Greetings. Welcome to the Avis Budget Group Fourth Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference 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; Izzy Martins, our Chief Financial Officer; and Brian Choi, our Chief Transformation 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 and any or all of our forward-looking statements may prove to be inaccurate, and we can 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. I want to welcome Izzy Martins, who has recently moved from a prior role as Head of the Americas, and is now our new Chief Financial Officer. Izzy has been instrumental in delivering the record-setting performance in the Americas over these last three years and her prior experience as the VP of Tax, Chief Accounting Officer and CFO of the Americas sets us up well for her new role. She and I have worked together for nearly 20 years, and I'm excited to leverage her experience and depth of knowledge as we grow this business profitably for the years to come. Before I get into our results, I'm happy to be talking to everyone on this conference call from our new world headquarters. Although just a few miles from our previous building, our new state-of-the-art facility features advanced technologies as well as great opportunities for increased collaboration and thought development between the teams. We believe this allows for increased productivity and performance benefits. We have been located in New Jersey for over 20 years, and we purposely stayed close to retain what I consider to be world-class talent while giving us a place we can be proud of and call home. I would like to thank our team that worked on finding this new home as it is an impressive headquarters. Yesterday, we reported our fourth quarter and full year results. For the quarter, we delivered approximately $2.8 billion of revenue and $311 million of adjusted EBITDA. For the full year, we achieved an all-time annual revenue record for our company of over $12 billion and our second highest adjusted EBITDA ever of approximately $2.5 billion. Looking at our fourth quarter results, our expectations were to continue to see seasonality return to the industry and our business. As I've been stating on previous calls, it is apparent that the pre-pandemic seasonality, as it relates to each of the quarters, is now the norm again but just at a much higher level of volume and price than previously. The transition from the third quarter to the fourth quarter is in line with this thinking and very much in line with last year. We believe this continues into this year as well with the months and quarters trending with historic seasonality. Volume was extremely strong with October having the most vehicles rented in any month in the history of our company in the Americas, which led to increased activity and a strong holiday season with Thanksgiving and Christmas being the largest we've experienced. In Europe, we saw volume increase year-over-year, and more importantly, an improvement in the decline compared to 2019 more so than we did in the third quarter. All-in-all, our team performed extremely well in 2023, despite the challenges of inflationary and interest rate pressures producing the most revenue generated in the history of our company and the second highest adjusted EBITDA. I want to thank the entire team for their hard work in getting us to this level of achievement. They took care of our customers, producing record service level results, maintained terrific cost discipline and ultimately produced earning results that we are all incredibly proud of. Now moving on to the Americas results. As I mentioned earlier, the demand in the Americas was strong with October being the strongest month of vehicles rented in any month in the history of our company in the United States, with a combination of improved commercial and leisure as travelers went on both business trips, fall getaways and, at times, a combination of both as business trips to see a client turned into a weekend getaway. We kicked off the winter season with increased activity and the strongest holiday season of Thanksgiving and Christmas we've ever experienced, with terrific growth in leisure demand as people travel to see family or enjoy vacations away from home. Volume for the quarter was up 6% year-over-year and up over 17% versus 2019. We saw growth from our partnerships in both airline and associations as well as on our own dot-coms. Our strategic marketing initiative and Plan on Us campaign announced early in the year of 2023 was again deployed and drove record reservations. You may recall our tagline, 'At Avis, for 75 years, we've only had one plan to make sure you keep yours.' this is more than a slogan; it is a call to action for all of us, and it seems to resonate well with our customers as this performed well again this quarter. My last point on demand. As I stated on our last call, we had a summer season for the record books. And when you have a significant peak, you can sometimes see a drop that follows. But this has not been the case, as October and Christmas were the busiest on record as well. It is apparent to us that consumers are traveling and choosing our brands, and there is no reason to expect this to change. As expected, pricing adjusted seasonally as we transitioned out of the summer peak. Pricing in the fourth quarter was down 7% year-over-year, but still up more than 20% from 2019. If you recall, there were a significant number of flight cancellations due to weather and system issues last year in December. This helped volume this year but hurt RPD as we did not have the higher-priced runways that typically come from flight disruptions like we did last year. Pricing from a sequential change from the third quarter to the fourth quarter is in line with 2021, 2022, with 2023 being down 9% quarter-to-quarter. Americas pricing for the full year was nearly 30%, up over 2019. On our last call, I mentioned how headwinds from vehicle depreciation and vehicle interest would factor into the fourth quarter results. But as usual, our team did not abdicate responsibilities due to these factors. Instead, we continued to focus on cost discipline and delivered results that showcase the streamlined and lean operating structure we built during the pandemic. As we said before, we're keenly aware of the inflationary pressures we are seeing and will continue to combat rising costs with sustainable productivity gains driven by technology and