Avis Budget Group, Inc. Q4 FY2025 earnings call

Horizon 1 - Backward-looking view

• Fourth quarter miss in Americas due to demand softness, fleet timing issues, and pricing pressure. Demand softness and pricing pressure were industry-wide and short-term. Depreciation was macro-driven but market stabilized in December and January. EV fleets had a $500 million write-down, which was a deliberate reset to strengthen balance sheet and reduce risk.### Horizon 2 - Present actions
• Prioritizing utilization over fleet growth in 2026. Actively rightsizing fleet in first quarter of 2026, with record vehicle sales in January and February. Rebalancing OEM partnerships based on execution, transparency, and responsiveness. Implementing global reduction in force and strengthening performance management processes. Exiting noncore businesses like Zipcar U.K. and restructuring Zipcar U.S.### Horizon 3 - Longer-term strategy
• Focus on customer experience, rearchitecting customer experience organization, having average U.S. rental car fleet age less than a year by end of first quarter, expanding Avis First to commercial accounts and Europe, and progressing partnership with Waymo with Dallas launch on schedule.

The fourth quarter miss was entirely in the Americas segment. International business performed as expected. Americas rental days were expected to grow ~3% but ended flat. Fleet defleeting in November due to demand decline impacted used vehicle prices, with Manheim rental index price per vehicle down nearly $1,000 or 4.3% from October to November. International business executed a meaningful turnaround. Full year adjusted EBITDA was $748 million vs. guided $900 million, with ~$150 million miss in Americas.

2026 adjusted EBITDA has a wide range. Assumes fleet size decrease, focus on utilization and contribution margin. Guidance is conservative given fourth quarter miss. Depreciation expected to be elevated in near term but come down as fleet normalizes. Utilization expected to be higher and fleet lower. Expect to narrow the range as year progresses.

Industry-wide demand softness, pricing pressure, macroeconomic factors affecting used car market, volatility in rental demand, used vehicle pricing, and RPD. OEM recall issues causing sidelined vehicles and financial impact. Weather-related incidents affecting demand and operations.

Q: I want to start with your 2026 guidance. Obviously, a fairly wide range for adjusted EBITDA. And I'm just hoping that you can kind of walk us through what some of your working assumptions are on some of the key inputs like RPD and DPU.

A: It's pretty important saying that we're assuming that fleet size is going to decrease into 2026, something that hasn't been the case for the past few years. We're going to focus instead on utilization and making sure that we get the right business in terms of a contribution margin perspective.

Q: And maybe just to follow up on, I mean, there's continuing to be a pretty big dispersion in some of the metrics between the Americas and your international segment. So just curious, as you talk about fleet resizing and some of the actions you're taking, is that more of an Americas comment or is that global?

A: The comments that we made around OEM repositioning and the actions we're taking around depreciation, that's entirely in the Americas segment.

Q: I wanted to spend a couple of minutes on fleet cost. I think in the slides, you guys talked about $400 million in Q1 and a full year, let's call it, $325 million or so at the midpoint. I'm just trying to understand the confidence in the full year because that to me that first quarter number is awfully high, which would imply that the rest of the year is probably sub $300 million.

A: In terms of the volatility that we saw in the 2025 you'll see that our models, which we're forecasting when we sell these cars into the future. They're built off of future forecasts primarily in Black Book and Moody's. Those forward-looking economic models assume the impact of tariffs to continue throughout the life of these vehicles. As we've seen in the fourth quarter, that isn't the case anymore. So we've adjusted our internal models accordingly as well.

Q: So David, Avis has effectively missed the full year guide for 3 years now. Now I under -- this is under a different leadership here you've only recently gotten into the practice of giving explicit guide. So some of these to be fair, more on the soft guide side. But I guess how do we get comfortable with the full year guide here?

A: This is the first outlook like built entirely under the current leadership framework. It reflects more conservative assumptions and a structurally tighter operating model. Our objective this year is to earn back confidence through consistent execution.

Q: On Zipcar, if there are any numbers you can give us for the U.K. segment?

A: That has not impacted the results. Those actions were taken at the very end of the year, beginning of this year. Chris, so that has -- had no material impact.

Q: Does the base case EBITDA guide here for the full year assume Americas revenue up?

A: It does.

Q: Could you walk us through the puts and takes on the EV impairment and then just in terms of how we should think about sizing the potential benefit to DPU.

A: We really view this. This was not an issue. This was an opportunity and we took it. And so what we were able to do was take tax credits that had little to no value, as Daniel said, monetize that, use that against the cap cost of our vehicles to reduce the depreciation funded by a new securitization that we created, is an incredibly complex transaction that I have to give my treasury team and the tax team a lot of credit for figuring that out and getting it done in such a short time.

Q: And then as a follow-up, just to circle back to the collaboration with Waymo. What are the key financial considerations there? And how soon might you see a material benefit from the partnership?

A: We're not getting into the specifics of the economics here. Like I said, Dallas is gearing up to come online, and we think that we'll be taking riders from the public pretty soon. But other than that, we're not really getting into too much of the financial details.

Q: I was hoping you could talk a bit about your expectations for the first quarter. Admittedly, there's a lot of moving pieces as it relates to the impairment charge, higher fleet costs, I'm assuming probably weather is still -- weather will be an impact as well. So maybe if you could talk about the first quarter as well as some of the underlying trends you're seeing.

A: From our standpoint, when you think about where we were last year from a Q1 standpoint, we're sitting here talking about having a higher depreciation. Brian talked about how things are looking a little more stable from a revenue standpoint in February and March, but January did have some weather-related incidents there, too, a lot of flight cancellations. So we are looking at a lower number, lower EBITDA in the first quarter, but then easing back towards something that's more normalized in the second, third and then fourth quarter.

Q: So maybe once we get past the first quarter, maybe talk a little bit about your level of confidence in achieving the guide for the full year, specifically as it relates to actions that are within your control.

A: Stephanie, I'll keep the bridge relatively simple, but I think if we anchor ourselves on the 2025 results, right, if you add back the impact of the recall of $100 million conservatively. And the one-off nature of the PLPD, the insurance reserve adjustment we had in Q4, you're already at the middle of the range, right? One item that we offer for 2026. One of the pillars of our plan is a continued improvement in utilizations in the Americas, right? An improvement that the team has already been delivering on during 2025. And that's worth about $100 million for us next year. So that -- with those 2 one-off unusual, you're in the middle of the range. And just with one of the initiatives, we could potentially make it all the way to the top of the range. And that's already assuming like Brian mentioned some conservatism on the rate side of the house in the Americas. So that's how we feel about it. We feel it's achievable.