Avis Budget Group, Inc. reported results for its second quarter ended June 30, 2012. For the quarter, the Company reported revenue of $1.9 billion, a 32% increase compared with the prior-year second quarter. Excluding certain items, Adjusted EBITDA increased 39% to $266 million. The Company reported net income of $112 million and diluted earnings per share of $0.94, excluding certain items. GAAP net income of $79 million was impacted by debt extinguishment costs and acquisition-related charges.
As previously announced, the Company completed its acquisition of Avis Europe plc on October 3, 2011. For the quarter ended June 30, 2012, the acquisition of Avis Europe contributed revenue of $417 million and Adjusted EBITDA of $46 million, excluding certain items. Excluding Avis Europe, the Company’s revenue grew 3% in the second quarter and Adjusted EBITDA increased 15%, excluding certain items.
“Our second quarter results reflected rental volume increases across all regions, organic earnings growth, a significant contribution from the Avis Europe acquisition and continued margin expansion,” said Ronald L. Nelson, Avis Budget Group Chairman and Chief Executive Officer. “Looking ahead, our summer reservation trends have been positive throughout the world, the effects of a weak economy in Europe appear manageable thus far, and the integration of Avis Europe is progressing as expected, giving us added confidence in our ability to achieve a run-rate of more than $35 million in annual synergy benefits by the fourth quarter.”
Revenue increased 32% in second quarter 2012 compared to second quarter 2011 primarily due to a 34% increase in rental days, a 3% decrease in average daily rate and a 43% increase in ancillary revenues. Excluding Avis Europe, volume increased 5% and pricing declined 3%. Second quarter Adjusted EBITDA increased 39% to $266 million, excluding certain items, driven by increased revenues and lower per-unit 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. Prior-period results have been revised to reflect the movement of Canadian results from the International segment to the North America segment. Revenue and Adjusted EBITDA are expressed in millions.
(Consisting of the Company’s U.S. car rental and Canadian vehicle rental operations)
2012 2011 % change
Revenue $1,184 $1,150 3%
Adjusted EBITDA $184 $156 18%
Revenue increased 3% primarily due to a 6% increase in volume and a 5% increase in ancillary revenues, partially offset by a 3% year-over-year decline in pricing. Pricing decreased 2% excluding foreign-currency effects. Adjusted EBITDA increased 18%, primarily due to increased revenue and a 13% decline in per-unit fleet costs.
(Consisting of the Company’s international vehicle rental operations)
2012 2011 % change
Revenue $579 $159 264%
Adjusted EBITDA $59 $20 195%
Revenue increased 264% primarily due to the acquisition of Avis Europe. Excluding the acquisition, revenue increased 4% primarily as a result of a 3% increase in volume and a 1% increase in average daily rate on a constant-currency basis, partially offset by currency effects that caused reported pricing to decline 3%. Adjusted EBITDA increased $39 million due to a $33 million contribution from our European operations, including $12 million of restructuring costs, and organic revenue growth.
(Consisting of the Company’s U.S. truck rental operations)
2012 2011 % change
Revenue $103 $103 0%
Adjusted EBITDA $17 $18 (6%)
Truck rental revenue was unchanged as a 1% increase in pricing was offset by a similar decline in volume. Adjusted EBITDA decreased by $1 million primarily due to higher vehicle maintenance expense.
Convertible Notes Repurchase - The Company repurchased $100 million principal amount of its 3.5% convertible notes in the second quarter at a price of approximately $119 million, excluding accrued interest, bringing the total year-to-date repurchases to approximately $200 million principal amount. The repurchases have reduced the potential equity dilution associated with the notes by more than 12 million shares, or nearly 10% of the Company’s diluted share count.
Asset-Backed Debt Offering - On July 31, the Company’s Avis Budget Rental Car Funding (AESOP) LLC subsidiary completed a $690 million offering of five-year vehicle-backed notes with a weighted-average interest rate of 2.2%. Proceeds will be used primarily to repay maturing vehicle-backed debt with an average interest rate of approximately 5%.
Avis Budget EMEA Statistics - Revenue in the Company’s Europe, Middle East and Africa operations increased 2% on a constant-currency basis in second quarter 2012 compared to second quarter 2011, and declined 9% on a reported basis. The change in revenue reflects a 2% increase in rental days and a 14% decline in average daily rate driven primarily by currency-exchange rates. Pricing decreased approximately 3% on a constant-currency basis due largely to the strong growth experienced by the Budget brand.
Financial Outlook - The Company expects its full-year 2012 revenue to be approximately $7.2 billion to $7.5 billion, a 22% to 27% increase compared to 2011. The decline in the Company’s revenue estimate compared to its previous estimate of $7.3 billion to $7.6 billion is due to movement in currency-exchange rates.
The Company continues to expect its 2012 Adjusted EBITDA to be approximately $825 million to $875 million, excluding certain items, an increase of 35% to 43% compared to the prior year. Fleet costs in North America are expected to decline 3% to 8% on a per-unit basis compared to 2011, consistent with the Company’s prior estimate. Interest expense related to corporate debt is expected to be approximately $260 million to $265 million in 2012, which represents a modest increase versus the Company’s prior estimate due to year-to-date hedging costs. The Company also expects that its 2012 non-vehicle depreciation and amortization expense (excluding the amortization of intangible assets related to the acquisition of Avis Europe) will be approximately $110 million, and that its pretax income will be approximately $450 million to $505 million, excluding certain items.
The Company expects that its effective tax rate in 2012 will be approximately 34% to 38%, excluding items, and that its diluted share count will be approximately 122 million. Based on these expectations, the Company estimates that its 2012 diluted earnings per share, excluding certain items, will be approximately $2.35 to $2.65.
Acquisition Synergies - The Company continues to expect to reach a run-rate of more than $35 million of annual synergies from the acquisition of Avis Europe by the fourth quarter.
Performance Excellence Savings - The Company is continuing its efforts to reduce costs and enhance productivity and expects that such initiatives will provide incremental benefits of more than $45 million in 2012.