data. Despite the headwinds, we achieved record rental days with revenues of $2.2 billion, adjusted EBITDA of $309 million and adjusted EBITDA margins over 14%, while navigating through the seasonal transition from the summer peak. Looking at our operating costs. The team was met once again with significant challenges across several market dynamics. Vehicle depreciation, which was still benefited by the supply chain shortages in the fourth quarter of 2022, showed more normalization in 2023, and we have faced nearly $180 million of headwind this quarter. Interest continued to climb as well with another $80 million of vehicle interest costs versus the fourth quarter of 2022. The utilization was negatively impacted due to the timing of vehicle deliveries slated for earlier in the year that came later and into the fourth quarter. We have set this timing difference by selling more cars this quarter than in our fourth quarter history, but it was not quite enough to completely offset the new vehicle increases, which were delayed from prior periods. And while utilization was challenged, the full-year utilization is still in line with prior year, demonstrating our approach to supply and demand. And you should expect to see this stringent discipline continue in the new year. Overall, the Americas had a great quarter, generating $309 million in adjusted EBITDA with record-setting fall and holiday periods, resulting in demand up 6% above last year and 17% over 2019 with seasonally adjusted pricing from quarter-to-quarter and up over 20% versus 2019. The team ended with another great year with close to $2.2 billion in adjusted EBITDA. Going forward, as I mentioned, travel, in general, is strong and we are expecting demand to grow as well with the course of this year. As we move from January to the remaining months in the quarter, we'll take advantage of both business and leisure activity, warm vacation destinations and early Easter with improved inbound activity continuing into the spring and summer with elevated travel. Pricing for the first quarter, while expected to be down versus prior year, will still be up a similar amount versus 2019 as we were in the fourth quarter and well above 2019 throughout the year while peaking in the third quarter and close to prior year. Let's shift gears to international. As we mentioned on our last call, our view was that while post-recovery in Europe started later than the Americas, it would eventually follow a similar trajectory with continued recovery in days building through 2023 and into 2024. While we still believe this is the overall macro cost the industry will take, this quarter continues to show that it won't be a straight line. And while this still holds true, we did see an improvement this quarter with volume up 3% versus prior year and only down 20% compared to the fourth quarter of 2019, this after being down in the 30% range in the third quarter as compared to 2019. While Europe continued to have a slow return from domestic and cross-border segments, we saw a 12% increase compared to the fourth quarter of 2022 from international inbound travelers. Again, instead of chasing volume, we have made the conscious business decision to forego a low RPD business to concentrate on those transactions that meet our return on invested capital hurdles. RPD was only down 2%, excluding exchange rate effects compared to the fourth quarter of 2022 and up almost 20% versus 2019 on a reported basis. Overall, and including exchange rate effects, International saw revenue up 5%. Our international team is also focused on the costs they could control; this focus resulted in our international direct operating expenses and SG&A to be down 3% compared to the fourth quarter 2022. In an environment where monthly per unit fleet costs were up 52% and monthly interest costs, a multiple of that, we remain disciplined, focused on margin-accretive business and kept costs out in an inflationary environment. Full-year adjusted EBITDA came in at $400 million with a 15% margin. While early, reservations going into 2024 are showing growth in both inbound from North America, as well as intra-Europe with pricing slightly better than the first quarter of 2023. We continue to believe that there is substantial opportunity for recovery in this region and the team is ready to capture it as it returns. Moving on to fleet where, as usual, we'll focus more on the Americas segment. We said last quarter that we expected our monthly depreciation to increase towards gross depreciation of roughly $300 per vehicle. Our gains on sale of vehicles in the quarter were approximately $50 million, which led to net depreciation of $272 million per vehicle and gross depreciation of $306 per vehicle, a difference of 34 per vehicle. As I mentioned earlier, we sold a record number of vehicles in the fourth quarter compared to other fourth quarters; this was driven in part by our forecast of a normalizing used car market and we wanted to harvest gains on older model year fleets while the opportunity was still there. But another factor that contributed to our outsized depleting in the quarter was delayed deliveries of new fleet by several of our OEM partners. Given that new model year vehicles were delivered after the summer peak, it was necessary to exit older vehicles to right-size our fleet size to demand. We worked through most of that throughout the fourth quarter, but we'll continue to right-size into the first quarter of this year. As I stated in past earnings calls, fleet rotation and cycling of fleet is a critical element of fleet management. This addresses mileage and age as we bring in new vehicles, while disposing of older units and creating a stabilization of cost and utilization over time. We did this throughout this past year and into the fourth quarter and we'll continue to do this throughout the first quarter and balance of this year as we ensure our fleets are in line with demand, creating stability in our fleet management. There continues to be demand for vehicles of our type as used cars still represent a value to consumers at a price point of some $20,000 less than a new vehicle. Let's shift gears now to monthly vehicle interest. Our total company's monthly per unit interest costs were $106 per vehicle in the fourth quarter of 2023 compared to $62 per vehicle in the fourth quarter of 2022, a 70% increase. On a total company fleet size, more than $700,000, that equates to more than $90 million of additional