Good day, everyone and welcome to the Avis Budget Group’s Third Quarter 2023 Conference Call. [Operator Instructions] It is now my pleasure to turn today’s call over to David Calabria, Treasurer and Senior Vice President of Corporate Finance.

Good morning, everyone and thank you for joining us. On the call with me are Joe Ferraro, our Chief Executive Officer; and Brian Choi, our Chief Financial Officer. Before we begin, I would like to remind everyone that we will be discussing forward-looking information including potential future financial performance which is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from such forward-looking statements and information. Such risks and assumptions, uncertainties and other factors are identified in our earnings release and other periodic filings with the SEC, as well as the Investor Relations section of our website. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results in any or all of our forward-looking statements may prove to be inaccurate and we make no guarantees about our future performance. We undertake no obligation to update or revise our forward-looking statements. On this call, we will discuss certain non-GAAP financial measures. Please refer to our earnings press release which is available on our website for how we define these measures and reconciliations to the closest comparable GAAP measures. With that, I'd like to turn the call over to Joe.

Thank you, David. Good morning, everyone. And thank you for joining us today. Yesterday, we reported our third quarter results which delivered a record quarterly revenue of $3.6 billion [ph] and adjusted EBITDA of over $900 million. We all went into this quarter understanding that certain market dynamics of the third quarter of 2022 would not be tailwinds this year. However, our team was able to remain focused on cost discipline while delivering on record customer demand which produced earning results that I am incredibly proud. I'd like to thank all our employees across the world contributing to this achievement and demonstrating operational excellence throughout the year. For the past few quarters, we pointed out normal demand seasonality has returned to our industry. As I stated on our last call, the second quarter is traditionally a transitional period into the summer peak, and that showed this quarter in the Americans with the summer being the busiest on record, with strong leisure activity, and July having the most cars on rent in company history, while representing the largest demand in the quarter; that's sequentially declining into September as it normally does as summer travel diminishes and schools reopen. Our ability to accurately forecast summer demand allowed us to yield appropriately to sequentially increase RPD and diminish the year-over-year declines versus the previous quarter. However, on the international side, we were forced to navigate a more unpredictable market environment this quarter that saw higher than expected inbound demand but rate pressures on the intra-Europe business; we'll get more into the details on that later in the call. Before I do, let me review the key takeaways of the quarter for Americas segment. On our last call, I said the summer of 2023 would be one for the record books and the America…

Thank you, Joe for the kind words and opportunity to take on this new role. I am beyond excited to start but first let me do what CFOs do and discuss our liquidity and near term outlook. My comments today will focus on our adjusted results which are reconciled from our GAAP numbers in our press release. I'd like to start off by addressing my favorite topic, capital allocation. We again took a balanced approach to the cash flow deployment in the quarter by addressing both, fleet debt and return to shareholders. We voluntarily contributed over $100 million to our vehicle programs like forgoing the refinancings of higher cost tranches of our AESOP [ph] term debt as they came due, and funded those tranches with cash on hand instead. With interest costs in the high single digits now for our CMD tranches [ph] of our ADS [ph]; you'll continue to see a deleveraging here going forward. We also deployed nearly $500 million into repurchasing 2.2 million of our shares outstanding this quarter. Given that we strongly believe that our current share price does not reflect the fair value of our transformed company, we will continue to aggressively buy back shares until that gap closes and this will be reflected in the cash flow usage of our fourth quarter. The summer has built our war chest and we have built full confidence that substantial free cash flow will continue to be generated in 2024 and beyond. However, as we've said on previous calls, we will be nimble and opportunistic with regards to capital allocation and will consider all avenues of returning capital to shareholders. We continue to find ourselves in the privileged position of being in the strongest financial standing in the history of our company. Our last 12 months adjusted…

Thank you. [Operator Instructions]. And we have our first question from Stephanie Moore with Jefferies.

