Greetings, and welcome to the Avis Budget Group's First Quarter 2025 Earnings Conference Call. At this time, all participants will be in listen-only mode. Please note, today's conference is being recorded. And a question-and-answer session will follow the formal presentation. I'll now turn the conference over to David Calabria, Treasurer and Senior Vice President of Corporate Finance. Mr. Calabria, you may now 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 our 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. Yesterday, we reported our first quarter results, which delivered quarterly revenue of $2.4 billion and an adjusted EBITDA loss of $93 million. Overall, travel demand played out largely as we expected in the first quarter. Taking into account calendar shifts, demand remained solid, primarily due to leisure activity. Total company pricing, while down 2% year-over-year on a constant currency basis, showed improvement compared to the decline experienced in the fourth quarter. In February, we discussed our accelerated fleet rotation strategy. During the first quarter, we focused on executing our fleet refresh, laying the foundation for lower fleet costs and improved operating expenses through newer, lower mileage vehicles, while also enhancing the customer experience. We aggressively disposed of higher-cost older model year vehicles. In fact, I'm proud to say that the number of risk vehicles we disposed of this quarter was a company record. This was not only a first quarter record but a record for any quarter in our company's history. These disposals have made room for newer and more affordable vehicles in our fleet. As we mentioned on our last earnings call, we expect an additional non-cash charge in the first quarter related to the disposition of vehicles as part of our accelerated rotation strategy. Izzy will provide more details later on this call. We remain committed to our fleet discipline as a core part of our operating strategy. By carefully managing fleet just inside of demand, we've consistently achieved year-over-year improvements in utilization, and this trend has continued into the first quarter with total company utilization up nearly four points compared to the first quarter of 2024. We are continuing to invest meaningfully in technology to transform key parts of our business, focusing on enhancing our customer experience, revenue generation, and operational efficiencies. These investments are all aimed at driving incremental adjusted EBITDA. As a result of these actions and our close management of cost, our adjusted EBITDA exceeded the first quarter adjusted EBITDA guidance we provided on our last call. With that, let's discuss our segment results, beginning as always with the Americas. The Americas generated over $1.9 billion of revenue in the first quarter with an adjusted EBITDA loss of $67 million. As we mentioned on our last call, December's record Christmas season carried strong momentum into January with a robust MLK holiday weekend. However, as we moved into February and March, there are year-over-year comparisons to take into account with the loss of a day in February due to leap year and Easter shifting from March to April. Holidays are key events for our business, and we capture higher volume and higher pricing from leisure travel. With these calendar shifts in mind, revenues on a constant currency basis decreased 4% this quarter compared to the same period in 2024, driven by 3% lower pricing and a 1% decline in volume. This largely drove the year-over-year decline in our first quarter revenue. If you adjust for these calendar shifts, our revenue this quarter would have been relatively flat to last year. Despite the calendar shifts in the first quarter, we still saw stable demand trends. Overall, our rental days were in line with TSA activity year-over-year. We did, however, see a pullback in commercial demand as we transitioned through the quarter. This was mitigated by improved leisure demand and meaningful year-over-year volume growth with our valued partners, a trend that continued in April and will remain an area of emphasis for us moving forward. We maintained our discipline to keep fleet inside of demand, which allows for the most efficient use of our assets and optimal price outcomes in any environment. Vehicle utilization improved both on a year-over-year basis and sequentially throughout the quarter. Utilization in the Americas reached nearly 70% for the quarter, representing a four-point increase year-over-year. Looking forward, we believe the transformational enhancements we are making around fleet management will continue to put us in the best position to capitalize on supply and demand opportunities. We have touched on some of these enhancements on our previous calls, and I will provide an update on our efforts later. We expect to continue to show year-over-year improvements in vehicle utilization throughout the year as we plan to continue to run a fleet size inside of demand. I'm beyond impressed with the progress we have made to date on our accelerated fleet rotation. In the Americas, the demand for our used cars was strong and we sold a record number of risk vehicles. In fact, the number of risk vehicles we sold was the most in any quarter in our company's history. The used car residual market has performed well this quarter, partially due to the annual spring bounce and both new and used vehicle inventories being down, but also due to early reactions following the announced automotive tariffs. Residual values improved throughout the quarter, and this is still continuing today. I also want to give an update on new vehicles we have added to our fleet. To date, we have accepted delivery of approximately 70% of our anticipated model year '25 vehicles. We expect our accelerated fleet rotation to help the overall fleet health and reduce our average age, which is currently less than 12 months, and overall mileage, which should positively affect our in-life costs. In terms of both speed and scale, this has been the most impressive fleet refresh during my tenure. This progress has laid the groundwork for more normalized fleet costs as we transition through the remainder of the year and beyond. I now want to briefly touch on ongoing developments around automotive tariffs. This is a very fluid and ever-changing environment, and there's still quite a bit of uncertainty regarding the impacts as it pertains to both our OEM partners and the rental car industry as a whole. As always, we focus on what we can control. First off, we're working closely with our OEM partners and have been in frequent discussions on how to best navigate this situation with the overarching objective to allow for maximum flexibility in our overall fleet planning. As it stands now, new car deliveries for the most part are arriving as planned and have previously agreed upon prices. The used car residual value index for cars of our type is currently well ahead of prior year highs, and we plan to continue to capitalize on this favorable environment. It's too early to know what impacts these tariffs may or may not have on our model year '26 buy. We'll be in a better position to provide an update as the year progresses. From a volume standpoint, forward bookings are up over the prior year with continued growth in leisure and a pullback in commercial demand similar to what we saw in the first quarter. As mentioned previously, our goal is to maintain fleet flexibility in order to ensure we have enough cars to handle the summer