cash outflow from interest expense from the fourth quarter of 2022. I said this the last time, but I feel it is important to reiterate, in an environment where our core input costs are rising, both the cost of vehicles and the cost to finance, we must be hyper-vigilant in matching our vehicle supply to just under demand and this year, it's more important than ever. Before I leave the fleet section, let me take a moment and talk about EVs. We have always taken a prudent approach to fleet in general, and EVs are no exception. Our goal was to have a fleet size that is in line with demand and allows for flexibility and growth if required. Our strategy was to first develop the infrastructure to properly charge vehicles of this type in a way that allows for a seamless rental and efficient use of this asset. We have been working on this for over a year now, and we are about complete with most of our facility upgrades. As with ICE vehicles, we ensured we purchased vehicle types from a varied group of manufacturers. Having a varied inventory insulates us from maintenance-related concerns and recalls in general and protects us from any residual value pressures that may be associated with vehicles of one make or model type. Our goal has been to have customers experience our product, primarily at our airports because this allows for a more certain profit outcome and additionally creates consistency for the staff to be trained on the rental logistics and readiness criteria while keeping per unit economics in line with our expectations. We are quite comfortable with our EV strategy and supply/demand relationships and we will continue to monitor this ever-changing environment should it be required. Turning to technology, which is a key aspect of our day-to-day performance and creates efficiency in the business and allows for an improved customer experience as we continue to iterate and redefine our systems and processes. We are incredibly focused on driving efficiency in our business, so much so that I asked Brian to head up our business transformation process, a much-needed step in our business evolution as we utilize data, technology and machine learning to inform aspirational improvements and decision-making, allowing for sustainable outcomes. In addition, over the past several years, we have continued to improve our proprietary demand fleet pricing system, which gives us tremendous insight on demand down to the vehicle location and prices our cars accordingly. The combination of great strategy, forecast accuracy and vehicle inventories produces optimization that has been a large part of our revenue success and contribution margin. We believe this technology, combined with our pricing team and field experience, generates a significant advantage in managing supply and demand. Data analytics, combined with our own on-the-ground productivity system, has created efficiency in our location level of throughput, increasing our performance well above levels experienced in 2019. This is one of the many reasons why our direct operating and SG&A expenses have stayed relatively consistent as a percent of revenue, in an environment that is challenged by inflationary wage pressures. The modernization of our IT systems has provided benefits and system stability, producing record uptimes, allowing our partners to seamlessly create reservations, generating real-time demand and increased revenue. As you know, we have been early adopters of in-car telematics, which has improved our gas collections, provided asset control improvements and offer an improved customer experience due to automated check-in upon return. On the customer experience side, our touchless process allows customers to choose their vehicles on their phone or exchange it upon arrival creating a digital rental agreement, which can be used to exit our facility through an automated exit gate process. Customers using this level of technology score us up to 10 points higher in MPS than traditional rentals. Facial technology rolled out at a majority of our airport locations quickly transfers first-time Avis preferred customers to their vehicles, thus bypassing our current counter-verification process. During the year, we have rolled out an improved budget Fast Break Choice application; customers upon arrival at a budget facility can choose their vehicle from the reserve zone, take a picture of the license plate allowing the rental agreement to be sent to them digitally for a quick exit at an unmanned gate. These technologies have improved our customer experience and enhanced our overall NPS scores to the record highs they are currently at. So to conclude, we had another great quarter culminating in record-setting full-year revenue and the second highest adjusted EBITDA on record. Both the Americas and International employed stringent cost discipline, continuing to drive towards margin attainment with profitable revenue and cost efficiencies. The demand environment is strong, with pricing dynamics that have leveled to normal seasonality, and our team is focused and driven to once again deliver another strong year in 2024. The expectation is that the quarters perform with the same seasonality we have seen in the past, with the second quarter larger than the first and the third quarter representing another terrific summer peak finishing with a strong fall and winter season. We expect price to continue to moderate in the first half and adjust seasonally throughout the year while peaking in the third quarter, maintaining high elevated levels compared to 2019 and while fleet costs will present challenges, we will continue to deplete our vehicles to keep them in line with the demand, and our team is focused and driven to once again deliver another strong year. Before I turn it over to Izzy, I would like to take a minute and thank Brian for the last three years in his role as CFO and his great work helping us develop into the company we are today. And while I'm thankful for his past work, I'm even more excited about what he's going to bring in the future as our new Chief Transformation Officer, partnering with stakeholders, both in our headquarters and in the field operations. Brian and his team are off to a running start as many of these opportunities were identified during his time as CFO. I look forward to seeing the transformation group now operationalize these efficiencies across our business and throughout the year. With that, let me turn it over to Brian.

