Avis Budget Group, Inc. (NASDAQ:CAR) is a leading global provider of mobility solutions, operating one of the world's most recognized car rental brands, Avis, as well as the Budget and Zipcar brands. With a rich history spanning over 70 years, the company has evolved and adapted to the changing dynamics of the mobility industry, positioning itself as a key player in the ever-evolving transportation landscape.

Company History

Founded in 1946 by Warren Avis, the company started as Avis Rent A Car System, Inc. with just three cars at Willow Run Airport in Michigan. Over the following decades, Avis grew to become one of the largest vehicle rental companies in the United States. In 2001, a significant milestone was reached when Avis Rent A Car System merged with Budget Rent A Car Corporation to form Avis Budget Group, Inc., bringing together two of the most recognized brands in the mobility solutions industry.

Following the merger, Avis Budget Group continued to expand its operations, both organically and through strategic acquisitions. A key milestone for the company was its acquisition of Zipcar, the world's leading car sharing network, in 2013. This acquisition allowed Avis Budget Group to expand its presence in the rapidly growing car sharing market. The company has also grown through licensing agreements, allowing it to offer its services in areas where it does not operate directly.

Financials

The company's financial performance has been marked by periods of growth and challenges. In the most recent fiscal year (2023), Avis Budget Group reported total revenues of $12.66 billion and a net income of $1.63 billion. The company generated operating cash flow of $3.83 billion and free cash flow of -$11.63 billion.

For the most recent quarter (Q3 2024), the company reported revenue of $3.48 billion, a 2.4% decrease year-over-year. Net income for the quarter was $237 million, down 62% compared to the same period last year. Operating cash flow for the quarter was $1.27 billion, with free cash flow of $546 million.

The decrease in revenue and net income was primarily due to lower revenue per day and higher fleet and interest costs compared to the prior year period. The company has been focused on maintaining fleet discipline and aligning the fleet with demand, which has led to improved vehicle utilization but lower overall volumes.

Avis Budget Group operates in two main geographic segments: Americas and International. In Q3 2024, the Americas segment generated $2.64 billion in revenue, a 4% decrease compared to the prior year period, and $384 million in adjusted EBITDA, a 48% decrease from the previous year. The International segment generated $840 million in revenue, a 1% increase compared to the prior year period, and $139 million in adjusted EBITDA, a 29% decrease from the previous year.

The company's financial performance in recent quarters has been impacted by changing market conditions. In Q3 2023, Avis Budget Group benefited from over $650 million in fleet gains, including $145 million in the third quarter alone. However, these oversized fleet gains were a byproduct of the post-pandemic supply chain imbalance and are not expected to replicate going forward. In Q3 2024, the company's straight-line depreciation increased from approximately $292 per unit per month to $347 per unit per month, resulting in over $100 million in incremental fleet expense year-over-year. Additionally, vehicle interest expense was a $33 million headwind in Q3 2024, compared to a $72 million headwind in the same period last year.

Liquidity

As of September 30, 2024, Avis Budget Group maintained a cash balance of $602 million and had access to $536 million under a $2 billion revolving credit facility. The company's debt-to-equity ratio stood at -25.23x, reflecting a highly leveraged balance sheet primarily related to its vehicle fleet financing. The current ratio and quick ratio were both 0.70, indicating potential short-term liquidity challenges. However, the company maintains ample liquidity through its credit facilities to fund operations and was in compliance with all debt covenants as of the end of Q3 2024.

Strategic Initiatives

Technological Innovation

One of the key drivers of Avis Budget Group's success has been its focus on technological innovation. The company has invested heavily in developing advanced digital platforms and mobile applications, enhancing the customer experience and improving operational efficiency. The launch of the company's new customer app in October 2024, featuring a refreshed user interface and improved functionality, is a testament to Avis Budget Group's commitment to leveraging technology to stay ahead of the curve.

Fleet Management and Optimization

Another crucial aspect of Avis Budget Group's strategy is its emphasis on fleet management and optimization. The company has made significant strides in aligning its fleet size with shifting demand patterns, prioritizing higher-margin business while maintaining a disciplined approach to fleet acquisition and disposition. This focus on fleet optimization has enabled Avis Budget Group to improve vehicle utilization and profitability, even in the face of challenging market conditions.

For the fourth quarter of 2024, the company expects its gross depreciation per unit per month to approximate $350, though this could vary based on opportunities to purchase late model year vehicles at favorable prices. The company's 2025 fleet buy is largely complete, and they expect lower holding costs as these newer, more affordable vehicles are transitioned into their fleet.

Future Outlook

Looking ahead, Avis Budget Group faces a dynamic and competitive landscape, with evolving consumer preferences and the emergence of new mobility solutions, such as ride-sharing and autonomous vehicles. The company's ability to navigate these changes and adapt its business model will be crucial to its long-term success. The company's recent investments in technology, fleet management, and strategic partnerships will be key to positioning Avis Budget Group as a leader in the evolving mobility ecosystem.

For the remainder of 2024, Avis Budget Group is aiming to achieve $1 billion in adjusted EBITDA, excluding approximately $120 million in uncharacteristic fleet losses. The company believes demand around the holiday periods (Thanksgiving and Christmas) looks strong, and they expect prices to move seasonally in the fourth quarter. The company remains focused on keeping their fleet in line with demand to maximize higher-margin business and strengthen revenue per day.

Legal Matters

Avis Budget Group is involved in various legal proceedings. In March 2023, the California Office of Tax Appeals issued an opinion related to a tax dispute from 1999, for which Avis has assumed liability. The company is currently pursuing judicial relief in this matter.

In September 2014, the company was named as a defendant in a class action lawsuit related to alleged misrepresentations and omissions concerning charging customers for traffic infractions and related fees. In October 2023, the plaintiffs' motion for class certification was denied for the nationwide class but granted for a smaller subclass.

The company continues to face various other litigation matters related to personal injury claims and other business practices, which it intends to vigorously defend.

Conclusion

Despite the challenges, Avis Budget Group remains committed to delivering value to its shareholders and customers. The company's focus on operational efficiency, technological innovation, and strategic fleet management has laid the foundation for a promising future. As the mobility industry continues to evolve, Avis Budget Group is poised to capitalize on emerging opportunities and solidify its position as a trusted provider of comprehensive mobility solutions.