem higher-rate notes, including the 10.5% Senior Secured Notes, the 6.375% Senior Notes and part of the 5.25% Senior Notes.
- The vehicle fleet increased, with vehicles under vehicle programs rising to $9.101 billion from $8.153 billion at year-end 2020, primarily to meet increased rental demand.
- The Company initiated the T21 global restructuring plan. Approximately 80 employees had been notified of termination and approximately 60 had been terminated by March 31; approximately $55 million of additional 2021 restructuring expense was expected.
- The Company agreed to sell its Argentina assets and recorded a $13 million loss related to the transaction.
- Share repurchases totaled approximately $10 million for 0.1 million shares; approximately $66 million remained available under the authorization at March 31, 2021.
Outlook, commentary, risks and unusual items
Management cited improving travel conditions, vaccine distribution and expected easing of restrictions as potential drivers of a recovery in travel demand. The Company believes cost reductions, fleet discipline and positioning of its brands provide a path toward profitability, but it has not provided a specific full-year revenue or earnings forecast.
- COVID-19 continues to create material uncertainty for travel demand, rental volumes, liquidity, fleet utilization and financing markets. Management stated that it cannot estimate the pandemic’s impact with reasonable certainty.
- Vehicle supply may be constrained by manufacturer disruptions and the global semiconductor shortage, potentially limiting the Company’s ability to meet demand.
- Liquidity depends on vehicle sales, vehicle-backed financing, access to credit markets, manufacturer repurchase or depreciation-guarantee obligations and recovery in used-vehicle prices.
- The Company had approximately $6.4 billion of vehicle purchase commitments over the following 12 months, financed primarily through vehicle-backed debt and vehicle disposition proceeds.
- Further deterioration in travel or economic conditions could result in material goodwill or indefinite-lived intangible-asset impairment charges. No interim impairment test was deemed necessary for the quarter.
- Legal exposure includes an approximately $12 million accrued liability related to Georgia personal-injury cases and aggregate potential exposure of up to approximately $40 million in excess of accrued amounts for reasonably possible losses in current legal proceedings.
- COVID-19 charges were $18 million in Q1 2021, while restructuring and other related charges were $20 million.
Investor verification checklist
- Verify the pace and durability of travel-demand recovery, rental volume, utilization and revenue per day.
- Monitor liquidity, vehicle-program refinancing capacity and compliance with the leverage covenant after the June 30, 2021 waiver period.
- Assess the effect of semiconductor shortages and vehicle availability on fleet growth and rental capacity.
- Evaluate whether used-vehicle prices and manufacturer repurchase agreements support planned fleet financing and vehicle sales.
- Reconcile Adjusted EBITDA with GAAP net loss, particularly the effects of debt extinguishment, restructuring, COVID-19 charges and other exclusions.
- Track additional T21 restructuring costs, potential goodwill impairment and outstanding legal contingencies.