Thank you, Joe, for the kind words and for entrusting me to be your CFO during such a tumultuous period of our company's history. It's been an incredible learning experience and I'm going to continue to lean on your guidance in this new role. I'm only comfortable taking on this position because I know the finance team here is left in very capable hands. Let me now turn it over to our new CFO, Izzy, so she can introduce herself and take you through our liquidity and outlook.

Thank you, Brian and Joe, for your kind introduction. Good morning, everyone. I look forward to getting to know you more, our investment community, in the coming months. Before I get into my prepared remarks, I want to take a minute to say how excited I am to assume the CFO role. I am also truly honored to lead our talented finance team that I have worked with for many years. Brian has done an exceptional job since he joined our team three years ago and we will continue to support each other to drive sustainable margins for our company. I will now 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. Let me start off by addressing capital allocation. Once again, we were quite active. We deployed nearly $260 million in the fourth quarter alone, repurchasing 1.4 million shares that brings our total share buybacks throughout 2023 to nearly $900 million or 4.3 million shares. We also paid a special dividend of $10 per share to our shareholders. This is the first cash dividend in our company's history. In addition, we reinvested $330 million throughout the year into our core business to drive long-term efficiencies and overall profitability. Examples of these investments include enhancing several operational facilities, the continual migration of data to the cloud, promoting speed, reliability and a more certain cost outcome, developing and enhancing technology to track and increase productivity. Lastly, we have reinvested nearly $800 million over the last several years in these areas, including our new state-of-the-art headquarters in Parsippany, New Jersey. We intend in 2024 to continually invest in our operational facilities and further implement technological improvements to continuously enhance our customer experience and overall efficiencies in our business to drive margin contribution. To be clear, our capital allocation strategy is not changing and as always, we will continue to look for the best ways to allocate our capital on a continued balanced approach in 2024. We continue to find ourselves in the privileged position of being in the strongest financial standing in the history of our company. As of December 31, we had available liquidity of approximately $800 million with additional borrowing capacity of approximately $900 million in our ABS facilities. Our net corporate leverage ratio was 1.7x and continues to be well laddered with our corporate debt having maturities in 2026 or beyond. As expected, we are in compliance with all of our secured financing facilities around the world. Let's move on to outlook. As you know, we've made the decision as a management team to forego giving formal guidance to allow ourselves the flexibility to make agile decisions as the business environment changes. However, I wanted to give you insights for what we are seeing for the first quarter. We expect rental demand will continue to be strong with mid-single-digit growth compared to last year. We expect total company depreciation per unit will be about $325 per car. As Joe mentioned earlier, we will continue to de-fleet throughout the quarter to rationalize our fleet, from the delayed deliveries of the fourth quarter. Currently, there is a considerable amount of volatility in the used car market. However, we believe that it is prudent for our operations and healthy for the overall industry to exit vehicles despite the used car market conditions. As we stated in the past, in an environment where our core input costs are rising, both the cost of vehicles and the cost to finance them, we must be hyper-vigilant in matching our vehicle supply to just under demand. We prefer to run out of the incremental vehicle than have an unutilized vehicle on the lot. You will continue to see us put this into practice as we defleet throughout the first quarter and the early part of the second quarter to maintain fleet demand throughout 2024. In closing, let me reiterate that we anticipate our revenue to be in line with normal seasonality. Price to be well above 2019, peaking in the third quarter and anticipating a strong summer. We will continue to defleet despite fleet cost challenges driven by the uncertainty or volatility of residual values. With that, let's open it up for any questions.

