Avis Budget Group, Inc. Q2 FY2024 Earnings Call

Greetings. Welcome to the Avis Budget Group Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. Thank you. You may begin.

Good morning, everyone, and thank you for joining us. On the call with me are Joe Ferraro, our Chief Executive Officer; and Izzy Martins, 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 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 measure; we are unable to reconcile forward-looking adjusted EBITDA to net income without unreasonable efforts given uncertainty in calculating necessary adjustments including the after-tax effect of such adjustments, which could be significant. 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 second quarter results, which delivered quarterly revenue of more than $3 billion and an adjusted EBITDA of $214 million. As we discussed on our last call, to accurately portray the business in this quarter and beyond, we need to bifurcate the impacts of nonrecurring fleet gains, higher vehicle interest and decisions made to rightsize our fleet. In fact, we have taken the necessary steps to adjust our fleet in the first half of the year by selling a record amount of vehicles, which allowed us to achieve utilization in the month of June in the Americas, more than a point above prior year, setting us up to be in a strong position to drive additional utilization and pricing benefits through our transition into the summer peak. With the improved utilization, we focus on what we can control to strengthen pricing and reduce our overall holding cost. Our goal has been and always will be to ensure that our fleet is kept inside of our demand. And while the quarter shows our fleet size to be up 2%, we started July with fleet down over prior year. The environment for our business remains robust with record-setting second quarter volume in the Americas. Pricing improved sequentially in May and June from April, with June exiting down 2% year-over-year, but still up significantly compared to 2019 with the Americas showing positive signs for summer pricing. Before I dive into the results in greater detail, I'd like to thank our employees for all their efforts. What we have accomplished over the last six months, especially as it pertains to fleet logistics, has set us up to take advantage of the strong summer and beyond. More importantly, through their hard work and efforts, we continue to generate record Net Promoter Scores and customer acceptance of our products and services. With that, let's begin, as we normally do with details surrounding our Americas segment. The Americas generated nearly $2.4 billion of revenue in the second quarter with $186 million of adjusted EBITDA. Rental days in the Americas were up 1% compared to the second quarter of 2023, a second quarter record. As we continue to grow our company, there's a balance between pricing and demand. As we typically do, we took the measured approach to volume and focus on pricing. We are well aware that improvement to our pricing has a greater margin benefit than improvement to our rental days. Keeping this in mind, we will continue to monitor our industry and make calculated decisions to prioritize price over volume when it makes sense, utilizing our proprietary demand fleet pricing system. As we mentioned on our last call, we saw pricing strengthen throughout the first quarter. That momentum continued into the second. Pricing was down 3% compared to the second quarter of 2023 and still up significantly compared to the second quarter of 2019. However, when you look at the year-over-year change in pricing for each month within the second quarter, the strengthening clearly showed in June with the Americas down 2% and U.S. rental car exiting June inside of that. Sequentially, pricing improved 7% quarter-over-quarter this year compared to only 4% over the same period last year, denoting an accelerated improvement in price. With these trends and the benefit of a strong 4th of July holiday, which showed positive pricing, we believe pricing to remain up in the summer and around flat for the quarter. As we have said in the past, we will continue to prioritize price over volume, and we'll do our part to keep our fleet tight to strengthen our pricing opportunities. As I mentioned on our last call, we made the conscious decision to accelerate our fleet dispositions, so