peak and beyond and to be ready to take advantage of any positive outcomes in the residual value markets. Over the longer term, we will remain disciplined in adjusting our fleet strategy, pivoting if demand improves or adjusting as necessary. We have a history of reacting quickly and decisively based on internal or external challenges to ensure we stay inside of demand while providing a strong return on invested capital in any environment. So to recap, the first quarter of the Americas segment delivered $1.9 billion of revenue and adjusted EBITDA loss of $67 million. These results reflect expected softer year-over-year performance driven by calendar shifts, including one less day due to leap year in 2024 and Easter moving into April. Despite these differences, fleet discipline remained a top priority, enabling year-over-year improvements in vehicle utilization. We made significant progress executing the accelerated fleet rotation strategy with a record number of vehicle sales and successfully accepting the majority of our model year 2025 vehicle deliveries at previously agreed upon prices. These accelerated actions have set the stage for improved year-over-year fleet costs beginning in the second quarter with normalized levels starting as early as the third quarter. We're optimistic that the used car residual values will support favorable outcomes on vehicle sales, and we will take advantage of this as the opportunities present themselves. As always, our goal is to be disciplined in aligning our fleet size with demand, driving higher utilizations throughout the remaining part of the year. As a result of our strategic actions, The Americas is well positioned to capitalize on the upcoming peak travel season. Let's shift gears to international. International generated revenues of $523 million and an adjusted EBITDA loss of $3 million. The first quarter adjusted EBITDA loss year-over-year improved by $12 million, which was largely due to improved pricing, lower fleet costs, and strong cost discipline to keep operating expenses in line with volume. Excluding exchange rate effects, first quarter revenue was down 2% compared to the prior year with volume down 3% and pricing up 1%. Similar to the Americas, volume was down in the quarter due to calendar shifts with growth in leisure travel helping to offset a strategic reduction in lower margin business. We remain focused on building international inbound and inter-European travel, which grew nearly 7% in the first quarter compared to the same period in 2024. This segment mix generates higher margins and allows us to exit out of lower priced volume. Despite the calendar shifts, there was still an overall year-over-year increase in our leisure business in the first quarter. Our demand fleet pricing system is now fully deployed across Europe and is currently being implemented in our Pacific region. Early results show benefits in price optimization, vehicle utilization, and margin contribution. We remain disciplined in keeping fleet inside of demand to drive higher vehicle utilization. This quarter, utilization was 69%, up more than two points compared to the first quarter of 2024. Similar to the Americas, we are maintaining our flexibility in our fleet position as we prepare for the summer peak. So far in the second quarter, we have seen benefits from Easter shifting into April. We'll continue to prioritize higher margin business to drive improved pricing outcomes throughout the remainder of the Spring season and leading into the summer peak. Our international regions continue to be popular destinations for cross-border travel, and I believe we are well positioned to capture this demand. Moving on to marketing and technology. Our Avis brand launched the Plan On Us campaign in 2023 to reinforce our more than 75-year legacy of reliability and commitment to delivering seamless customer service. The campaign positions Avis as a trusted partner for travelers, a message that continues to resonate strongly with those customers and employees. Building on its success, we relaunched the campaign in April ahead of the summer peak season. In a world of change and uncertainty, we want our customers to know that they can Plan On Us. For 75 years, Avis has had only one plan: to make sure you keep yours. This marketing campaign is just one example of the targeted investments aimed at driving incremental adjusted EBITDA growth. Now let's discuss ongoing developments with technology, starting with an update to our customer mobile app. We launched our new app last Fall, which continues to build momentum as our fastest growing digital channel and enhance overall customer experience. We recently rolled out a new feature aimed at improving the online customer experience through real-time on-demand assistance. With just a few taps, customers can request assistance directly from the lot, and an associate will come to help them wherever they may be. We have launched the experience at 12 locations, and early customer response has been positive. This is another example of how we're leveraging technology to deliver faster, more personalized service and drive greater customer satisfaction. We're also making meaningful improvements to our operational efficiencies by leveraging technology and machine learning across key areas of our business. These activities will assist us in revenue generation, productivity enhancements, and utilization efficiencies. These advancements support our broader goal of enhancing overall margin contribution. As I mentioned on our last call, we remain laser-focused on driving sustainably higher vehicle utilization performance by leveraging new digital in-life fleet tools to provide a better understanding of the disposition of every vehicle within our control. We are continuing to optimize the digital fleet tools in our pilot locations. With the success of the pilots, we have begun rolling out these digital tools to several new key locations to further operationalize and scale this technology across the U.S. These tools are designed to improve vehicle movements, enable more timely repairs, and enhance visibility in our vehicle dispositions, all contributing to increased fleet availability. This and other operational efficiency strategies have enabled us to maintain operating and SG&A expenses on a per rental day basis consistent with the first quarter of last year. So to conclude, we had a terrific start to our accelerated fleet rotation strategy with first quarter disposals well above historic norms, and we will aim to continue to optimize this strategy throughout the remainder of the year. Improved year-over-year fleet costs are expected to begin in the second quarter with normalized levels starting as early as the third quarter. Utilization was up in the first quarter, and year-over-year improvements are expected to continue throughout the year. While tariffs have created some level of uncertainty, we feel we have developed a flexible fleet plan to take advantage of the summer peak and any positive outcomes in the used car market. The demand for our used cars is very strong, and residual values are currently well above prior year levels. As previously mentioned, early summer bookings show increased growth with leisure offsetting a pullback in commercial travel. And as always, we expect pricing to improve seasonally. Before I close, I want to take a brief moment on a personal note. As you know, I will be transitioning out of my current role as CEO on June 30 and continuing as an advisor to the Board. It has been my honor and privilege to lead Avis Budget Group, and I'm incredibly proud of everything our team has accomplished throughout my 45-year tenure. In both good times and challenging environments, we always found a way to enhance our company's performance. We have a tremendous culture of success and an incredible will to win. And I have full confidence in Brian and the entire leadership team to continue building on this foundation. Thank you to our employees who I've worked with throughout the years and whose dedication has inspired me, to our partners who have shared our vision, to our shareholders for their trust and support, and most importantly to our customers. It has truly been an honor for me to serve you. I look forward to watching the company continue to thrive in the years ahead. 