Our first questions come from John Healy with Northcoast Research. Please proceed with your questions.

Thank you. And Brian, congrats on the transition here and Izzy as well. Just wanted to ask a question about the plans to kind of defleet in Q1. The $325 in depreciation expense, is that a global number? And how do you see that number kind of faring compared to what you expect as we roll throughout the year? Are there some step-ups because maybe you're selling cars sooner? I'm just trying to understand that $325 number because it just seems like a big step-up from where we were.

Okay. This is Izzy. Thank you for the warm welcome. So you're right. When you went through the prepared remarks, actually, Joe mentioned that the Americas per-unit fleet costs were $306 at the end of the fourth quarter. I mentioned that on a total company basis, I expect us to be closer to $325 per unit. We also said that our fourth quarter gains were around $50 million, which is about $180 million or 60% reduction despite the fact that we sold a lot more vehicles in the fourth quarter. So the way I would think about it for 2024 is that our gross depreciation and our net depreciation should align. Now your question about whether that is a huge step-up, I don't expect as the exit trend being closer, call it, the lower $300s, but in excess of the $300 that we had been saying over time, I expect it to get to $325 and may not get to that $325 level by the end of the first quarter. But I think the more important thing is I do expect the gross and net depreciation to be more in alignment.

And John, let me just jump in here for just a second and give you some strategies behind it. When you think about managing fleet in the long term, fleet rotation is extremely important. How you buy cars and deliver them into your business and then exit cars out at the proper time at the right place is extremely critical. And I think overall, when you think about buying and selling, one of the more important and often overlooked aspects is how you rotate your fleet because it allows you to maintain a certain age level or mileage level that is operationally prudent from an efficiency standpoint as it turns out to be in light vehicle costs as well as from customer acceptance. And we've been doing that. I mentioned that throughout the entirety of last year, how we were rotating our fleet and thinking about where we came from post-pandemic, where the cars there were shortages of vehicles and the age and mileage were getting up there. It was important to right-size, and we will continue to do that even into the first quarter. And frankly, the way I look at it right now, we are going to get our fleet levels down as we continue to go from the first quarter, potentially into the second until we get to the peak.

Got it. Makes sense. And then a question for Brian. Just I was hoping, Brian, if you could give us maybe some color on kind of early-day learnings about some of the initiatives or efforts that you're trying to execute upon and a way to maybe conceptualize the areas of the business that are the first set of priorities for you? Any way to think about the totality of maybe cost savings potential?

