Avis InvestorPresentationCreditSuisse


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Avis InvestorPresentationCreditSuisse

  1. 1. Presentation to Investors March 2008
  2. 2. Forward-Looking Statements Statements about future results made in this presentation constitute forward- looking statements within the meaning of the Private Securities Litigation Reform g g g Act of 1995. Such forward-looking statements include projections. These statements are based on current expectations and the current economic environment. Forward-looking statements and projections are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management The Company cautions that these management. statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and p j y g projections INVESTORS are specified in the Company's Form 10-K for the year ended December 31, 2007. This presentation also includes certain non-GAAP financial measures as defined under SEC rules. Where required, a reconciliation of those measures to the most directly comparable GAAP measure is provided in the glossary of this presentation. Financial information for 2008 is estimated as of February 13, 2008. TO PRESENTATION 2
  3. 3. Business Overview We are the leading general-use vehicle rental company in each of North America, Australia, New Zealand and certain other regions based on published airport statistics. More Than … 6,900 Rental locations 425,000 Vehicles INVESTORS 30,000 Employees 28 million Transactions 110 million Vehicle rental days TO $5.9 billion Annual revenues PRESENTATION 3
  4. 4. Two-Brand Strategy Two Brands, One Cost Structure Customer Touchpoints Customer Touchpoints • Airport counters and busing • Airport counters and busing • Loyalty programs • Loyalty programs • Reservations and marketing • Reservations and marketing INVESTORS Non-Customer Touchpoints • Management / back-office • Vehicles and fleet management • Pricing and yield management • Systems TO • Claims / insurance PRESENTATION Shared services save in excess of $100 million per year 4
  5. 5. Rental Car Industry Overview Airport Segment Local Segment Thrifty Oth Other Avis Budget 2% 8% Dollar 4% All Others Hertz 18% 9% 7% Avis 21% Alamo Avis Budget 5% 32% Enterprise 8% Budget 11% 27% INVESTORS National N ti l 14% Hertz Enterprise 28% 65% TO Total Revenue: ~ $11 Billion Total Revenue: ~ $11 Billion PRESENTATION We generate about half our revenues from commercial rentals and half from leisure rentals Note: Local segment share amounts are company estimates 5
  6. 6. Margin Opportunities Pro Forma Car Rental EBITDA Margin 14% Pro forma for $100 million of cost 12.3% savings from integration of Budget 12% 10.8% 10.6% 10% 9% Average 8.4% 8.3% 8% 7.2% 6.8% INVESTORS 6% 4% 2% TO PRESENTATION 0% 2002 2003 2004 2005 2006 2007 6
  7. 7. Strategic Overview Create sustainable improvements in margins and earnings Optimize Two- Expand Revenue Maximize Brand Strategy Sources Profits • Avis, as a premium • Off-airport growth • Yield management and brand, with premium pricing optimization • Optional insurance pricing products and counter • Rigorous cost controls • Budget, as value up-sells INVESTORS brand, with • Fleet diversification • Ancillary rental corresponding cost products such as • Deployment of free structure Where2 cash flow • Strong online presence • Brand extensions • Customer loyalty TO PRESENTATION Develop engines for accelerated earnings g p g g growth 7
  8. 8. Expand Revenue Sources Where2 is a significant income opportunity for 2008 12% 10% $15 million EBITDA Where Take Rate e 8% $70 million 6% EBITDA e2 INVESTORS 4% $55 million $35 million EBITDA EBITDA 2% TO 0% PRESENTATION 2007 2008 Note: For analytical purposes only based on 96 million rental days, average daily rate for Where2 of $10 and EBITDA margin of approximately 70% 8
  9. 9. Strategic Overview Optimization / Multiple Avenues to Increase Margins Price/Yield Process Fleet Management Improvement Management • Productivity / elimination of • Commercial vs. leisure • Program vs. risk waste • Length of rental • Hold periods • Replication of best practices • Peak vs. off-peak • Manufacturers, brands and models • Ancillary revenues • Enhanced customer INVESTORS • On- vs. off-airport use experience • Mileage • Reservation channel • Timing of acceptance and • Use of LEAN, Six Sigma and disposition other tools • Affinity relationship • Vehicle size and options • Competitive dynamics • More than 400 opportunities • Method of disposition identified to date • Timing of reservation TO PRESENTATION Target annual savings of Target annual savings of $50-$100 million(a) $100-$150 million(a) (a) After full implementation 9