Good morning. This is Hans Hoffman for Stephanie. Congrats for the strong quarter and appreciate all the color. So listing up my first question just you know, thinking about 2024 understanding not a whole lot of visibility on demand environment and you know right now it's like kind of vehicle funding costs are going up, you know, vehicle depreciation kind of getting to a more normalized level. So, kind of putting that aside. We talked about, you know, in terms of what if it wasn't your control and your sort of ability to preserve margin or mitigate some of those margin pressures and next year.

Hi. It's just Joss, I'll start off and Brian if you want to jump in. So you're right. We are we're currently working on our business planning process. So I don't have all the details surrounding 2024. We'll be doing that over the next couple of months. But when one probably says that, and I said this earlier in our prepared remarks, went back to normal seasonality. So I would anticipate that that would ring true going into next year as well. And what I mean by normal seasonality, the second quarter is bigger than the first and the third quarter is bigger than the second and the fourth quarter is somewhat in line with the second one there abouts. And the demand patterns and the pricing patterns will adjust seasonally. I think that that would be a good starting point with how we would look at 2024. There were some guiding principles however that you know, I think about it. If we can take a look at this past summer, it was the busiest peak that we've seen and I you know, going into it as I said on the last call, but I thought the summer was going to be was going to be big like normally it's just a log of peak because the second quarter was like a transitionary period into the summer, which was exactly what we saw in 2019. Right. So coming off a busy summer you would say well, you know, as demand slowed down a little bit. Are we going to see that going into the fourth quarter? And I have to tell you October is, like I said earlier, it's going to be the biggest October, right? We didn't formalize the exact metrics quite yet, but it's all indications that it…

Yes, I think you've covered everything Joe just the one thing to highlight is, you know, this interest cost pressures are going to continue into next year. When the cost of play to take on a new car is going to be over $100 per vehicle per month, but you have to re-evaluate the appropriate return on invested capital for that car. So I think that means that we're going to be very focused on yield management next year, we're going to be focused on utilization. And as Joe mentioned, we intend to fleet slightly below demand in order to remain disciplined around return on invested capital.

Got it, that's super helpful. And I just appreciate time, all the color rounds would have Europe but, you know, they just kind of wanted to unpack it a little bit more. So I guess maybe just thinking about Q4, have you seen sort of easing in terms of some of the pressures, you know, when domestic and sort of cross border travel, or the kind of, you know, the expectation that, you know, maybe just the European consumers, you know, what do we do that and kind of, you know, here domestically in that know, maybe some of those pressures can kind of continue to Q4 to Q1 at offset a little bit by, you know, continued strength and sort of, you know, the international events.

You know, listen, I think there's a lot of geopolitical pressures over there. And I think we have to be, we have to react. And so I'm comfortable with where we are today. I thought that the margin attainment in the third quarter was terrific. It was the second highest we had in company history, and you're going to see us, you know, operate that way. And if things change, we'll deal with and react accordingly. But our fleet is going to be in line with demand, our cost basis is going to be aligned that allows us to produce margin, we still have an extremely strong what I would call inbound demand coming out of the United States. We have terrific partners with all our airlines here in the U.S., and they continue to drop customers off and we will concentrate you know our ability to generate, you know, that highly profitable business in Europe. Now, you know, when we looked at it, you know, compared to 2019 in the in the United States, we started to overcome the COVID or related challenges in 2021. We thought that that was going to happen this summer, but like I said, inbound business terrific for us with you know into European business and domestic not so good. So we will prepare as if we will prepare to operate on a more of a drop through basis. And if things change, we can react very quickly. And that's what I like about our business compared to when we were pre-COVID. We took a lot of cost out we're able to optimize as we go.

Got it. Thanks.

[Operator Instructions] And our next question comes from Chris Woronka with Deutsche Bank. And Chris, your line is now live.

Hey, thanks for taking the question. So congratulations on another great quarter. First, and then you know, my first question is really when you think about wheat for 2024, I know you said most of your buys are already done what but what what's the kind of the macro, very high level macro view that that kind of underpin your decision on sizing. There's a lot of stuff going on in the world and we don't know what economics look like next year. So you just talk about kind of, you know, when you say you're entering next year, with a more cautious view on overall fleet size than you than you did and maybe in view of that some apparent market share gains you've had that might make you want to go bigger on fleet. Thanks.