Sure, John. So Joe highlighted a bit about the role during his prepared remarks, and I don't have too much more to add at this time. At a high level, though, let me describe it this way. I firmly believe that our teams are best at what they do given the resources that they have available. I think our results have reflected that over time. But if we were to modernize the tools at their disposal, if we re-architected key functions of the business from a first principles perspective that fully leveraged technology and data available to us today, I think our operators would deliver a step function improvement in productivity and efficiency. That is what the group here is going to be focused on—providing resources to our teams that are embedded in the day-to-day workflow processes to make them even better at what they do. Let me preempt future questions on this. For competitive reasons, we won't be providing regular updates on this going forward. We're going to take the same communication approach to this function as we did with our EV group a few years ago. I would just say we'll let our actions and outcomes speak for themselves.

Got it. Thank you, guys.

Thank you. Our next questions come from the line of Adam Jonas with Morgan Stanley. Please proceed with your questions.

Thanks, everybody. And congrats, Izzy and Brian. So your net vehicle suite is around $30,000 per unit, then I'm using your average fourth quarter fleet. So just—I'm using the $700,000 number on that versus $19,000 in 2019. So carrying costs divided by fleet size, and that might not be the perfect metric, but just bear with me. It's up 60% from 2019 to 2023. But yet your fleet cost guide is up less than half that kind of into the low $300s. So why wouldn't depreciation per unit fleet cost per unit mean revert closer to $400 and $300 or continue to err on the side higher, given just the massive growth in the carrying cost per unit on your books? Thanks. I have a follow-up.

Hi Adam, it's Izzy. Thank you for that question. I think what we see right now, given the increase to the $325 that we're seeing, I don't disagree that as time progresses, as you know, we evaluate our monthly depreciation actually depreciation rates on a monthly basis. So if things change, we will be changing. But based on our—what we're seeing right now, the $325 is what we expect in the near term for 2024.

Adam, just to add to that, sorry, this is Brian. Yes, the carrying cost is up 60% higher. So where we're buying the cars is more expensive. But what we're selling the cars is higher as well and depreciation reflects kind of that total carrying cost. So you won't see a one-for-one step up that way.

Okay. Thanks, Brian. Just a follow-up. Hertz has really struggled with collision and repair challenges with their EV fleet. Now obviously, I know you don't disclose the EV fleet and you're not going to do that on this call, and I respect that there are multiple higher than you in terms of the intensity of that fleet, particularly relative to the infrastructure. But how much of that would you—are you kind of confronting some of the similar challenges on collision and repair? And if so, how much of a headwind has that been for you? And how are you mitigating it?

Thanks, Adam. This is Joe. Let me just say this: We haven't experienced any out-of-the-norm headwinds associated with our EV supply chain and maintenance-related issues. I think if you consider what we tried to do with EVs, when I was visiting and talking to our OEM partners back in 2021, they all talked about how there was going to be a larger portion of EVs coming in our future buys. I left those meetings thinking that we had to first and foremost figure out how we were going to charge them. If you think about providing a vehicle to a consumer, you can't provide a vehicle without gas and you certainly can't provide a vehicle without a charge. So we spent a lot of time doing that. And then we dealt with a lot of OEMs. We wanted a varied approach to fleet like we do with ICE cars. We think it has a material benefit on supply chain or maintenance and damage-related expenses over the long haul. It insulates us from recalls that may pop up from time to time, and it gives customers a more diverse product offering. We were watching what the demand curves would be like from buying new EVs versus gas cars. And there was uncertainty on our part and from a rental standpoint about what demand would really be like in the rental environment because it was clear that people were buying and charging them at their homes, but what was it going to be like when they took a car out on the road? Part of our strategy was to align and try to rent as many of these vehicles at our airports in areas that are likely to develop like the West Coast and more of the sunshine states. So we took a more conservative approach on how we wanted to buy them and how many we wanted to have while learning the logistics around what happens with them, how long it takes to charge them and get them ready for rental, the maintenance and damage associated, and tried to rent them in segments that had the best possible drop-through. I hope that helps. You're right about your earlier comment; it's not a meaningful part of our fleet size.

Thanks, Joe.

Thank you. Our next questions come from the line of Chris Stathoulopoulos with SIG. Please proceed with your questions.

