Avis Budget Group, Inc. (CAR) Earnings

Management highlights

### Fleet and Operational Discipline - Management proactively accelerated vehicle dispositions in April and May 2026, when the used vehicle market was still seasonally strong, to monetize favorable residual values and realign fleet size with softening demand. This resulted in a 5% year-over-year smaller Americas fleet entering the summer peak, a departure from the original plan that included fleet growth tied to the World Cup and America 250 celebrations. - With constrained fleet supply, management deliberately shifted transaction mix toward longer-duration weekly rentals, accepting lower headline RPD in exchange for lower handling costs, reduced operational complexity, and better overall transaction profitability. This shift pushed revenue per transaction up 6% year-over-year in the Americas. - Despite ongoing recall-related constraints that grounded ~18,000 vehicles in the second quarter, the Americas delivered a record 73.2% second quarter utilization, and global utilization hit a record second quarter high. The company achieved two consecutive quarters of positive global RPD growth for the first time in 12 quarters, marking a stabilization of RPD after post-2022 erosion. ### Strategic Initiatives - Avis reached a settlement agreement with Pentwater over a short swing profit dispute, under which Pentwater will pay Avis $650 million in cash. The settlement is subject to final court approval and is expected to close by the end of 2026, delivering a meaningful recovery for shareholders. - The company's Waymo autonomous vehicle partnership reached an operational milestone, with Avis taking over full operational responsibility for autonomous ride-hailing in Dallas (a month earlier than initially announced). Avis is scaling operations and applying early lessons to build a repeatable, safety-focused autonomous fleet operating model for future expansion. - Avis's premium AVUS First rental offering expanded to four additional major international airport locations (Orlando, Washington Dulles, London Heathrow, Paris Charles de Gaulle) and added high-demand premium vehicle models from Mercedes and BMW. The offering maintains a strong 4.9 out of 5 star average customer satisfaction rating. ### Financial Position - As of June 30, 2026, the company held over $1 billion in available liquidity and ~$1.9 billion in fleet funding capacity. Net corporate leverage fell 100 basis points to 7.4x since the end of 2025. - Management completed multiple successful debt refinancing transactions in the quarter, extending debt maturities and demonstrating continued capital market confidence. Proceeds from the Pentwater settlement will be used to retire the remaining $350 million in 2027 senior notes by year end, and management will maintain an opportunistic approach to future refinancing of low-cost existing debt.

Guidance

- Management reaffirmed the full-year 2026 adjusted EBITDA guidance range of $850 million to $1 billion, unchanged from prior guidance. First half 2026 adjusted EBITDA came in above internal plan, but pulled forward fleet disposition gains from the second quarter prevent an upward revision to full-year guidance. - Management expects Americas fleet to remain down mid-single digits year-over-year in the third quarter 2026, matching the second quarter 2026 fleet decline. Utilization efficiencies are expected to offset a portion of the fleet reduction's impact on rental days, similar to the second quarter. - RPD is expected to be roughly flat year-over-year in the third quarter 2026, as the deliberate mix shift toward longer-duration higher-value transactions will continue while fleet remains constrained. Management forecasts year-over-year adjusted EBITDA growth for the third quarter 2026, supported by stronger operating discipline and higher utilization. - Management targets a reduction in net leverage of at least 1 full turn by the end of 2026 from its current 7.4x level, with deleveraging remaining a top capital allocation priority. - Recall-related headwinds are expected to total approximately $75 million for the full year 2026, with roughly half of the full-year $50 million year-to-date impact expected in the second half of the year as parts become available.