So you know, the way we operate Chris, and you've covered us for a long while now. Our peak fleet is in the summer, and we do we do everything we can to make sure that our fleet is in line with demand going into summer anticipating the strong or anticipating the strongest quarter of our year. And I think we did a really good job about that this year. We had our fleet size, you know, when we thought it would be fortunately, we had those Maori wildfires, which, you know, when those occurred, you know, they occurred, you know, without any notice, obviously, and as tragic as they were for the for the people in the communities in Maori. They had a very large effect on our overall utilization and our fleet size. People just stopped going not just to Maori, but everywhere else. It's kind of like what's happened during COVID very quickly. But what normally happens every year is that when we come off the peak we started to deplete and we deplete rapidly you saw in that last year as well. The amount of third quarter peak with the most cars we have in our business and we started taking cars out in a rapid fashion and we have we have done that in the month of September and certainly October and we'll continue to do that till we get the fleet size down to what we believe is a normal operating size to go into the first quarter and predominately the winter months here in the United States. I think the key word for us for next year is flexibility. Over the years we've proven that we can -- even during the COVID years we proven that we can get cars and fleet up as demand increases or we take cars out quickly to ensure that we are in line with our demand. I think if you look historically at our company, you'll see that we do that we have great experience people we have technology with DFP that gives us some insights into what's going to happen by certain cities. And so we will continue to do that going into next year. With the uncertainty surrounding geopolitical environments and things of that nature, we will be prudent and if demand goes up bigger than we think will react and if it doesn't, we will keep our fleets in line. I think the you know with the cost of with the interest cost that we're seeing now and depreciation or normalizing. I think that's the most prudent way to attack, you know, wash strategies around the fleet.

Chris, just add to that on the market share front. I just want to reiterate as we've had in the past that we don't solve to maximize market share here we solve to maximize long term sustainable EBITDA. I think that was shown this quarter as well, where we grew 7.5% in rental days in the Americas that's well below the 11% that TSA volumes did year over year in the third quarter. You'll continue to see us like I said fleet slightly below demand.

Okay, appreciate that. Thanks, guys. There's a quick follow up. I think we were pretty impressed with your deal. We margin performance this quarter again and as you're still growing volume or prove still growing that transaction days in the in the U.S., you know, we normally think about the RPD and prices flowing through to the bottom line and less so on volume given the variable cost but it seems like have you reached a point where you know, whether it's the utilization level where you know the incremental transactions are perhaps more profitable at the unit level even if pricing is slightly lower, if that makes sense.

You know, this part of that is absolutely true, Chris, if as you know there are certain segments of business that allow us to have a better price opportunity than others. For example, inbound business, it comes with, you know, especially further out it comes with a higher price and a lot of ancillary you know and on revenue that that comes with that type of business. You know, some leisure demand especially on our large company, you know our bigger brand Avis which actually we saw a bus grow at a much significant level more significant level than any of our other brands is for and that comes with a higher price point. So, but to keep pleated back brands or things of that nature that certainly has a benefit on what we see as price. As far as price as far as you know, operating dynamics, we utilize technology in a differentiated way to look at how we manage our cost lines. And as I said earlier, you know, Brian was running as a CFO and a part time job was to kind of look at how we can better improve our -- some of our direct operating costs. And that's why I moved them out to this role because I think that there's a future in our ability to keep knocking that down a little bit. But over the past couple of years our efficiencies has improved. Our productivity is in a field especially with our labor in the field is better than it was in 2018. And we've been able to improve our NPS. So I think overall, yeah, there are segments of business that promote the best rate and the best profitable outcome as well as you know, dynamics associated with how we manage our direct operating SG&A.

Okay, very helpful. Thanks, Joe.

And we have our next question from Ryan Brinkman with JPMorgan.