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. As always, let me begin with our first quarter results. We've reported an adjusted EBITDA loss of $93 million compared to a positive $12 million in Q1 '24. I will now walk through the key factors behind this $105 million year-over-year change. Total company revenue was $2.4 billion for the quarter, down from $2.5 billion in the first quarter of '24. As Joe noted, the decline was expected, driven by calendar shifts, stronger leisure demand partially offset by softer commercial volume and a 2% decrease in pricing, excluding exchange rate effects. Altogether, these factors contributed to a $120 million year-over-year revenue decrease. Now turning to fleet costs. As noted on our last call, we anticipated a noncash charge in Q1 related to vehicle dispositions as part of our accelerated rotation strategy. We finalized our fleet related charges and recorded a $390 million charge this quarter. This charge is excluded from our adjusted EBITDA. And to be clear, we do not expect any further fleet related charges from this change in strategy. We also guided Q1 fleet costs to be around $400 per unit per month. Thanks to the successful execution of the rotation strategy in the first quarter and continued strength in the used car market, actual per unit fleet costs came in lower at $351. While better than expected, this was up from $318 last year, resulting in a $29 million year-over-year increase driven by elevated vehicle depreciation on our prior model year vehicles, offset by aggressive fleet rotation and improved vehicle utilization. This improved vehicle utilization also contributed to lower vehicle interest expense. In the first quarter, vehicle interest was a $29 million benefit compared to the same period in '24, driven by a smaller fleet and reduced vehicle debt needs. Lastly, we saw a $15 million year-over-year improvement in operating and SG&A expenses while maintaining consistency on a per rental day basis compared to Q1 last year. Although we incurred some additional costs as part of the accelerated fleet rotation, the transformational enhancements Joe outlined are already delivering savings. We will continue piloting and refining these operational initiatives and will optimize our investments accordingly. As a result of these factors, our year-over-year adjusted EBITDA decreased by $105 million. However, the results were in line with expectations with our $93 million adjusted EBITDA loss coming in better than the $100 million loss we had previously guided to. As expected, our capital allocation strategy remains unchanged. We expect a balanced approach to allocate capital in '25. We will focus on debt repayments and capital expenditures that will drive operational efficiencies, reduce costs and support margin expansion. And as always, we will look to opportunistically return capital to our shareholders. As noted on our last call, in February, we issued $500 million of secured debt and used the proceeds to pay down fleet related obligations. This is a temporary indebtedness structured to mature before year-end. It provides us the flexibility to continue to rotate our fleet and pursue opportunistic spot buys. As of March 31, we had approximately $1.1 billion in available liquidity, including both committed and non-committed facilities, along with about $3 billion in additional borrowing capacity under our ABS facilities. Effective April 30, we extended our asset-backed variable funding facilities, increasing borrowing capacity by $640 million. Given our accelerated fleet rotation strategy, we believe it is more meaningful to focus on our total net debt leverage, which includes both corporate and vehicle-related debt over a more traditional EBITDA definition that also adds back vehicle depreciation and interest. Our total net debt leverage ratio remains stable at around 5x as the proceeds from our $500 million secured corporate debt issuance were used to reduce fleet debt. As expected, we continue to remain in compliance with all our financing facilities. As we move through the second quarter, we are seeing clear year-over-year improvements in per unit fleet costs, driven by stronger residual values, disciplined fleet management, and the introduction of lower cost model year '25 vehicles. On our last call, we guided Q2 fleet costs to be around $350 per unit per month. We exceeded that goal by the end of Q1 and now expect Q2 per unit to be approximately $325 per month. Looking ahead, we anticipate further improvement with total company per unit fleet costs to be approximately $300 per month by the start of Q4. These expected improvements reflect our ongoing focus on fleet optimization and utilization along with continued strength in used vehicle demand and residual values. On the revenue side, momentum remains strong. As Joe noted, leisure demand grew year-over-year in Q1, and that strength has extended into April. Forward bookings are up, and leisure bookings continue to trend above prior year levels. Our flexible fleet strategy enables us to scale up to meet rising demand or right size quickly as needed. Pricing is also showing positive sequential trends consistent with seasonal patterns. Rates are strengthening from Q1 into Q2, and current exit trends suggest continued pricing momentum heading into the peak summer season. As a result of these combined efforts, both on the cost and revenue side, we expect adjusted EBITDA in Q2 to exceed $200 million. Our business is built to perform in dynamic environments. We have demonstrated that consistently with a track record of navigating uncertainty through operational agility and a highly variable cost structure, where the majority of our expenses flex with fleet levels and revenue performance. We remain committed to the long-term target we have set for ourselves as a company to generate above $1 billion of adjusted EBITDA annually. That has not changed. And while we continue to strive towards that goal today, we are mindful of the uncertain macroeconomic environment we are currently in. As of now, we are still working through the positive impacts of tariffs on used car prices against the negative impacts of an unclear travel demand environment in the back half of the year, and we will provide updates in the coming quarters. In closing, we remain focused on executing our strategic priorities, driving operational efficiency, optimizing fleet and revenue, and strengthening our overall financial position. The progress we have made in reducing fleet costs, improving utilization, and growing leisure despite softer commercial demand gives us confidence as we move through the remainder of the year. With that, we will now open the line up for questions.