that we could begin to generate utilization better than historic norms. As a matter of fact, we exited approximately 70% of our anticipated full year fleet sales by May. This culminated in our utilization of 70.2%, which was mostly in line when compared to the second quarter of 2023. However, that doesn't tell the full story. Due to the aggressive de-fleeting we executed in the first half of the quarter, our utilization significantly improved each month, with June finishing more than one point better than June of 2023. We anticipate our third and fourth quarter utilizations to well surpass the third and fourth quarters of 2023. With this prudent approach, we can expect to start 2025 with significantly fewer cars than we started in 2024. I wanted to take a moment to talk about our ongoing model year 2025 fleet negotiations. While there is still more to do, as we adjust about halfway through, I could say they are currently at prices well below what we have achieved in recent years, and I'm quite pleased with our progress to date. The OEMs continue to make more cost-effective vehicles for consumers, and as one of the largest purchasers of their fleet, we are beginning to benefit from that as well. The OEMs have been strong partners to our company for many years, and this year has been no different. Our collaborative approach and similar goals allow for both parties to achieve successful results. We appreciate their support. Before I summarize the Americas, I want to thank our marketing team for extending our multiyear partnership with the PGA Tour through 2028, keeping Avis as the official car rental company of the PGA Tour. Through this partnership, we'll be highlighting our Plan on Us campaign with PGA Tour fans throughout the world. For more than 75 years, our only plan is to make sure you keep yours. I'm also thrilled to have 9-time PGA Tour winner, Xander Schauffele, as our Avis ambassador. We congratulate him on his most recent win at the Open Championship and thank him for representing our country at the Olympics. So to recap, the Americas had revenue of nearly $2.4 billion and adjusted EBITDA of $186 million. We have taken the necessary actions and sold more cars in the first six months in the history of our company to ensure our fleet continues to drive higher utilizations and positions us for improved revenue per day performance this summer. We saw a sequential improvement in price in the second quarter, and we believe pricing to remain positive in the summer and remain about flat for the third quarter. The demand in the Americas was up 1% in the second quarter, and we expect this to continue into the third. Let's shift gears to international. International generated nearly $700 million of revenue and $48 million of adjusted EBITDA in the second quarter. Revenue was down 1% compared to prior year. On a constant currency basis, it is flat year-over-year, driven by rental days of up 5%. On our last call, we talked about returning travel from country to country. Once again, we are seeing improvements with inter-European cross-border travel, which is up in mid-double digits compared to last year. Additionally, our international inbound volume showed significant strength compared to last year. We continue to focus on leveraging our global brands and strategic partnerships with a particular focus on inbound volume from North America and targeted growth in inter-European cross-border leisure business. We expect this strategy to generate higher margin volume as these types of customers tend to keep the cars longer and have a tendency to take additional ancillary products. As we transition to our peak quarter, summer reservations are strong and trending positively with demand stemming from inter-European cross-border and international inbound travelers. Pricing for the quarter was down 5%, excluding currency impacts compared to last year and still up significantly compared to the second quarter of 2019. As it did in the Americas, pricing throughout the quarter sequentially improved month-to-month. The pricing trends in international are expected to improve throughout the third quarter as well. And as mentioned on our previous call, we took the proprietary demand fleet pricing system, which has been successfully implemented in the Americas for many years now, into our international region and it is