Good morning. Thanks for taking my question. So the Americas RPD. I get the comp issue last year with the operational challenges experienced by some of the U.S. airlines here. But could you perhaps expand or give finer detail on how core pricing tracks through 4Q and how it's tracking into 1Q so far? Thank you.

Sure. I think the strong demand that we're seeing mostly coming out of the Americas in the last year and the year prior to that is driven by the volume of cars. Once you have a good amount of demand, we have our systems in place that measure, forecast and price in the marketplace based on the amount of inventory we have and gives us our optimal price. One thing that makes me pleased is the fact that for the past eleven quarters, our pricing has maintained at a level above 2019. That's a long period. During that period of time, obviously, there were supply imbalances in the early years post-COVID that created enormous rate generation. That is normalized and seasonality is certainly more apparent now. As we go forward, I expect those elevated prices compared to 2019 to remain. Looking at our advanced reservations, that hasn't changed, especially from a leisure standpoint. Our commercial book of business has grown since 2019, which has come with a relative price increase. The first quarter is expected to be more of the same as how we compare to 2019. I fully expect prices compared to '19 to be elevated. Once we get into peak, as we continue to right-size and rotate our fleet and get closer to traditional peaks like the holiday periods and summer season, those traditionally normalized pricing patterns will continue.

Okay. And as a follow-up, for you, Joe or perhaps Brian or both. There's a lot of moving parts here around these various enterprise-level initiatives. If you could perhaps just size those for the top three or five projects rank order and KPIs and, more importantly, how do we — where and sort of how should we think about those ultimately flowing through RPD and your direct operating costs.

Yes. Thanks. I'll start and Brian can add some color. We've shifted our operating procedures to improve efficiency through various cost efficiencies. We've invested heavily in productivity systems to improve efficiency, especially as it pertains to cleaning and renting cars. If you look at our overall performance, our productivity is better than in 2019, with many more rentals. That framework has established a foundation for our activity. Our in-life vehicle maintenance-related costs are refined based on how we organize around our maintenance and damage-related expenses. So as we de-fleet some of our aged and high mileage cars, we've seen improvement in our organization around maintenance costs. We've established process efficiencies that further reduce costs. Brian's role allows us to utilize data more efficiently, so our operators have the necessary information they need to succeed. As we proceed through the year, we'll see our key initiatives manifest through better efficiency and overall performance.

Yes, I think Joe covered everything. Just maybe a little color I would think of the big areas of focus we have on our operational cost management as being the initial towers. Think of supply chain, workforce planning and our real estate portfolio. These are significant cost buckets that you see inflationary pressures in. We need to have visibility across the organization so that our operators can make timely business decisions. You'll see our focus around that dovetailing with revenue side as the year progresses. But right now, we're focused more on the cost side of things. And in terms of sizing it, we're not getting into specific numbers right now.

Okay. Thank you.

Thank you. Our next questions come from the line of Ryan Brinkman with JPMorgan. Please proceed with your question.

Hi, great. Thanks for taking my questions. I wanted to start on some questions around the typically negative income tax rate in the quarter and any benefits you might have received from the Inflation Reduction Act that could have contributed to that. What is the potential, do you think, to maybe continue to generate such credits in the future? How does the timing of the credits work? I think when consumers buy EVs under the IRA, it is essentially like a refundable credit extended at the time of the purchase, but for corporates, maybe it's more of a traditional credit. So maybe it results initially in an increase to deferred tax assets rather than immediately converting to cash, but I would be interested if you have any of the details around how the mechanics of that works? And then how should this inform our modeling of tax rates going forward? Thanks.

Hi Ryan. It's Izzy. Thank you for the question. I think there's a lot there to unpack. So let me just start with what happened in the fourth quarter. As you mentioned, the Inflation Reduction Act does allow us to take credits on hybrids and EVs. The other piece that's happening that's not as one-for-one is the fact that full expensing is phasing out as of right now. There's still a chance that the government reassesses that and brings back full expensing. But in 2023, it starts phasing out. So as we were going through those years, we felt it was prudent to record that credit. It is a deferred tax asset, so it has an indefinite life. We won't use it in the current year, most likely, but we can use it in future years. When it comes to modeling, I think the best way to look at it would be around 26% for '23, and I would say for '24, it should hover around that, maybe up one or two points. I hope that was helpful.