Thank you. We'll now be conducting a question-and-answer session. Thank you. And our first question comes from the line of John Babcock with Bank of America. Please proceed with your question.

Good morning and thank you for taking my questions. First one just on utilization. I know you talked about fleeting levels, and that's obviously a huge driver of utilization. But I was also wondering what you need to do operationally to continue running at higher utilization rates while still meeting demand? And then also if you could talk about if there's a level of utilization where it gets incrementally more difficult to run the fleet?

Yes, hi. Good morning, John. So yes, we ran at utilizations that we felt were optimal in the first quarter for us. We had a strategic initiative to rotate our fleet aggressively because it certainly paid dividends for us going forward as far as Izzy talked about our per unit fleet cost better in the first quarter. And the goal was to make sure that they got better sooner. And we certainly did that. Admittedly, last year, we had a fleet situation where we maybe were a bit larger than we would have liked. So we started off in a better place this year, which was by design. And we found that our modeling that we look at to determine where the cars should be to have the best optimal outcome works in our favor. And as I said many other times on a number of other calls, we're piloting utilization strategies around our division by allowing people to have a better understanding of the cars in their control and how they can better operationalize to get them to be more rentable. So we were happy. And if you look at our overall utilization, when I look back historically through the years, a lot better than last year, kind of in line with where we were previously. So I didn't see that as a big challenge. As we go forward to answer the second part of your question, we see those same opportunities arriving for us. And we have fleet planning that we do daily and weekly by city, by station that enable us to get a better understanding of the supply of the demand side so we can accumulate the supply side. One other thing that happened, we've had some efficiencies in our supply chain operation, whereby we've been able to improve our overall non-rentable fleet that I talked about earlier and get them through our system. We deleted a lot of cars in the first quarter. And usually when you do stuff like that, you come up with a challenge because cars stay idle before you sell them. But due to lane efficiency we saw at the auctions and our relationship with our dealers who bought our cars, we were able to execute at a very high level, and I do see that continuing.