now fully deployed. This machine learning system forecast demand by segment and prices our vehicles down to the location level while optimizing utilization and overall contribution margin. We are seeing early signs of improved utilization, rental day growth, and price optimization as the system prioritizes higher margin for lower margin businesses. Fleet utilization continues to be a strong point as the last three quarters have been higher year-over-year. This quarter's utilization of 70.2% was up 1.2 points compared to the second quarter of 2023. We continue to believe that our fleet is adequately positioned and ready to meet the increasing summer demand and what we believe will be a strong fall. Europe continues to be a popular destination for cross-border travel on our reservation show this strength. Turning to technology, we believe we're industry leaders constantly looking for and executing ways to enhance our productivity and efficiency. I want to take the time to give an update on our progress on improvements to our operating expenses. We continue to enhance our process through the continued leverage of our data analytics and on-the-ground systems to increase throughput and enhance productivity. As a refresher, these systems and processes allow for better forecasting and scheduling needs down to the location and by day to optimize labor mix such as full-time, part-time, and outsourced opportunities for jobs like shuttling our vehicles to and from our locations. We continue to face wage inflation and our focus on labor initiatives more than offset these pressures, and we expect these savings to flow through the remainder of the year. Our analytics around in-life vehicle costs decreased these related expenses by over 10% this quarter. We're using analytics to identify operational efficiencies and procurement opportunities when looking at vehicle costs such as tires, glass and other vehicle parts. We have more visibility to leverage purchase power with our vendors, enabling us to use the most cost-effective part for each service. This better insight on purchasing of parts enables us to better manage these variable cost lines. We expect these savings to continue in the back half of the year as well. And while in the early stages, we have set ambitious goals targeting sustainable utilization performance through better understanding of the state of each and every vehicle within our control. Past-based analytics delivered to our operations and maintenance teams will allow for enhanced vehicle movements and more timely repairs. We're excited to pilot these digital tools in key cities throughout the country. These and other operational efficiency strategies enabled us to generate improvement in operating and SG&A expenses by 1% on a rental day basis compared to the second quarter of last year, a sizable achievement given inflationary pressures. On our last call, I discussed how our international team has rolled out to more than 60 European locations, self-service kiosks allowing customers to bypass the counter in an unsecured lot environment and obtain their keys by using biometrics to identify who they are. The deployment of this system has improved productivity throughout Europe and is very well positioned to assist with the summer peak. The Net Promoter Scores of customers who use this feature are much higher. We look to continue to drive even more customer satisfaction through further distribution and enhancements of these self-service kiosks. So to conclude, we generated $214 million of adjusted EBITDA for the second quarter with record-setting volume. We have completed approximately 70% of our expected full year disposition to date in the Americas. And as a result, expect to be at higher utilizations in the third quarter. Pricing improved sequentially in the second quarter in the Americas with the U.S. rental business being close to flat in June. The July 4th holiday showed price improvement over prior year, and we expect to see this continue throughout the summer and about flat for the quarter. Overall, our cost efficiencies improved our operating and SG&A expenses on a per rental day basis over prior year. The Americas and international teams are well positioned to prepare to deliver another strong summer season. With that, I'll turn it over to Izzy to discuss our earnings, liquidity and outlook.