Very helpful. Thank you. And then just as a somewhat related follow-up. Do the benefits that you're receiving relate more to the purchase of plug-in hybrid electric vehicles rather than battery electric vehicles with no internal combustion engines? What is the split there in your EV fleet now between BEVs and PHEVs? And what kind of residual trend are you seeing out there for PHEVs versus BEVs? Because there's been a lot of discussion about growing demand for hybrids amidst decelerating demand for EVs. I just wonder if maybe you sidestep some of that EV depreciation exposure that your competitors have seen benefiting from the IRA but not being hurt by the depreciation via your BEV strategy? What could you say there?

I'll start and then I'll throw it over to Izzy for more of the depreciation aspect. I will tell you that we have vehicle makes and models of all types, especially around the hybrid PHEV. It's early for us to kind of give a feel of how they are doing, both the residual value effect because we haven't sold many and the supply chain effect regarding maintenance and damage. But we have explored it. We have some in our fleet currently, and the customer acceptance from a business standpoint has been strong. Again, it's early on outside of cost, and we haven't really seen anything materialize that I would be apprehensive about currently.

And Ryan, none of those mix or anything of that nature would have any impact as to how we calculate the credit under the IRA.

That's helpful. Maybe just very finally, I wanted to get your thoughts on budget trucks as it might relate to electrification. Obviously, very early days there, too. But with vehicles like the E-Transit and BrightDrop beginning to enter, there's been more discussion about those being in commercial fleets that operate in the same paths or routes every day. Just curious what any implications, maybe it makes more sense to proceed slowly there after some of the depreciation we've seen on the past car side. But I do think the commercial side might be a little bit different. Just curious how you're thinking about electrification as it relates to budget trucks.

Great question. We normally get a question about that. Our budget truck business has a large part of it in last-mile delivery. You're correct about the business aspect of having electrification in that sector. We have explored it and have some in our fleet currently, and early feedback from large package companies suggests acceptance has been strong. However, we are prudent about our approach. We are taking it slow as we've seen the challenges in depreciation in the car side and are monitoring how it affects our profitability.

Great. Thank you.

Thank you. Our next questions come from the line of Chris Woronka with Deutsche Bank. Please proceed with your questions.

Hi, good morning, everyone. And yes, congratulations to Brian and Izzy on the new roles. I was hoping we could talk a little bit about, I guess, mix, Joe. You mentioned normalization a lot. Clearly, we're kind of seeing it throughout the business. Can you give us any sense kind of on where you were you trended through the fourth quarter, where you're at now or where you expect to be in '24 on kind of commercial versus leisure broadly? I know it's something I think you normally put in the K, which isn't out yet. So maybe any commentary you can give us there? And kind of what you see like-for-like pricing if we took all this mix adjustment away.

Yes. Okay. So like I said, I think the underlying business economics as it pertains to the consumer, I think, are strong. We will continue to see that throughout 2024 as it pertains to both demand and price. So let's start off with demand. Demand we saw in 2023; we had the best summer on record. Yet we come out of it, and we have the strongest October and a good holiday season. I think the fourth quarter depicts that segmentation of travel. October, you would say, well, why would that be the busiest? It has the biggest impact of both commercial and leisure in any given month. Commercial because there's a lot of business travel, a lot of conventions, leisure because of fall getaways, leading to business trips to see clients turning into weekend breaks. We saw city-specific bookings grow significantly last year. Our commercial accounts are performing well, and demand remains strong across segments. I believe you'll start seeing that kind of normalize from the big jumps we experienced when the pandemic subsided, but the macro factors driving demand remain positive.

Yes. Super helpful. Thanks, Joe.

Thank you. So to recap, we reported our best full-year revenue in our company's history and our second highest adjusted EBITDA ever. We believe demand to continue to be strong and price elevated well above the 2019 levels as we manage efficiency improvements while keeping our vehicle supply tight. I want to take this time to thank all of our employees around the world for their tireless efforts in helping us achieve these results, and I'm excited to see what we can accomplish in 2024. As always, thank you for your time and interest in our company and be safe with this weather.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.