Okay. Thank you. And then just my follow-on question here. I know you talked about tariffs, still an evolving target, obviously. Out of curiosity though, I mean, with some of the signs that vehicle prices are starting to move higher, could you just talk about how that might impact your fleeting plans for model year '26 vehicles? And also if you could just remind us when those negotiations start, that would be helpful?

Yes. I think the OEMs are kind of getting an understanding of how they want to proceed with negotiations. And it's certainly a very fluid environment. We're still involved in getting our 25s and any available fleet that might come through that. We have gotten a good deal of our cars in so far. We still expect more to come in. Deliveries have, for the most part, been on time. I think that's kind of one thing we need to look at when we talk about our fleet is how flexible can we be. One of the areas that was apparent to us when we accelerated our fleet rotation is that it gave us outside of the cost benefit that I talked about, it gave us optionality. And that optionality is we have flexibility in our fleet size that we can either increase the fleet size this year or decrease it if there's some level of uncertainty. And we got younger, both in age and mileage, which would allow us to not be so dependent if 26s are somewhat challenged. The last comment that I would make is that we have intensive modeling on how we look at how we buy our fleet, taking into consideration various makes and models. With the tariff situation, cars are going to be built in the United States, others are going to be brought in from elsewhere. We have the ability to pick and choose cars based on our needs. And we look pretty significantly at those opportunities as well as what residual values may be when we exit them. So we don't have definitive jets on 2026; that's coming. But I feel that we have flexibility enough to determine the size of our fleet based on make models and where they're going to be built and delivered from as well as good modeling that gives us insights on how we want to proceed. Lastly, we're a volume buyer. Our industry buys cars in a volume, and we expect those incentives to be at levels that allow us to generate the activity that we need.

Okay. Thank you, Joe.

Thank you. The next question is from the line of Stephanie Moore with Jefferies. Please proceed with your question.

Hi, good morning. Thank you. I wanted to touch a little bit on what you're seeing from a competitive standpoint, if you feel like there has been any major change in the competitive landscape across the Americas in particular? Thank you.

Look, we operate in a highly competitive environment, and I haven't seen anything that would suggest there's any different level of intensity as it surrounds how we manage our business. I think the thing that I wanted to, that I always think about, we want to understand where our competitors are coming from and any challenges that might be presented. But for the most part, I think if you look at the basics of our industry, everyone wanted to get 25s in because they were less expensive, and everyone has probably done a good job trying to augment their fleet with demand. I think that principle is still in effect. And that gives us all of us the clarity on industry-related fleet size and how it affects our volume and our price. I think I've learned over the years that if we concentrate on what we do and how we do and execute at a very high level, that's the thing I want to make sure that we certainly concentrate on because that gives us our best possible outcome. So to answer your question, no, I haven't seen anything that would suggest any difference, but we're always mindful of how we operate and how we execute and get to the levels that we need to.

Got it. Appreciate the color. And then maybe just one follow-up to the prior question. Maybe you could provide a little bit of insight, Joe. Clearly, you've been with Avis for some time, and we will certainly miss you on these calls. But if you need to go back and think about other periods where maybe we've seen rising new vehicle pricing or higher acquisition costs and what levers you have at your disposal to potentially offset those higher costs? Thank you.

Yes. Well, I talked a lot about the utilization lever. We believe that we have developed a game plan and good insight on how to create more rentable vehicles. And if you do that, the dependency to buy vehicles becomes a lot less. And I'm not saying utilization to deter volume. I'm saying utilization that will allow us to be more efficient and have more cars available to drive more rental days. I think that's a benefit we have today that we're utilizing that we didn't have probably in the past. The other thing is like the rotation that we did set us up in a really good spot that we have this, we have flexibility to grow our fleet, which would put a dependency on new cars maybe a little bit less than what we've had in the past. And I think overall, the way we have executed from not just as reliant on auctions gives us the ability to leverage our ability to deep fleet to a greater level than we had probably in the past. And look at I said this earlier, we look at our buy very differently than we've had. We deal with all the OEM partners. We have terrific relationships with all of them. And we have modeling that would allow us to look at cars, maybe light cars from different manufacturers in a way and have an understanding of what residual values are better than we've had in the past, which gives us insight and informed decisions to make our buy as beneficial to us as possible.

Thank you. Really appreciate the time.

