Business Context and Reporting Period
Avis Budget Group, Inc. provides vehicle rental, car sharing and related mobility services under the Avis, Budget, Zipcar and other brands in approximately 180 countries. Reportable segments are Americas and International. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $3.564 billion | $3.547 billion | $9.244 billion | $9.223 billion |
| Net income attributable to Avis Budget Group | $626 million | $1.034 billion | $1.373 billion | $2.341 billion |
| Diluted EPS | $16.78 | $21.67 | $34.71 | $46.32 |
| Adjusted EBITDA | $907 million | $1.460 billion | $2.179 billion | $3.475 billion |
| Net margin | 17.6% | 29.1% | 14.9% | 25.3% |
| Adjusted EBITDA margin | 25.5% | 41.2% | 23.6% | 37.7% |
For the nine months, operating cash flow was $3.035 billion, compared with $3.862 billion in 2022. Investing cash flow was negative $6.930 billion, primarily reflecting $12.609 billion of vehicle purchases partially offset by $6.106 billion of vehicle-sale proceeds. Financing cash flow was $3.978 billion, largely reflecting vehicle-program borrowings. Cash, program cash and restricted cash totaled $721 million at September 30, 2023, unchanged from September 30, 2022.
Total assets were $32.304 billion, including $21.247 billion of vehicles under vehicle programs. Corporate debt was approximately $4.8 billion and vehicle-program debt was approximately $18.7 billion, for total indebtedness of approximately $23.4 billion. Available corporate revolving-credit capacity was $464 million; management reported approximately $1.0 billion of total liquidity including $572 million of cash and cash equivalents. The Company was in compliance with applicable debt covenants.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 0.5%, while nine-month revenue increased 0.2%; management attributed the broadly flat results to higher rental volume offset by lower revenue per day.
- Q3 net income attributable to Avis Budget Group declined 39%, and nine-month net income declined 41%. Diluted EPS declined 23% in Q3 and 25% for the nine months, aided by a substantially lower share count from repurchases.
- Q3 and nine-month Adjusted EBITDA declined 38% and 37%, respectively. Americas Adjusted EBITDA fell 38% in both periods; International Adjusted EBITDA fell 33% in Q3 and 25% for the nine months.
- Vehicle depreciation and lease charges increased to $517 million in Q3 from $134 million and to $1.157 billion for the nine months from $479 million. Higher fleet levels, increased depreciation rates and lower gains on vehicle sales were significant drivers.
- Vehicle interest expense increased 94% in Q3 and 83% for the nine months, primarily because of higher interest rates and additional vehicle funding. Corporate interest expense increased 25% in Q3 and 22% for the nine months.
- The average rental fleet was approximately 754,000 vehicles in Q3 2023. Vehicle assets under vehicle programs increased $5.286 billion from year-end 2022, principally due to fleet expansion and higher vehicle costs.
- The Company repurchased approximately 2.9 million shares for approximately $633 million during the nine months, excluding excise taxes. Approximately $1.1 billion remained under the repurchase authorization at September 30, 2023.
Guidance, Outlook, Commentary, Risks and Unusual Items
The filing does not provide a clear quantitative revenue, earnings or Adjusted EBITDA outlook. Management stated that strategy remains focused on cost control, customer experience, resilience and stakeholder value. Results are expected to remain sensitive to interest rates, inflation, wages, commodity costs, vehicle supply, used-vehicle values and travel demand.
- In July 2023, the Company issued €400 million of 7.25% senior notes due 2030 and used the proceeds primarily to redeem €300 million of 4.125% senior notes due 2024.
- AESOP issued multiple series of asset-backed notes during 2023, including $1.0 billion in September at weighted average interest rates of 6.09% and 6.21%. Vehicle-program debt maturities within one year totaled approximately $4.343 billion.
- The Company had commitments to purchase approximately $6.3 billion of vehicles during the next 12 months, subject in part to manufacturers satisfying repurchase and guaranteed-depreciation obligations.
- Cost Optimization restructuring resulted in $7 million of expense during the nine months. Approximately 300 employees had been notified of termination and approximately 275 had been terminated; approximately $1 million of additional restructuring expense was expected during 2023.
- The Company completed acquisitions of a North American licensee and McNicoll Vehicle Hire in Scotland for approximately $14 million and $17 million, respectively, excluding acquired fleet where separately stated.
- A California tax matter involves potential historical franchise-tax assessments; the Company is pursuing rehearing and former subsidiaries have assumed portions of the potential liability. Estimated reasonably possible aggregate exposure from current legal proceedings was up to approximately $35 million above accrued amounts.
- Principal risks include competition and pricing pressure, weaker travel demand, economic downturns, vehicle supply and manufacturer-credit risk, used-vehicle market deterioration, financing availability, rising interest rates, debt covenant compliance, fuel and labor costs, foreign exchange, cybersecurity, litigation and regulatory matters.
Important Facts for Investors to Verify
- Whether fleet depreciation, vehicle disposal gains and vehicle interest costs normalize or remain elevated.
- The sustainability of rental volume and revenue per day, particularly in the Americas.
- Used-vehicle prices, manufacturer repurchase performance and the impact of vehicle purchase commitments.
- Vehicle-program refinancing needs, maturity timing, interest rates and available collateral capacity.
- Corporate liquidity after share repurchases, acquisitions and debt service, including the $464 million revolving-credit availability.
- Progress and remaining costs under the Cost Optimization restructuring plan.
- Developments in the California tax matter, consumer class actions and other litigation.
- The impact of continued inflation, interest-rate changes, travel demand trends, foreign exchange and geopolitical conflicts.
- Management’s use of Adjusted EBITDA, a non-GAAP measure that may not be comparable with similarly titled measures used by other companies.