Avis Budget Group, Inc. — Form 10-Q Summary
Business context and reporting period
Avis Budget Group provides global vehicle-rental and mobility services through the Avis, Budget, Zipcar and other brands. Its reportable segments are Americas and International, operating in approximately 180 countries. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $3.001 billion | $1.534 billion | $6.744 billion | $4.047 billion |
| Net income attributable to Avis Budget Group | $675 million | $45 million | $903 million | $(594) million |
| Diluted EPS | $10.45 | $0.63 | $13.16 | $(8.40) |
| Adjusted EBITDA | $1.057 billion | $220 million | $1.728 billion | $(249) million |
| Cash flow from operations | Not separately provided | Not separately provided | $2.548 billion | $632 million |
Q3 net margin was approximately 22.5%, compared with 2.9% in Q3 2020; nine-month net margin was approximately 13.4%, compared with negative 14.7% in the prior-year period. Q3 Adjusted EBITDA margin was approximately 35.2%, compared with 14.3%; the nine-month margin was approximately 25.6%, compared with negative 6.2%.
- Q3 revenue increased 96%, driven by a 42% increase in revenue per day, a 37% increase in volume and a $15 million foreign-exchange benefit.
- Nine-month revenue increased 67%, driven by a 37% increase in revenue per day, a 20% increase in volume and a $90 million foreign-exchange benefit.
- Q3 utilization was 71.6%, up 11 percentage points year over year. Revenue per day was $75.86, up 43% from Q3 2020. Per-unit fleet cost was $154 per month, down 7% from Q3 2020 and 39% from Q3 2019.
- Americas generated Q3 revenue of $2.403 billion and Adjusted EBITDA of $952 million; International generated $598 million and $128 million, respectively.
- At September 30, 2021, cash and cash equivalents were $886 million, or $945 million including program and restricted cash. Total assets were $21.610 billion and stockholders’ equity was negative $198 million.
- Total debt was approximately $15 billion, consisting of approximately $4 billion of corporate debt and approximately $11 billion of vehicle-program debt.
Material changes versus the prior comparable periods
- Travel recovery, higher rental pricing and increased rental volume resulted in a substantial reversal from the COVID-19-affected 2020 results.
- Operating expenses increased in absolute terms with volume but declined to 40.9% of Q3 revenue from 53.8% and to 45.8% of nine-month revenue from 61.9%.
- Vehicle depreciation and lease charges declined 20% for the nine months, while the related percentage of revenue fell to 12.9% from 26.9%, reflecting improved used-vehicle pricing and lower per-unit fleet costs.
- The Company issued $600 million of 5.375% senior notes due 2029 and $500 million of 4.750% senior notes due 2028. Proceeds and cash were used to redeem higher-cost or nearer-term notes, including the 10.500% senior secured notes and 6.375% senior notes.
- The revolving credit facility was increased to $1.95 billion and its maturity extended to 2026. At quarter-end, $390 million was available after letters of credit.
- The fleet expanded materially: vehicles under vehicle programs increased to $11.925 billion from $8.153 billion at December 31, 2020, primarily to meet increased demand.
- The Company repurchased approximately 11.7 million shares for approximately $1.0 billion during the first nine months, leaving approximately $397 million of authorization at September 30. It subsequently repurchased approximately 2.2 million additional shares in October for approximately $327 million.
Cash flow, liquidity and debt
- Operating cash flow was $2.548 billion. Investing cash flow was $(4.931) billion, primarily reflecting $8.041 billion of vehicle purchases, partly offset by $3.310 billion of vehicle-sale proceeds.
- Financing cash flow was $2.578 billion, including $3.808 billion of net financing activity under vehicle programs.
- Management reported approximately $1.3 billion of liquidity at September 30, comprising approximately $0.9 billion of available cash and $0.4 billion of available revolving-credit capacity.
- Vehicle-program debt totaled approximately $10.749 billion and had approximately $2.716 billion of available capacity, subject to collateral requirements.
- The Company had no meaningful corporate debt maturities until 2024 and stated that, under current operating assumptions, it expects adequate liquidity beyond the next twelve months. It was in compliance with applicable corporate and vehicle-program debt covenants.
Guidance, outlook, management commentary and risks
Management did not provide a specific quantitative revenue, earnings or EBITDA forecast in the filing. Management expects continued opportunity from recovering travel demand, improved pricing, cost discipline and fleet-management actions, but stated that the timing and magnitude of recovery remain uncertain.
- COVID-19 remains a principal risk, including new variants, renewed travel restrictions, economic weakness and volatility in travel demand.
- A global semiconductor shortage is constraining vehicle production and deliveries, requiring the Company to hold vehicles longer and potentially limiting its ability to meet demand.
- The Company had commitments to purchase approximately $4.1 billion of vehicles over the following 12 months. These commitments depend in part on manufacturers honoring repurchase and guaranteed-depreciation arrangements.
- The T21 restructuring plan resulted in approximately 260 communicated employment terminations and approximately 255 completed terminations by September 30. Approximately $20 million of additional 2021 restructuring expense was expected.
- Restructuring and other related charges were $47 million for the nine months, including a $14 million loss on the Argentina divestiture and approximately $17 million related to a voluntary termination program.
- The Company reversed approximately $12 million of previously recognized liability related to two Georgia personal-injury cases. It estimated potential exposure from reasonably possible adverse outcomes in current legal proceedings of up to approximately $35 million above accrued amounts.
- Goodwill and indefinite-lived intangible assets were not impaired in the quarter based on the Company’s qualitative assessment, but further deterioration in travel or economic conditions could result in a material future impairment.
Important facts for investors to verify
- Whether elevated rental pricing and utilization remain sustainable as vehicle supply improves and travel markets normalize.
- The effect of semiconductor shortages, vehicle purchase commitments and used-vehicle resale prices on fleet availability, depreciation and liquidity.
- The sustainability of cash generation after approximately $1 billion of share repurchases and continued fleet investment.
- Vehicle-program refinancing needs and collateral capacity, particularly the approximately $3.518 billion of vehicle-program debt due within one year.
- Exposure to COVID-19-related demand disruption, interest-rate changes, foreign-exchange movements and manufacturer obligations.
- Future restructuring costs, legal proceedings, potential goodwill impairment and the terms of related-party transactions.