The next question is from the line of Chris Stathoulopoulos with Susquehanna. Please proceed with your question.

Good morning, everyone. Joe, many companies in the travel and leisure sector, including airlines, lodging, and cruise lines, have adopted a more cautious outlook for the year. You seem more optimistic. Can you explain your confidence in achieving the soft guidance of at least $1 billion? Is it related to your efforts in fleet renewal and procurement technology? Additionally, what trends are you observing regarding demand? Could you also clarify your typical booking window? I usually consider it to be within 30 days, and I'm interested in your perspective on demand heading into the second quarter and the summer travel season. Thanks.

Yes. First of all, I want to acknowledge the economic uncertainty we are facing. I won't claim that this situation won't pose challenges. We need to be prepared for any outcome. When I compare the current situation to the past, I notice that our advanced reservations for travel are increasing, even though there has been a slight decline in commercial bookings. This increase in advanced reservations is a positive sign. Regarding the confidence in vacation and trip planning, if we look at reservations made 22 to 30 days out, those numbers are also on the rise. In contrast, during the pandemic and the recession periods of 2008 and 2009, those figures were lower. This trend gives me some assurance regarding consumer travel confidence. In terms of our operations, the used car market is currently performing very well, with higher residual values than in the past. Compared to last year, we've noticed a decline in these values after the spring bounce, but that hasn't impacted us negatively. This situation presents a great opportunity for our fleet management. We have removed high-priced vehicles from our fleet and replaced them with more affordable options, which also provides us with increased fleet stability. With that said, our first quarter performances aligned with our expectations set during previous guidance. The second quarter appears promising in the short term, and our summer reservations are currently looking positive. I have confidence in our execution capabilities; our team performs at a high level both here in Parsippany and globally. This is why I feel optimistic that we remain on track. However, we are aware of recent comments from the Fed regarding potential unemployment and inflation issues, and we must be prepared for various scenarios, which we are.

Okay. And then along those lines on free cash flow, do you think that you can realize positive free cash flow for the year? First quarter, you were at a loss of just around $500 million. I realized there was about $400 million of that in the financing side for the vehicles. Given all the work that you've done with respect to the fleet and the turn in the residual values. Your thoughts around free cash flow for the year? Thank you.

Good morning, Chris. Yes, you hit the highlight, right? Thank you for acknowledging the fact that if you really look at starting from the top, the free cash flow in the first quarter is really equivalent to where adjusted EBITDA landed given that you have to add back that $400 million. What I would say going forward and piggybacking off of what Joe said, obviously, if things go as we see them today, we do expect positive free cash flow in the later quarters.

Our next question is from the line of Ryan Brinkman with JPMorgan Chase. Please proceed with your question.

Hi, good morning. This is Josh Padua on for Ryan Brinkman. Thanks for taking our questions. Joe, congratulations on an exceptional career and best wishes for the next chapter of your life. I just wanted to start off on tariffs. Could you maybe give us a sense of tariff implications from a DOE standpoint? Any insights helping us size the sensitivity of DOE to tariff-induced inflation in vehicle parts? And perhaps any other areas outside of fleet value that may be impacted due to tariffs? Thanks. And I have a follow-up.

Sure. The fleet obviously is the biggest one, but there's an expectation that there's going to be other related costs due to tariffs that have to deal with vehicle parts and things of that nature. I think that's why it was important for us to get our rotation right to mitigate and minimize that level of activity because we'll have a younger fleet. And if you know, a younger fleet will allow us to have in-life costs that are a little bit more controllable. So that would be a mitigating factor. The things that we do in productivity as far as if you're talking about wage and labor inflation, especially as it pertains to any level of insourcing or outsourcing. We have technology now that we utilize to look at how our productivity levels down to the individuals that will give us the opportunity to know where we should put, where we should have certain amounts of manpower versus not. So I think that has been we've always been trying to keep productivity to outperform wage inflation. So that's one. I talked a lot about vehicle utilization and how we look at that to minimize or mitigate some of the other direct operating expense lines. We have a lot of initiatives that have to deal with bad debt and stolen vehicles and registrations and inspections and a litany of things that we look at to ensure that we are in compliance with whatever our targeting is. So to answer your question, yes, we do expect there's going to be some level of tariff-related expenses. And our goal is to ensure that we do like everybody else mitigate them in a way that gets us margins that we're trying to achieve.

That's very helpful. Thank you for that. And just as a follow-on, I'd like to explore how you're balancing buybacks versus deleveraging. On one hand, there's the opportunity to capitalize on the current share price and acquire shares ahead of any potential rally in used car prices, which might occur in response to tariff-related new vehicle price hikes. On the other hand, there's the potential to secure favorable pricing on debt refinancing expected by 2026, which could be facilitated by debt deleveraging and might alleviate pressure on your earnings multiple as well. Just curious how you're weighing these considerations in your capital allocation strategy? Thank you.

