Avis Budget Group today reported results for its second quarter ended June 30, 2013. For the quarter, the Company reported revenue of $2.0 billion, a 7% increase compared with the prior-year second quarter. Excluding certain items, Adjusted EBITDA declined 33% to $179 million. The Company reported net income of $58 million, excluding certain items, and a GAAP net loss of $28 million due to debt-extinguishment expenses, transaction-related charges and restructuring costs.
“Our second quarter results reflected volume growth in all regions and increased pricing in North America, offset by the significant year-over-year increase in North American fleet costs occasioned by the significant car-sale gains and depreciation adjustments recorded in the comparable quarter of last year,” said Ronald L. Nelson, Avis Budget Group Chairman and Chief Executive Officer. “Going forward, we expect volume and pricing trends in North America to remain favorable and fleet costs to stabilise. In addition, summer trends in Europe are also favorable, while the integration of Zipcar continues to progress as planned, with both cost savings and incremental revenue opportunities being realised.”
Zipcar, acquired by the Company in March 2013, contributed approximately $76 million to revenues and $6 million to Adjusted EBITDA in the second quarter.
The Company also today announced that its Board of Directors has authorised a new share repurchase program that will enable it to purchase up to $200 million of its common stock. The amount and timing of specific repurchases are subject to market conditions, Company performance and stock price, applicable legal requirements and other factors. Repurchases may be conducted in the open market or in privately negotiated transactions. The Company intends to fund share repurchases primarily with cash flow from operations and indicated that the share repurchase authorisation does not represent any change in its targeted leverage ratios.
“Today’s share-repurchase announcement reflects the confidence we have in our business and our prospects,” Mr. Nelson said. “We have reduced our diluted share count by more than 16 million shares as a result of having repurchased $270 million of our convertible debt in 2012 and 2013, and we remain committed to delivering value to our shareholders, while also maintaining a prudent capital structure and flexibility to execute on our strategic objectives.”
Total Company revenue increased 7% in second quarter 2013 compared to second quarter 2012 primarily due to the acquisition of Zipcar and a 3% increase in rental days. Second quarter Adjusted EBITDA decreased 33% to $179 million, excluding certain items, primarily due to higher fleet costs in North America.
Business Segment Discussion
The following discussion of second quarter operating results focuses on revenue and Adjusted EBITDA for each of our operating segments. Revenue and Adjusted EBITDA are expressed in millions.
Acquisition of Payless Car Rental – The Company announced in July that it had acquired Payless Car Rental, the sixth largest car rental company in North America. The addition of the Payless brand, which generated approximately $80 million in annual revenue in 2012, gives Avis Budget Group a meaningful position in the deep-value segment of the car rental market.
Debt Refinancing – In June, the Company refinanced its existing $900 million in term loan borrowings due 2019 with $1 billion in new term loan borrowings due 2019, while also reducing the interest rate on such loans by 75 basis points. The Company also redeemed all of its $124 million outstanding 9.625% senior notes due 2018 and $100 million of its floating-rate senior notes due 2014.
Revolving Credit Facility Extension – In August, the Company amended its principal corporate revolving credit facility, extending its maturity from 2016 to 2018, expanding its size from $1.5 billion to $1.65 billion, and reducing the interest rate under the facility by 75 basis points. As of June 30, 2013, the Company had no borrowings and $1.1 billion of letters of credit outstanding under the facility.
The Company today updated its estimates of its full-year 2013 results based on current economic conditions.
The Company continues to expect its full-year 2013 revenue to be approximately $7.8 billion to $8.0 billion, a 6% to 9% increase compared to 2012. The Company now expects its Adjusted EBITDA to be approximately $750 million to $800 million, excluding certain items. The narrowing of the Company’s projected Adjusted EBITDA range from its initial expectation reflects better-than-expected pricing trends in North America, offset by lower vehicle residual values in North America and weak economic conditions in Europe and Australia.
The Company now expects per-unit fleet costs in its North America segment to increase approximately 25%, to roughly $300 per month in 2013. Total Company fleet costs are expected to be $285 to $295 per unit per month in 2013, an increase of approximately 15% to 20% compared to 2012.
The Company expects interest expense related to corporate debt to be approximately $230 million, a decline of $30 million compared to 2012. The Company continues to expect that its 2013 non-vehicle depreciation and amortsation expense (excluding the amortisation of intangible assets related to the acquisitions of Avis Europe and Zipcar) will be approximately $130 million to $135 million. As a result, the Company estimates that its pretax income will be approximately $385 million to $440 million, excluding certain items.
The Company continues to expect that its effective tax rate in 2013 will be approximately 37% to 38%, excluding certain items, and that its diluted share count will be approximately 117 to 118 million. Based on these expectations, the Company estimates that its 2013 diluted earnings per share, excluding certain items, will be approximately $2.05 to $2.35.