Thank you, Joe, and good morning, everyone. 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 discussing our second quarter earnings. We earned $214 million of adjusted EBITDA in the quarter. Similar to last quarter and as Joe just mentioned, we need to bifurcate the impacts of non-recurring fleet gains and greater vehicle interest. Last year, we had more than $650 million of fleet gains with more than $200 million in the second quarter alone. These oversized fleet gains were a holdover coming out of the pandemic, and the gains will not be replicated given that these were a byproduct of the post-pandemic supply chain imbalance. Our priority in the first half of the year was to rightsize our fleet. For the quarter, these sales generated a loss of approximately $40 million compared to more than $200 million of gains last year. In total, $245 million of our year-over-year quarterly variance was solely from the disposition of vehicles. Our straight-line depreciation increased from approximately $280 per unit per month to nearly $330, with U.S. rental car being within our previous call guidance. The increase in holding costs resulted in a year-over-year $115 million incremental expense. We will continue to monitor the market and make any adjustments as needed. But right now, we believe our total company net depreciation per unit per month will approximate $350 for the remainder of the year. Irrespective of the impact of the overall net depreciation expense, our goal will always be to manage our fleet inside of demand to give ultimate flexibility to our business. As Joe mentioned earlier, our 2025 fleet purchases are more affordable. While there is still more to do, model year 2025 purchases are expected to have materially lower holding costs compared to recent years. As it is still too early to determine the impact on our 2025 straight-line depreciation, we believe, over time, our depreciation rate will begin to normalize as we sell the higher-priced vehicles and replenish them with the new lower-priced vehicles. We will have more to say about this as our model year 2025 buy is completed. Now shifting gears to vehicle interest. The full year impact of all of last year's vehicle financings, and the issuances, and renewals completed in the first quarter are reflected in the second quarter. These financing activities and higher base rates drove a $72 million interest increase in the second quarter compared to the same period in 2023. However, our monthly per unit interest cost decreased from the first quarter, and we expect a similar decrease in the third quarter. In total, our fleet holding costs inclusive of interest expense account for $430 million of our year-over-year decrease in adjusted EBITDA. Our operating and SG&A expenses as a percentage of revenue grew by less than two points in the quarter compared to the prior year. But with pricing still down year-over-year, we need to look at this in a different way to see how our operational efficiencies are performing. As we know, our cost structure is primarily variable and change is based on our volume. When looking at operating and SG&A expenses per rental day, our per rental day expense improved by 1% compared to the second quarter of 2023. We continue to invest in our technological improvements to continuously enhance our customer experience, while implementing cost efficiencies to drive margin contribution. We reinvested nearly $110 million into our core business in the first half of the year. The majority of our capital allocation strategy has been reinvesting in our business, and you can see those returns in the operating and SG&A lines, as we continue to mitigate inflationary pressures through improvements on a per rental day basis. The initiatives Joe mentioned previously are starting to help reduce expenses within our control, and when you compare that to a 2% rental day growth that normally comes with additional associated costs, we were able to limit that to a $15 million increase year-over-year. We saw a sequential improvement in pricing throughout the quarter. The end result was a revenue per day down 4% in the quarter, the driver of a $75 million reduction year-over-year. The takeaway around pricing is that exit trends, especially in the Americas, where pricing was down 2% in June and U.S. rental car inside of that. As a result of all these factors, our adjusted EBITDA was $214 million for the quarter. The actions we have taken in the first half of the year, including fleet reductions and cost mitigation strategies have positioned us for a successful back half of the year. As of June 30, we had available liquidity of over $800 million, including committed and uncommitted facilities with additional borrowing capacity of approximately $2.9 billion in our ABS facilities. Our net corporate leverage ratio was 3.3 times and continues to be well laddered with our corporate debt having no maturities until 2027. Additionally, we are in compliance with all of our secured financing facilities. As you can see in the first six months and in prior quarters, our priority remains in driving operational efficiencies through the appropriate capital investments plus investing in our fleet. The fleet investments are in the form of reducing the amount of debt we issue against our fleet size. In total, we have the ability to issue more than $1 billion of debt out of our AESOP financing structure, which represents further liquidity cushion for our company. This provides us strong ongoing flexibility, and we will continue to evaluate the best use of this capital going forward. Let's move on to our outlook. Although we do not give formal full-year guidance, I wanted to give you insights into what we are seeing for the third quarter. As Joe mentioned, the summer started off strong with positive pricing for the July 4th holiday in U.S. rental car, setting us up well for the third quarter, where we expect pricing for the company to be about flat for the quarter. Although we continue to prioritize pricing by balancing increased demand with higher margin opportunities, we still expect the summer peak of rental demand to be strong and remain similar to the second quarter increase. As we have said in the past, when we keep our fleet inside of demand, pricing should improve. We will continue to prioritize price over volume and will do our part to keep our fleet tight to strengthen our pricing opportunities. We plan on utilization being above prior year throughout the third quarter, and our initiatives for cost control are well underway and continuing to favorably impact our results on a rental day basis. We expect vehicle interest will continue to be similar per unit in the second half of the year. We continue to monitor the markets to assess our depreciation rates, with the insight that new car acquisition costs are more affordable compared to prior year models. In closing, we are well positioned to take advantage of the summer peak and believe our third quarter adjusted EBITDA will be in the range of $500 million to $600 million. With that, let's open it up for any questions.