Good morning, and thanks for taking my question. And thanks for the comments on capital allocation including fleet week debt paid down versus repurchases. The allocation pivot there in 3Q like you indicated it would. Maybe just as a follow up. Now given the changes in use vehicle prices and I guess $1 billion now these voluntary contributions in your vehicle programs but first nine months of the year, I just wanted to check in on like what percent equity you have across your programs or in your biggest vehicle programs currently, versus the amount that you're required to maintain. I ask firstly, to understand, like how much cash you could potentially take out if you wanted to for repurchases or anything else. And then secondly, to maybe understand I guess, conversely, like how much of a cushion there might be there now in terms of, you know, what percentage decline and used car prices it would take before you might be required to put more cash into the programs assuming similar fleet size, et cetera.

Right, I'll take that question. In terms of the equity question that we have, you can take a look at our press release. We listed out every quarter what our vehicle assets are and what our liabilities are under our vehicle program, subtracted two that's a good proxy for the equity that we've paid equity we have in our fleet plus the additional contributions that we've made and as you can see, that ratio has been growing kind of in favor of the assets and that reflects kind of the voluntary contributions that we've made to that program. You know, we've mentioned before that we can -- what our advanced rates are, that's remained fairly consistent, so we can go in the high 80s in a lot of in a lot of markets. We've chosen not to do that. Like I said, the further down we go on our refinance into the C tranches, and the D tranches. Those are becoming close to 10% down 8%, 9%. And you'll kind of concede you'll see us continue to forego refinancing at those high rates as those term debts come due. So we feel really good about where we are in terms of leverage ratios there. Again, you can see the assets which we've marked on a monthly basis here and how much higher that is and the liabilities we have. So you can kind of calculate with the cushion is over there. And in terms of in terms of capital allocation, as I said, on the prepared remarks, we still believe that our shares are undervalued relative to the fundamentals around our current and future earnings trajectory. We repurchase shares yesterday, and we still have $1 billion remaining in our buyback authorization. But we're not going to be formulaic when it comes to capital deployment. We evaluate the full spectrum of options from M&A, CapEx, debt repayment, dividends, one time or regular and of course, share repurchases. So we'll continue to allocate capital to those areas that best benefit all stakeholders.

Very helpful. Thank you. And then just on EVs, what is the number of electric vehicles that you have globally? What are the brands there that you're most exposed to? And are you thinking any differently about how quickly you might onboard EVs or what percent of your fleet you might expect them to rise to over what period of time. You know, just in light of the lower electric vehicle prices we've seen this year and so I assume higher depreciation and maybe some of the direct operating cost implications to as highlighted by one of your competitors.

I'll take that. Trying to answer it, you know, thinking about a little bit about strategy and then give you some insight to where we are as far as -- I we wanted to be consistent and measured in our approach to EVs and our strategy for nice centers around a few principles. First thing we wanted to do was make sure we had an infrastructure. Everything we heard was that you know, EVs were going to be very prominent as far as manufacturing goes. And obviously that changed over the last couple of months but we wanted to make sure that we had an infrastructure capable to rent these at a utilization level that's commensurate with our utilization levels on gas cars. So like I said, in answer this question, I'll give you an insight to where we are in our on our level of cars. But I think when you look at our EVs strategy, it's centered around three real principles. We wanted to be consistent and measured in our approach. First thing was we need an infrastructure to support EVs, especially in our airports. And we spent the last year and a half doing just that, so uncomfortable with our infrastructure is, yeah, there are more inputs coming online as the grid levels increase at certain at certain cities and airport authorities. So we will we will continue to do that. The second is we wanted to have cars of different makes and models and, you know, from different OEMs similar to the way we run our gas car fleet, we believe that gives customer choice. It allows us to insulate us a little bit from maybe recalls, other maintenance related costs and certainly of late residual value pressures associated with some of the price declines. We've…

It looks like we have reached the allotted time for Q&A session. I will now turn the call back over to Joe Ferraro for any closing remarks.

So to recap, we had another quarter with solid earnings driven by the strongest summer ever recorded with great demand sequentially improving pricing, we will continue to invest in our technology to have improved customer experience to drive enhance efficiencies in our operations. And finally, I'd like to say thank you to all our employees for the hard work they put in this past year. Thanks for your time and interest in our company.

Thank you. That does conclude today's teleconference. Thank you for your participation. You may now disconnect.