Avis Budget Group, Inc. — Q2 2023 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 in approximately 180 countries. Reportable segments are Americas and International. The filing covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The average rental fleet was approximately 690,000 vehicles in the second quarter.
Financial performance and key metrics
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue | $3.123 billion | $3.244 billion | Down 4% |
| Income before taxes | $598 million | $1.083 billion | Down 45% |
| Net income attributable to Avis Budget Group | $435 million | $778 million | Down 44% |
| Diluted EPS | $11.01 | $15.71 | Down 30% |
| Adjusted EBITDA | $737 million | $1.205 billion | Down 39% |
Q2 net margin was approximately 13.9%, compared with 23.9% in the prior-year quarter. Adjusted EBITDA margin was approximately 23.6%, compared with 37.1%.
Revenue declined despite a 4% increase in volume because revenue per day, excluding exchange-rate effects, decreased 7%. Operating expenses increased 9%, vehicle depreciation and lease charges increased 60%, vehicle interest expense increased 77%, and corporate interest expense increased 6%. Management attributed the cost increases primarily to higher fleet costs, inflation and rising interest rates.
| Six-month metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $5.680 billion | $5.676 billion | Approximately flat |
| Net income attributable to Avis Budget Group | $747 million | $1.307 billion | Down 43% |
| Diluted EPS | $18.93 | $25.14 | Down 25% |
| Adjusted EBITDA | $1.272 billion | $2.015 billion | Down 37% |
| Cash provided by operating activities | $1.782 billion | $2.371 billion | Down $589 million |
Six-month net margin was approximately 13.2%, compared with 23.0% in 2022. Adjusted EBITDA margin was approximately 22.4%, compared with 35.5%.
Segments and material changes
- Americas: Q2 revenue decreased 5% to $2.428 billion and Adjusted EBITDA decreased 39% to $631 million. Volume increased 3%, but revenue per day declined 8%. Six-month Adjusted EBITDA declined 38% to $1.147 billion.
- International: Q2 revenue increased 3% to $695 million, while Adjusted EBITDA declined 31% to $126 million. Volume increased 7%, offset by lower revenue per day and currency effects. Six-month revenue increased 11% to $1.236 billion, while Adjusted EBITDA declined 15% to $176 million.
- Vehicle depreciation and lease charges rose substantially as the fleet expanded and per-unit fleet costs and depreciation rates increased.
- The company’s vehicle fleet investment increased vehicle-program assets to $22.303 billion at June 30, 2023, from $17.428 billion at December 31, 2022.
- The company repurchased approximately 723,000 shares for $146.1 million during the first six months. Approximately $1.5 billion remained available under the repurchase authorization at June 30.
Cash flow, debt and liquidity
- Cash and cash equivalents were $571 million at June 30, 2023. Including program and restricted cash, total cash was $682 million.
- Six-month investing cash outflow was $5.214 billion, including $8.881 billion invested in vehicles and $3.977 billion of vehicle disposition proceeds.
- Total indebtedness was approximately $22.5 billion, consisting of approximately $4.7 billion of corporate debt and $17.8 billion of vehicle-program debt.
- The company reported approximately $507 million of available capacity under its $2.0 billion senior revolving credit facility. Management characterized total available liquidity as approximately $1.1 billion, including cash and cash equivalents.
- Vehicle-program funding capacity was approximately $19.0 billion, with $17.8 billion outstanding and $1.1 billion available, subject to collateral requirements.
- The company issued multiple vehicle-backed asset-backed note series during January, April and June 2023. Reported weighted average interest rates ranged from 5.31% to 5.98%.
- As of June 30, the company stated that it was in compliance with its corporate and vehicle-program debt covenants.
Outlook, commentary, risks and unusual items
The filing does not provide a clear quantitative earnings or revenue guidance range. Management expects results to remain affected by interest rates, inflation, commodity and wage costs, used-vehicle values and potential economic weakness affecting travel demand.
- The company expects approximately $2 million of additional 2023 restructuring expense related to its Cost Optimization initiative. Approximately 270 employees had received termination notices and approximately 255 had been terminated as of June 30.
- The company had commitments to purchase approximately $5.6 billion of vehicles over the following 12 months, down approximately $1.1 billion from December 31, 2022.
- In July 2023, the company issued €400 million of 7.25% senior notes due 2030, primarily to redeem €300 million of 4.125% notes due November 2024.
- In July 2023, the company repurchased approximately 335,000 additional shares for approximately $74 million.
- Potential exposure from current legal proceedings that is reasonably possible but not accrued was estimated at up to approximately $35 million in aggregate. Management does not believe this would be material to consolidated financial condition or results of operations.
- Key risks include competition and pricing pressure, travel-demand volatility, vehicle supply and manufacturer counterparty risk, used-vehicle resale values, inflation, interest rates, fuel costs, refinancing and covenant risk, insurance claims, litigation, cybersecurity and geopolitical or macroeconomic disruption.
Important facts for investors to verify
- Whether lower revenue per day and higher fleet depreciation costs persist through the remainder of the peak travel season.
- The sensitivity of vehicle interest expense and total liquidity to further increases in interest rates.
- Used-vehicle disposal prices, manufacturer repurchase or guaranteed-depreciation obligations, and the resulting fleet depreciation economics.
- Upcoming corporate and vehicle-program debt maturities and the availability and cost of refinancing.
- Compliance with leverage and other debt covenants, including collateral requirements for vehicle-backed funding.
- The pace and cost savings from the Cost Optimization restructuring program.
- The amount and timing of further share repurchases relative to operating cash generation and debt levels.
- The potential resolution and financial impact of the California tax matter and other litigation.