  10. 10. Performance Excellence E mple of P oje t Unde W Examples Projects Under Way Replication generates significant savings opportunities Single-site Annual Savings Project Savings after Replication • Standardizing check-in process $300,000 $5,000,000 • Shuttling 200,000 5,500,000 • Optimizing bus schedules 500,000 1,700,000 INVESTORS • Optimizing vehicle turn-back 750,000 5,000,000 • Process of assigning cars to be relocated 154,000 3,600,000 • Guard services 500,000 , 2,500,000 , , TO • Degassing 3,500,000 PRESENTATION $26,800,000 10
  11. 11. Fleet Management Fleet Compo ition Composition Fleet is becoming more diversified 100% 7% 9% 11% 16% 3% 8% 22% 10% 21% 14% 75% 24% 16% 24% 26% 22% 50% INVESTORS 67% 61% 55% 25% 44% 40% TO 0% 2004 2005 2006 2007 2008E PRESENTATION GM Ford Chrysler Other Risk Cars Ri k C ~1% 1% ~1% 1% ~8% 8% ~25% 25% ~50% 50% Note: Calendar year figures 11
  12. 12. 2008 Opportunities Management controls key areas of opportunity Management Control Market / Environment Performance Excellence Off-airport growth Time & mileage per day Where2 Insurance replacement Interest rates Other ancillary revenues New marketing partners Used car market INVESTORS Operating cost reductions Carey Commercial account base Fleet optimization Risk vehicles TO Share repurchase Free cash flow PRESENTATION Employees Brands 12
  13. 13. 2007 Highlights Revenue Drivers Strategic Progress T&M Launched Performance Excellence process • Rental Revenue improvement initiative Days per Day Domestic Car Rental 4% 0% Grew ancillary revenue by 23% • International 3% 10% Increased on-airport share lead over p • second-largest competitor Truck Rental (7%) (8%) Expanded off-airport presence, including • revenue growth of 9% Revenue Drivers Income Statement INVESTORS Retained more than 98% of commercial • accounts 2007 Vs. 2006 ($MM) Pro Forma Increased Domestic EBITDA by 24% and • y International EBITDA by 18% Revenues $5,986 +6% TO Restructured Truck Rental operations EBITDA 409 +1% • PRESENTATION Pretax Income 198 +15% Made strategic investment in Carey • International Note: EBITDA presented for 2007 excludes separation credit of $5 million and pretax income excludes the separation credit and goodwill impairment 13
  14. 14. 2008 Outlook We expect our revenues and pretax income to increase in 2008 • Domestic rental days projected to increase 3-5%, aided by off-airport growth • Domestic time and mileage revenue per rental day projected to increase modestly • Performance Excellence initiative expected to generate $40 million of savings • Domestic fleet costs expected to rise 4-6% on a pe e pected ise 4 6% per-unit basis nit INVESTORS • Cost structure is 70% variable, providing flexibility to adjust to macroeconomic changes • Seasonality will l k l increase industry-wide l ll likely d d TO • Free cash flow target is 85% of pretax income PRESENTATION Not a federal cash taxpayer 14
  15. 15. Sensitivities C Rent l Ope tion Car Rental Operations EBITDA Impact of a 1% Change in Driver ($ in millions) $45 $42 $30 $19 INVESTORS $14 $15 TO PRESENTATION $0 T&M Revenue per Rental Days Utilization Rental Day 15
  16. 16. Capital Markets Vehicle financing secured for 2008 • 2008 peak financing requirements in place New $800 million bank conduit facility closed in February Pricing 50 basis points higher than existing conduit facility Opportunistically issue term debt when pricing becomes attractive • Only $400 million of ABS term debt maturities in 2009 INVESTORS • No current borrowings under $1.5 billion corporate revolver • No corporate debt maturities until 2012 • After-tax free cash flow yield of 11% After tax TO PRESENTATION Note: Free cash flow yield based on 2007 free cash flow excluding separation-related payments 16
  17. 17. Key Investment Considerations • Well-known and differentiated brands • L di Leading position i th on-airport segment iti in the i t t • Significant free cash flow • Established and loyal customer base • Strong and experienced management team • Significant opportunities for margin expansion • Multiple avenues for long-term revenue and earnings growth long term INVESTORS TO PRESENTATION See glossary for definition of free cash flow 17
  18. 18. Key Revenue Drivers Car Rental Time and Mileage Car Rental Days per Rental Day Combo: Line with column Combo: Line with column $44 (in millions) 120 $42 107 $40.52 103 101 $39.96 $39.56 $40 100 $38.74 88 85 $37.96 $38 80 INVESTORS $36 60 $34 40 $32 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 TO PRESENTATION We project 3-5% growth in rental days and modest pricing increases in 2008 A-1