Good morning, Josh. I want to reiterate what I mentioned earlier. We maintain a balanced approach, which includes being opportunistic. Throughout this year, while our focus hasn't shifted significantly, we do intend to prioritize reducing our company's debt, which is very important to us. Equally important is our commitment to our capital investments, which are currently enhancing efficiencies and will lead to even greater returns in the long run. Additionally, as you asked, we will always look for opportunities to return capital to our shareholders. These will continue to be our three main focuses. We aim to remain flexible and evaluate everything thoughtfully and opportunistically.

Thank you. Our next question is from the line of Dan Levy with Barclays. Please proceed with your questions.

Hi, good morning. Thanks for taking the questions. I wanted to start first with a question on the DPU. Maybe you could give us a sense of how much your DPU in the first quarter benefited from the one-time charge of just under $400 million. And then maybe you can give us a sense of the assumptions you've laid out for $325 million in the second quarter and $300 million by the start of the fourth quarter. What you are assuming within that for residuals? How much of that is residuals versus how much of that is just getting the better economics on your new vehicles?

Good morning, Dan. Thanks for the question. I think the way we look at it is you have to start with the fact that our strategy was really to accelerate this rotation. As Joe mentioned in the prepared remarks, we kind of exceeded that rotation. So that part that we even when we knew our team could execute, as Joe said, but they even executed beyond our expectations. And that actually drove the fact that given the fact that we were able to take more cars out, you took out more of the older fleet and that you know that the refreshed fleet or the new fleet, the model year '25 came in at a different price point. So that would to me would really be the main reason as to why the DPU is actually better than what we expected. Now clearly there are residual values; there is strength in the used car market that we see in the residual values, but I still would say that the main reason for the improvement is the fact that we executed even beyond what we thought in our rotation strategy.

And the expectations on residuals within the 325 and 300, that assumes some strength continuing?

I mean, the way you have to think of DPU, right? We're always anticipating or trying to anticipate what the sales proceeds will be at the date of disposition. So that really goes into what do we think the future will be. So yes, we're still obviously de-fleeting and in-fleeting for the summer peak, but those will come through as to how the market reacts. But really what we see in the 325, we're not really, we didn't build in an excessive improvement in residual values in the coming quarter.

Okay. Thank you. And then as a follow-up, the playbook for the summer peak, given that some of the macro uncertainty and maybe seeming lack of visibility, is the plan that given if assuming residuals continue that if the strength just isn't there in the rental market that you will quickly deplete given you can take advantage of good residuals and so in a way it's almost like a natural hedge?

Yes. I want to start by saying that we are well-positioned to align our fleet with demand, regardless of the environment. We are aware of certain uncertainties, which is why we have fast-tracked our rotation strategy to create options for ourselves. Flexibility is crucial for us; we need to be able to scale our fleet up if demand increases, and we can do that now. Conversely, if challenges arise, we can quickly scale down, thanks to the actions we took in the first quarter. This flexibility is key for effective fleet management. If demand rises and the summer is stronger than expected, we are prepared to handle it. On the other hand, if we encounter obstacles, our current fleet size allows us to respond swiftly and decrease our reliance on new cars. As mentioned earlier, the used car market reached its peak around last year's Easter and has declined since then, but we haven't seen a similar drop yet. Over time, we will assess how resilient the residual market is. We track various indicators that influence used car demand and pricing. Notably, the supply of new cars has decreased from a 90-day inventory in January to about 60 days now. It's still uncertain how manufacturers will replenish new car inventories. However, there is a clear advantage since used car prices are around $25,000 compared to $48,000 for new cars, and we have noticed some increased demand. As a Fleet Manager for our company, it's always wise to capitalize on these opportunities when they arise.

Great. Thank you.

Thank you. Our next question is from the line of Lizzie Dove with Goldman Sachs. Please proceed with your question.

Hi there. I just wanted to ask about RPD in Americas to start off. I think you said positive sequential trends consistent with seasonal patterns. I think usually it's somewhere in the like 4% to 5% range sequentially, which would put RPD down 4% year-on-year in the Americas. Is that the right way to think about things or, yes, for 2Q?

Sure, I'll discuss pricing. To start, let's review the first quarter to get clarity on what transpired. In the Americas, we saw a decline of three, which is important for future outlook. Looking specifically at January and February, those months were performing below expectations. January benefited from strong holiday sales, while February also had a solid holiday performance. March, however, was the outlier. The results in March were not as favorable as we had anticipated. The absence of the Easter holiday and the impact of last year's eclipse, which generated high RPD for us, contributed to this. In our industry, as we transition through these months, the temporary boosts tend to diminish as we approach the end of Spring, particularly by late June. I expect that the trend as we exit June will be better than the standard rate we’ve seen, which positions us for improved pricing as we move into the summer season.