Our first question is from Chris Woronka with Deutsche Bank. Please proceed.

Hi good morning everyone. Thanks for taking my question. So Joe, I’m trying to understand your comments. Do you think there is any significant change in the industry regarding where some of the lower price volume is going? Perhaps this involves actions from competitors’ fleets, as you've mentioned a decline in fleet year-over-year in July. Your public competitor noted a similar situation, yet the overall industry volume is clearly growing much faster. Do you think there have been notable changes with other competitors and how they're managing their fleets, particularly regarding who is willing to accept lower price demand?

Yes. I want to address the commentary on pricing and demand. We clearly favored price this quarter, which we felt was a wise decision due to inflationary pressures on products and services, rising interest costs, and increased vehicle prices. It was reasonable for us to make this adjustment, and our systems enable us to prioritize one type of margin over another. Looking at the overall demand, we still experienced a record demand quarter in the second quarter. Our volumes and TSA volumes are significantly higher than in 2019, while TSA volumes have yet to reach that level. We have made efforts to grow our company in various ways, and we feel confident about the demand side. Additionally, the calendar impacted the quarter significantly. We saw a 5% increase in rental days in the first quarter in the Americas, and part of that growth may have stemmed from second quarter activities since Easter occurred in March this year rather than in April. Considering how we finished the quarter, during the 4th of July holiday, last June we had the highest number of cars rented. So, this dynamic influenced the results. As for competitor fleets, I haven't noticed anything that indicates they are out of line. Our goal was to reduce our fleet size, and we entered the quarter with that as a key objective. I believe we can achieve demand and rental days with better utilization than we have in the past.

Great. Thanks, Joe. That's very helpful. As a follow-up, regarding your model for 2025 purchases, could you share what percentage you have already completed? Also, does the timing of these purchases change at all? Can you explain how far in advance you typically buy? And is there a chance to secure these lower prices further in advance than usual, or do you prefer to wait and see how the market evolves?

Yes, that's a great question, Chris. I think we are adaptable in our decision-making process. As I mentioned in my prepared remarks, we are about halfway through our buy. We have observed a significant improvement in our holding costs on a vehicle-to-vehicle basis and overall. I believe you will continue to see more of that over time. We took out a good number of cars early, and I have flexibility. If we notice an increase in buying opportunities at prices that allow us to achieve our desired margin, we can certainly sell more cars and move out some older ones. We made a considerable effort early in the quarter to rotate some fleets. I've assigned the vehicle buy to Brian Troy, a previous CFO on the transformation team, and we have utilized data analytics to support our understanding of holding costs moving forward. I'm quite satisfied with our progress, and we're about halfway there.

Our next question is from Ryan Brinkman with JPMorgan. Please proceed.

Hi, thanks for taking my question. I wanted to ask on liquidity, including as it relates to the equity that you might have in AESOP or some of the other fleet securitization facilities around the world, above and beyond that which you're required to maintain by your lenders? I recall you contributing something like $1 billion or so last year beyond which you were required. I'm curious that based on how the vehicle values have trended since then, how much cash you could theoretically extract if you wanted to? And alternatively, maybe how much cushion that means there could be if vehicle prices did track worse than expected for any reason relative to your expectations before you would be then required to put cash into the facilities?

Hi Ryan, good morning. Thank you for the question. I'll start by pointing out that when you look at the balance sheet, the advance rate is at about 87%. However, the accurate calculation shows that we're around 83% based on our structure. The key takeaway is that we have the potential to go as high as 87%. Although we hold nearly $3.8 billion in equity within our fleet, we can issue more than $1 billion of debt from our financing structures, which provides additional liquidity for our company. Moreover, we are consistently paying our minimum depreciation, which enhances our buffer further. In summary, we have over $1 billion in cushion.

Okay, great. And then just as a follow-up, I wanted to ask what you thought were the key benefits that this cushion covers here? I mean, obviously, it means that your free cash flow could be stronger. If you wanted it to be taking cash out or is it that it could more protect it in a downside scenario? Or do you think that this gives additional flexibility to maybe return some of that capital to shareholders? Is it not really prudent to do that now given sort of the uncertainty of where prices could go? But what are the conditions under which you would think about maybe doing that? Or is it better to allow you to run with a structurally higher level of EBITDA because you've got less interest expense in there? Or does it allow you to, maybe gaining more market share in the future? If you have the flexibility around fleet sizing that others don't? Or just how are you thinking about maximizing the benefit of this cushion that you do have?

I think there are two clear points to consider. First, protection is certainly important. Second, having ultimate flexibility is crucial. The key focus for us right now is how we will manage our fleet for model year 2025 while maintaining the right mix. While I reiterate that protection is valid, our main goal is to achieve flexibility. I believe our financing structures provide us with that essential flexibility.

