Avis Budget Group Inc. announced results for its second quarter, which ended June 30, 2009. The company had revenue of $1.3 billion, a decrease of 17 percent versus second quarter 2008, and a pretax loss of $2 million. Excluding restructuring costs, second quarter EBITDA was $67 million and pretax income was $6 million.
"While we continued to face sharply reduced demand for vehicle rentals in the second quarter, rental volumes did stabilize, and the actions we took to keep fleet levels in line with demand allowed us to achieve a stronger-than-expected 7 percent increase in domestic time and mileage revenue per day," said Ronald L. Nelson, Avis Budget Group chairman and CEO.
"We also made significant progress in several other areas," added Nelson. "Our cost saving initiatives continued to deliver substantial benefits, as reflected in the 260-basis-point reduction in direct operating costs and 80-basis-point reduction in SG&A expense as a percentage of revenue for our car rental operations. Our ancillary revenues continued to benefit from our sales training initiative, increasing over 21 percent on a per day basis, and we continued to retain more than 99 percent of our commercial accounts. In addition, the used car market, and the performance of our used vehicles at auction, strengthened, and in July we became the first car rental company since 2007 to issue term asset-backed securities to finance our fleet."
Executive Summary
In the second quarter, our car rental revenues decreased 17 percent year-over-year, driven primarily by a 21 percent decrease in rental days. Time and mileage revenue per day increased 7 percent excluding the effects of foreign-exchange movements and increased 4 percent on a reported basis.
Our car rental fleet costs decreased 10 percent primarily due to a 21 percent reduction in our average fleet and an exchange rate benefit of 2 percent offset by a 16 percent increase in our per-unit fleet costs. The year-over-year increase in per-unit fleet costs primarily reflects costs associated with our continued efforts to reduce our fleet size due to lower-than-expected demand for vehicle rentals. Also in our car rental operations, other operating expenses decreased 260 basis points to 48.7 percent of revenue and declined 90 basis points excluding the impact of gas, despite the 17 percent decline in revenue, reflecting the company's cost saving initiatives. Selling, general and administrative costs declined 80 basis points to 10 percent of revenue, also reflecting cost saving initiatives.
In Truck Rental, revenue declined but EBITDA increased modestly as an 8 percent decline in rental days and a slight decrease in price were offset by operating cost reductions and lower fleet costs.
In the second quarter, as expected, we recorded an $8 million restructuring charge primarily related to the elimination of 400 additional employee positions along with various facility closures, in conjunction with our five-point cost-reduction and efficiency improvement plan.
Business Segment Discussion
The following discussion of second quarter operating results focuses on revenue and EBITDA for each of our operating segments. Revenue and EBITDA are expressed in millions.
Domestic Car Rental
Revenue declined primarily due to a 22 percent decrease in rental days offset by a 7 percent increase in time and mileage per day rates. EBITDA declined primarily due to lower revenue and increased per-unit fleet costs (which had a $50 million impact) partially offset by cost saving initiatives. EBITDA includes $6 million of restructuring costs and $10 million lower net gasoline expense in second quarter 2009.
International Car Rental
(Consisting of the company's international Avis and Budget vehicle rental operations)
Revenue decreased primarily due to a 12 percent decrease in time and mileage per day rates and a 10 percent decrease in rental days. Excluding the impact of foreign exchange, time and mileage per day rates increased 4 percent. EBITDA decreased year-over-year primarily due to exchange rates. The effects of lower rental day volumes and higher fleet costs were largely offset by cost-reduction efforts. EBITDA includes $1 million of restructuring costs in second quarter 2009.
Truck Rental
(Consisting of the company's Budget Truck rental business)
Truck rental revenue declined and EBITDA increased as an 8 percent decline in rental days and a slight decrease in time and mileage rate per day were offset by cost-reduction efforts and lower fleet costs. EBITDA includes $1 million of restructuring costs in second quarter 2009.
Other Items
Debt Covenant Compliance - As of June 30, 2009, the company remained in compliance with its financial covenant requirements under its senior credit facility. EBITDA for the latest twelve months for covenant purposes of approximately $155 million exceeded the requirement of $95 million.
Vehicle Financing - In May, the company completed an approximately $325 million operating lease financing transaction for cars to be added to the fleet during the second and third quarters of 2009. In addition, in July, the company's Avis Budget Rental Car Funding (AESOP) LLC subsidiary completed a $450 million three-year asset-backed securities offering to fund its domestic car rental fleet.
Performance Excellence - The company's Performance Excellence process improvement program continued to provide significant cost savings in the second quarter. The initiative is expected to deliver more than $100 million of savings in 2009.
Cost-Reduction and Efficiency Improvement Plan - During the fourth quarter, the company unveiled a five-point plan to reduce costs and increase efficiency in response to the economic conditions impacting the industry. The savings from this program are expected to total $220 to $240 million in 2009 and will be incremental to savings from our Performance Excellence initiative. In the second quarter, the company:
Eliminated an additional 400 positions, in addition to the 3,300 positions eliminated during fourth quarter 2008 and first quarter 2009;
Performed a detailed domestic city-by-city review of operating expenses to identify additional cost saving opportunities;
Instituted price increases taking effect in June and August;
Began to realize benefits from consolidating its procurement activities; and
Implemented numerous other actions to reduce costs.
The company had approximately 24,000 employees at June 30, 2009, a 26 percent decrease compared to a year earlier.
Debt - The company borrowed $100 million in second quarter 2009 under its revolving credit facility to fund working capital and fleet in its domestic operations. The company's total debt balance (vehicle and non-vehicle) has declined by approximately $2.1 billion since June 30, 2008.
Relationships with Vehicle Manufacturers - Both Chrysler and General Motors continued to honor their obligations to the company during their bankruptcies, and both manufacturers have assumed their contracts with Avis Budget as they emerged from Chapter 11.
Outlook
Airline capacity and domestic enplanements, which are a principal determinant of on-airport rental volumes, decreased markedly in the first half of 2009 compared to the year-earlier period, but demand for car rental seems to have stabilized in the second quarter. Third quarter demand, especially in the leisure segment, appears to be modestly stronger than recent trends, allowing some upward pressure on pricing to continue as our fleet levels remain in line with demand. Nevertheless, the company continues to expect the macroeconomic environment, conditions in the credit markets, and demand for vehicle rentals to remain challenging in the second half of 2009. Fleet utilization in 2009 should be consistent with 2008 levels.
The used-car market rebounded significantly over the course of the second quarter. Our domestic fleet costs are expected to increase 7-9 percent on a per-unit basis in 2009, with year-over-year increases in the second half of 2009 expected to be considerably smaller than in the first half. The company is continuing its efforts to reduce costs and enhance productivity through its Performance Excellence initiative and continues to expect the benefits of this program to exceed $100 million over the course of 2009. Such benefits are expected to be incremental to the over $250 million of annual savings generated by the company's five-point cost-reduction and efficiency improvement plan and from cost-reduction actions the company implemented in third quarter 2008.
The recent improvement in the asset-backed securities ("ABS") market allowed the company to raise $450 million in July to replace a portion of the approximately $1 billion of its domestic term ABS debt that matures in 2010. The company will seek to refinance most of the remainder of these 2010 domestic maturities in the second half of 2009, assuming market conditions remain favorable.