Got it. And then just a couple of clarifying points on the guidance. So I might have just missed it. I didn't hear you reiterate at least $500 million of cash flow for this year. So I just want to make sure if that's still the case. And then on at least $1 billion which you did reiterate for this year on EBITDA, I know this question has been kind of asked, but just to put a finer point on it. I know it's hard to look at tariffs in a vacuum because there's obviously a lot of secondary impacts there. But just what exactly are you kind of factoring in there from like gains on sale, RPD, the kind of consumer environment that gives you confidence in that $1 billion, or like I guess like how to think about a normalized EBITDA run rate if without the kind of tariff piece of things?

Hi, Lizzie. Thank you for the question. I think maybe I'll clarify a little bit how we started with the $1 billion. First and foremost, the $1 billion is our target. It always was our target, and it still remains our target. I wouldn't go as far as saying I'm reiterating that target. What I'm saying is given the macroeconomic environment and how things are in the news and everything that's going on, I think it's important for us to say our goal is to hit that $1 billion. Now obviously, as I'm stating that, if I'm not I also can't be in the same position to say what the adjusted free cash flow would be because yes, if we hit the $1 billion, I would say it's probably less than $500 million. But if we hit the $1 billion, it's probably in the mid-3s to 4s. So I just want to be clear about that. In terms of your second part of your question, if this, if that, et cetera, I think as you've seen us navigate different scenarios in the past, we never really move off of that target. How we get to that target may differ. If fleet costs are going our way, and something isn't, or vice versa, we have a very variable cost structure. So we would always be achieving the target of no less than $1 billion as well as generating a healthy amount of adjusted free cash flow.

Got it. Thank you.

Thank you. Our final question is from the line of Chris Woronka with Deutsche Bank. Please proceed with your questions.

Hey, good morning, everyone. Joe, I know this is your last call, so just again wanted to wish you all the best and appreciate all the insights over the years. I guess my first question, I know you've covered a lot of ground on scenarios for 2026 fleet, and I know it's very early. But yes, I want to jump out a little bit on your thoughts. If there would be opportunities to lock in model 26s at some point at a price that's, let's just say, comparable to 25. How hard would you look at leaning into that just from a commitment and capital standpoint? Again, I know it's a hypothetical scenario, but any thoughts would be great. Thanks.

Thanks, Chris, and nice speaking to you. Yes, of course. If there's an opportunity to lock in 26s at a price point that we believe is important to our business, we absolutely will. As it stands right now, as I said earlier, we're still talking about 25s in certain cases. And I don't believe that the OEMs have formalized their individual plans yet. I do believe that's coming. And it probably will come sooner than later. But as it stands right now, they haven't. And we'd be ready and willing to get involved and negotiate on any potential 26 deals that's available to us that makes sense.

Okay, fair enough. And then just as a follow-up, obviously, a lot of questions about RPD and direction of demand and all that. But I was hoping we could drill down maybe a little bit of the mix. And I know there's historically been a spread between leisure and commercial pricing. And I'm curious as to whether mix had a big impact for you either in Q1 or whether you expect it to in Q2. And then kind of secondarily to that, are you doing anything differently with respect to channels of demand and might include rideshare, third-party, et cetera? Thanks.

Yes. I think when you think about it, Chris, we always try to optimize on the best segment mix available to us. As you go forward into the year, the dependency on commercial obviously gets reduced, and it becomes more about leisure. Leisure customers tend to buy more ancillary products, which help us from a RPD standpoint as well. So I think when you think about it, leisure, it could be larger cars, it could be product offerings, or it could be generally demand and supply in certain travel environments. So yes, we certainly look at that and we will capitalize on that going forward, airports versus off-airports, leisure demand versus ride hails, et cetera, things of that nature. And that's how we optimize and get the best outcome that we could potentially have for our company.

Okay, very good. Thanks, Joe.

Thank you. At this time, I will turn the floor back over to Joe Ferraro, CEO for closing remarks.

Thank you. So to recap, we made tremendous progress to date on our accelerated fleet rotation strategy with a record number of vehicle sales and accepted delivery on a good portion of our '25 model year vehicles. The used car residual market continues to improve, and our flexible fleet strategy enables us to capitalize on favorable market conditions. And as I said earlier, advanced reservations for us are ahead of where we were in the prior year, largely due to leisure. I want to thank all of our employees for our ongoing commitment and performance. I look forward to watching our company thrive throughout the years. And as always, thank you for your interest in our company.

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