Our next question is from John Babcock with Bank of America. Please proceed.

Good morning and thanks for taking my questions. I guess just a quick question. Are you done rightsizing the fleet? And then also, as you go about refreshing the fleet, I was just wondering if you could talk about whether there's going to be any sort of shift in mix? And I'll kind of start from there.

Hi, this is Joe. Regarding the shift in our vehicle mix, we focus on purchasing cars that people want to drive. We have reservation data that shows the types of vehicles people are interested in, along with data on their preferences based on trim levels. There hasn't been a significant change in that mix or in our strategy. Our fleet includes both core and non-core vehicles, with non-core vehicles being the more popular people movers. We have a sufficient inventory to meet demand, and while they come at a higher price with slightly lower utilization, the profit margins on these vehicles are quite impressive. At the beginning of the year, we had a fleet size that was a bit larger than I preferred, so we made efforts to reduce it. When I mention that 70% of our vehicles have been disposed of, I'm referring to hundreds of thousands of cars, likely closer to 200,000 than 100,000. This illustrates how we have rotated these vehicles out. We've been effective in managing our fleet based on specific criteria and capitalized on a rising wholesale market earlier this year. Between March and April, we saw market improvements that allowed us to sell vehicles effectively. While there's still more to do, our future actions will depend on our vehicle purchases and delivery timelines, which will shape our strategy. As I mentioned earlier, we expect better fleet utilization in the third quarter and aim to enter next year with a properly-sized fleet in line with anticipated demand. Our main goal remains to maintain a fleet size that matches demand, as this provides the best opportunity for profitability and operational efficiency.

That’s helpful. And then also, could you just talk about what your view is on an ideal level for utilization? And then also, if you could follow up on that with just a little bit of kind of discussion on supply/demand. I just want to understand where the market is right now.

Yes. There are many factors that influence utilization. We have systems, technology, and extensive on-the-ground experience that enable us to position vehicles in locations we consider most appealing from both demand and pricing perspectives. We can anticipate demand as our systems provide insights into short-term and long-term demand, organized by city and now expanded to Europe. Our utilization has remained quite stable, historically speaking. However, we believe there’s room for improvement, particularly given what we've learned in the current high vehicle cost environment. We are currently running pilots that we expect will enhance utilization in our cities through machine learning and task analytics, allowing us to assess the status of each vehicle in our fleet. We understand the challenges, and recognizing these will enable us to allocate resources effectively, determining which cars need repairs and when. I believe we can significantly improve utilization going forward based on these developments. Moreover, given the vehicle pricing trends we've observed in recent years, adapting our strategies is essential for our company's growth.

Our next question is from Lizzie Dove with Goldman Sachs. Please proceed.

Hi, thanks for taking the question. You mentioned that the kind of losses have been a little bit better in the quarter than you had expected, which is despite kind of Mannheim declining 6% sequentially in June. I think the DPU guide also changed a little bit in terms of the cadence for the year with 4Q kind of remaining elevated. Just want to understand kind of the moving pieces there and kind of what's changed since you last kind of gave an update.

Good morning Lizzie, I'll take that one. As Joe just mentioned, obviously, one of our top priorities was to have our fleet size inside demand. So that resulted us in disposing quite a bit of vehicles. Actually, it ended up that we disposed 70% of our full year estimated dispositions in the first half. So of course, as you just said, we actually did perform better than what we expected. Even though we do have losses, I would say those losses are really on a per unit basis, pretty nominal. So at this time, given the results of the first six months, although I did say gross debt at $350, we are now changing that our net debt for the remaining two quarters. So for the remainder of the year will be on or close to the $350. I hope that helps.

Yes. That's helpful, thank you. And then I just wanted to touch on capital allocation briefly like as we maybe kind of get towards over this hump with DPU and losses and things like that, like and with the share price where it is? Does that change how you evaluate kind of whether to kind of meaningfully step up buybacks again? I guess what would it take for you to kind of feel comfortable to do that?