  19. 19. Revenue and EBITDA Growth (in million ) millions) Revenue EBITDA Combo: Line with column Combo: Line with column $6,500 $550 $5,986 $5,628 $5 628 $467 $5,316 $5,500 $439 $4,709 $409 $4,599 $405 $4,500 $400 INVESTORS $328 $3,500 $2,500 $250 2006(a) 2007 (b) 2003 2004 2005 2006 2007 2003 2004 2005 TO PRESENTATION (a) Pro forma EBITDA gives effect to the pro forma transactions described in the glossary and excludes separation and restructuring costs ( )P f i ff h f i d ib d i h l d ld i d i (b) Excludes separation costs Note: Avis Budget acquired a substantial portion of the assets of Budget Group in November 2002 A-2
  20. 20. Glossary EBITDA excluding separation-related expenses EBITDA is presented excluding separation expenses (credits), which excludes costs that were incurred in connection with the execution of the plan to separate Cendant (as we were formerly known) into four independent companies, which amounted to $(5) million in 2007. We define EBITDA as income from continuing operations before non-vehicle related depreciation and amortization, any goodwill impairment charge, non-vehicle related interest (other than intercompany interest related to tax benefits and working capital advances) and income taxes. EBITDA should not be considered in isolation or as a substitute for net income or other income statement data prepared in accordance with GAAP and our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies. Reconciliation of Avis Budget Group, Inc. EBITDA excluding separation-related costs, net to Avis Budget Group, Inc. loss before income taxes: (in millions) Year Ended December 31, 2007 Avis Budget Group, Inc. EBITDA excluding separation-related expenses $ 409 Less: Separation-related costs net costs, (5) Non-vehicle related depreciation and amortization 84 Interest expense related to corporate debt, net 127 Goodwill impairment 1,195 Avis Budget Group, Inc. loss before income taxes $ (992) Income before income taxes, excluding separation-related costs, net and goodwill impairment Income before income taxes is presented excluding separation expenses (credits) and the 2007 goodwill impairment. Separation expenses (credits) were costs incurred in INVESTORS connection with th separation of Cendant (as we were formerly known) into four independent companies, and amounted to ($5) million i th fourth quarter 2007 Th C ti ith the ti fC d t( f lk )i t f id dt i d t dt illi in the f th t 2007. The Company recorded a charge of $1,195 million for the impairment of goodwill during the fourth quarter 2007, primarily reflecting the decline in the market value of the Company's common stock compared to its book value. Reconciliation of Avis Budget Group, Inc. income before income taxes, excluding separation-related costs, net and goodwill impairment to loss before income taxes: (in millions) Year Ended December 31, 2007 TO Avis Budget Group, Inc. income before income taxes, excluding separation-related expenses and goodwill impairment $ 198 Less: Separation-related costs, net (5) PRESENTATION Goodwill impairment 1,195 Avis Budget Group, Inc. loss before income taxes $ (992) A-3
  21. 21. Glossary Pro forma Adjustments The following table presents our pro forma financial data for the period ended December 31, 2006. All of these financial data are for Avis Budget Car Rental, LLC and its subsidiaries, the companies that comprise Avis Budget Group, Inc.'s vehicle rental business. The pro forma information was derived from Avis Budget Car Rental, LLC's selected historical financial data and adjusted to give effect to the following transactions: • Establishment of a $2.375 billion senior credit facility, of which $838 million was drawn at December 31, 2006 • Issuance of $1.0 billion of senior unsecured notes f$ b ll f d • Repayment of approximately $1.875 billion of debt under vehicle programs with proceeds from credit facility borrowings and the issuance of senior notes • Elimination of interest income related to intercompany balances • Reversal of allocated corporate general overhead costs and inclusion of estimated stand-alone corporate costs The pro forma financial data assume that the pro forma transactions occurred on January 1, 2006. Management believes that the assumptions used to derive the pro forma financial data are reasonable under the circumstances and given the information available. The pro forma financial data have been provided for informational purposes only and are not necessarily indicative of the financial condition or results of future operations or the actual results that would have been achieved had the pro forma transactions occurred on the date indicated. For risk factors that could adversely affect our business, please see quot;Forward-Looking Statementsquot; included in the beginning of this presentation. Reconciliation of Pro Forma EBITDA to Pro Forma Income before Income Taxes for Avis Budget Car Rental (in millions) 2006 Revenues $ 5,628 Avis Budget C ar Rental EBITDA $ 370 Adjustments: INVESTORS Remove general corporate overhead (C ) 51 Remove vehicle and intercompany interest, net (D) 8 Remove separation costs 33 Add public company costs (E) (57) Total adjustments 35 Pro Forma EBITDA $ 405 Interest on corporate debt (A) 137 EBITDA less interest on corporate debt ( p (EBTDA)) 268 Non-vehicle depreciation and amortization (B) 96 TO Pro Forma Pretax income $ 172 (A) Represents interest expense on the April 2006 financings. PRESENTATION (B) Includes additional depreciation and amortization associated with assets transferred from the corporate parent of Avis Budget C ar Rental in conjunction with the separation transactions. (C ) Represents allocated general corporate overhead costs, which will be replaced by stand-alone corporate costs. (D) Represents the removal of intercompany interest income on the intercompany balance with the corporate parent of Avis Budget C ar Rental, removal of interest expense related to debt under vehicle programs (as associated debt was repaid with proceeds from the credit facility and senior notes) and the impact of increased Truck financing costs due to the separation transaction. (E) Estimate of costs to operate as a stand-alone public company without Realogy, Wyndham and Travelport. A-4
  22. 22. Glossary EBITDA Reconciliation for Avis Budget Car Rental EBITDA as presented in slide A-2 for 2002-2006 and as referred to on slide 8 is EBITDA for Avis Budget Car Rental, LLC, which represents income from continuing operations before non- vehicle related depreciation and amortization, non-vehicle related interest (other than intercompany interest related to tax benefits and working capital advances) and income taxes. (in millions) 2002 2003 2004 2005 2006 EBITDA 300 328 467 439 370 Less: Non-vehicle depreciation and amortization 43 73 73 80 86 Less: Non-vehicle interest, net* 42 40 10 6 94 Income before income taxes 215 215 384 353 190 Less: Provision for income taxes 82 79 147 129 105 Income before cumulative effect of accounting changes 133 136 237 224 85 Less: C umulative effect of accounting changes, net of tax - - - (8) - Net Income 133 136 237 216 85 * Does not reflect intercompany interest income of $2 million, $2 million, and $26 million during 2003, 2004 and 2005, respectively, related to tax benefits and working capital advances, py $ ,$ , $ g , , p y, gp , which are included in EBITDA. There is no intercompany interest income included in EBITDA on a pro forma basis. EBITDA used in the calculation of the margins presented on slide 8 is adjusted for 2002-2007 primarily to exclude revenues and EBITDA for our Truck Rental segment and for 2002-2006 to give effect to pro forma adjustments on the previous slide. Such pro forma adjustments for 2002-2006 total $67 million, $122 million, $84 million, $61 million and $26 million, respectively. Free Cash Flow Definition Represents Net Cash Provided by Operating Activities adjusted to include the cash inflows and outflows relating to (i) capital expenditures and GPS navigational units, (ii) the investing and financing activities of our vehicle programs, (iii) asset sales and (iv) the change in restricted cash. We believe that Free Cash Flow is useful to management and the Company’s investors in measuring the cash generated by the Company that is available to be used to repurchase stock, repay debt obligations, pay dividends and invest in INVESTORS future growth through new business development activities or acquisitions. Free Cash Flow should not be construed as a substitute i measuring operating results or ft th th h bi d l t ti iti i iti F C h Fl h ld tb t d b tit t in i ti lt liquidity, and our presentation of Free Cash Flow may not be comparable to similarly-titled measures used by other companies. Reconciliation of Free Cash Flow excluding separation-related cash outflows to Net Cash Provided by Operating Activities Year Ended (in millions) December 31, 2007 Free C ash Flow excluding separation-related cash outflows $ 128 Less: Net separation-related cash outflows (39) Free Cash Flow 89 TO C ash (inflows) outflows included in Free C ash Flow but not reflected in Net C ash Provided by Operating Activities Investing activities of vehicle programs 1,756 Financing activities of vehicle programs (235) PRESENTATION C apital expenditures 94 Proceeds received on asset sales (23) C hange in restricted cash 18 Purchase of GPS navigational units 15 Net Cash Provided by Operating Activities $ 1,714 Free Cash Flow Yield Definition Represents Free Cash Flow excluding separation-related cash outflows (per above) on December 31,2007 divided by market capitalization on January 31, 2008. A-5