I believe that our approach to capital allocation remains consistent with what we've done in the past. As I mentioned earlier, in the first half of the year, we invested in our core business, totaling $110 million through June. Historically, we've aligned our share buybacks with cash generation, which tends to be stronger in the second half of the year. Given the current trading situation of our shares, we view our stock as undervalued, and we see buybacks as a significant opportunity to generate lasting value for our shareholders. However, due to the general market volatility and concerns surrounding the used car market, we believe it is wise to be patient in our capital allocation, especially during these uncertain times. We will continue to allocate our cash flow where it will have the most positive impact on the company and its stakeholders.

Our final question is from Stephanie Moore with Jefferies. Please proceed.

Hi, good morning. Thank you. I believe the discussion around potential recession fears has definitely shifted in the past week, so I wanted to address that. First, could you provide any insights regarding forward bookings? You previously mentioned positive trends during the July 4th holiday, but any additional visibility into future months and bookings would be helpful to understand the demand environment and how it compares to previous years. Secondly, considering the possible recessionary context, how do you perceive the impact on used vehicle values? If we were to see a significant drop in these values, as measured by Mannheim or similar metrics, how can you manage DPU and protect your position as you have so far this year? Thank you.

I'll start by saying that we typically experience the effects of any economic slowdown early since we're in the travel industry. What we've observed, particularly as we've emerged from the pandemic, is that our operations are now more influenced by seasonal patterns compared to the past. The first quarter tends to be leisure-focused, with people traveling to warmer climates, followed by an improvement in the second quarter, the peak during the third quarter, and the fourth quarter dedicated to winter getaways and holidays. I don't anticipate this changing. Regarding our European business, we've seen an increase in reservations compared to the previous year, likely because travel costs there are more affordable. Airlines are also reporting strong inbound travel, and our commercial business has been robust since the pandemic, often intertwined with leisure activities as people travel for business and then enjoy weekends away. I haven't noticed any clear signs of an overall decline. We are mindful of inflationary and recession-related pressures, especially with a national election approaching, which we will closely monitor for its impact on travel plans. However, so far, there haven’t been any indicators suggesting a downturn. Throughout my ten years, I've navigated inflationary challenges during past recessions, specifically in 2008 and 2009, and I was leading the company during the pandemic. I believe we have a solid strategy for responding to such challenges and came out of those situations stronger. Our costs and fleet size are well-aligned, and we wisely decided to reduce our vehicle count early on. We are now purchasing vehicles at significantly lower prices. While uncertainty is uncomfortable, and predicting the future is difficult, I am confident that our team is prepared for any potential changes. As things stand, I don’t see any signs of a downturn.

Thank you. I want to follow up on that. Do you believe that despite the recessionary environment, you have enough flexibility to protect DPU in some vehicle values? What would be the general level of deterioration in used values where you can still respond effectively?

I think there are a few things to consider. Based on our experience, typically in a recessionary environment, lower interest rates lead to an increase in used car prices. That's what we've observed in the past, and we would expect something similar if a recession occurs. However, as I mentioned earlier, our vehicle programs have a significant cushion, with over $1 billion available to manage any short-term disruptions in the used car market. I hope that's helpful.

Yes, it is. I'm sorry, but I think I missed the 3Q EBITDA outlook. Did you say it was between $550 million and $600 million? I just didn't catch that.

I said $500 million to $600 million.

We have reached the end of our question-and-answer session. I would now like to turn the call back over to Joe Ferraro for closing remarks.

Okay, to recap, we reported a strong second quarter with record volume in the Americas. We saw pricing improved sequentially in the quarter in the Americas with the third quarter starting off with a strong 4th of July holiday. We took the necessary steps to adjust our fleet to be in a strong position to drive additional utilization and pricing benefits as we transition into the summer. Our teams around the world are well positioned and prepared to deliver what we believe is another strong summer, and I want to thank all of our employees for their efforts in helping us achieve the results, and I'm excited to see what we can accomplish in the back half of 2024. As always, thank you for your time and interest in our company.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.