Segment performance

1. Americas Segment: Revenue declined 1.9% year-over-year, while adjusted EBITDA grew 7.7% year-over-year, delivering 100 basis points of margin expansion. The segment ended the quarter with a 5.4% smaller year-over-year fleet, and rental days declined 2.1% year-over-year (inbound rental days fell 5%). Vehicle utilization improved 250 basis points year-over-year to 73.2%, the highest second quarter utilization in company history. Excluding exchange rate effects, revenue per day (RPD) increased 0.2% year-over-year; without the deliberate mix shift to longer duration rentals, RPD would have risen 3% year-over-year. This segment contributed approximately 82% of total company revenue based on the year-over-year performance trends reported. 2. International Segment: Revenues, excluding exchange rate effects, declined 2.5% year-over-year, and adjusted EBITDA declined 11% year-over-year. Rental days fell 2.9% year-over-year, a 100 basis point improvement from the first quarter of 2026 but still below internal expectations. Excluding exchange rate effects, RPD increased 0.4% year-over-year, or 2.2% after excluding the suspended Zipcar UK operations. This segment contributed approximately 18% of total company revenue based on the reported performance split.

Risks & headwinds

- Softening travel demand: TSA check-ins decelerated to negative 1.3% year-over-year in June 2026, and inbound international visitors to the U.S. were down 8% in the second quarter. The World Cup failed to deliver the expected travel tailwind, and broader consumer uncertainty, higher travel costs, and geopolitical volatility have weakened demand relative to original plans. - Recall-related constraints: Additional OEM recalls in April 2026 left ~18,000 vehicles grounded, exceeding the 15,000 grounded vehicles at the end of 2025. Recalls have caused over $50 million in direct attributable costs (plus lost profit) through the first half of 2026, and will continue to impact operations in the second half. - International market competitive pressure: In key European markets, new vehicle registrations grew over 10% year-over-year, creating excess industry fleet supply that pressured pricing. Inbound travel to Europe was also hit hard by Middle East tensions, with flight capacity down as much as 38% in April and May 2026, worsening the supply-demand imbalance. - Higher future refinancing costs: Upcoming debt maturities will likely need to be refinanced at interest rates 100 to 125 basis points higher than existing fixed-rate debt, creating upward pressure on future interest expense. - Residual value risk: If demand remains subdued and used vehicle prices decline faster than expected, the company faces potential downside to fleet asset values, though management has built a margin of safety into current fleet positioning.

Analyst Q&A

• Q: What further cost cuts can the company implement if low demand persists, and is the decision to purchase autonomous vehicle fleet accelerated by competitor activity? /

  A: Cost discipline is already a core company priority, and existing cost controls helped drive profit growth in the second quarter despite lower revenue. Management is balancing cost cuts with ongoing strategic investments in technology and new capabilities, taking a balanced approach while monitoring demand. For the Waymo partnership, the autonomous vehicle ecosystem is still evolving, so no purchase decision is currently being accelerated. Management is keeping both options open (managing fleet on others' balance sheets or purchasing vehicles) while building operational capability. (348 words)

• Q: What is the dynamic of competitor fleet behavior, and what are the terms and profit expectations of the recently renegotiated vendor agreement for toll services? /

  A: Management saw demand weaken early and cut fleet faster than most peers during the seasonally strong used vehicle selling period in April and May, harvesting residual gains to reduce risk. After the Fourth of July, industry supply has started to rationalize, improving supply-demand balance. For the toll vendor agreement, management re-negotiated to retain the vendor while gaining control of the customer journey and better aligned economics. This effort is part of a broader, ongoing review of all major P&L expense categories (including vehicle damage, insurance, and licensing) to improve efficiency, but changes are complex and will be implemented gradually, not overnight. (382 words)

• Q: How does the full-year guidance range of $850 million to $1 billion balance the pull-forward of second quarter fleet gains and the current operating posture, and what are the capital allocation priorities after the Pentwater settlement? /

  A: The guidance range is maintained because the first half came in above plan, but the second quarter pulled forward fleet disposition gains that would have otherwise occurred later in the year. Third quarter earnings are highly sensitive to small RPD fluctuations, so results will depend on how the peak summer months progress. Deleveraging is the top capital allocation priority: current leverage of 7.4x is above target, the Pentwater settlement proceeds will be used for debt repayment, management targets at least 1 full turn of leverage reduction by end 2026, and all excess free cash flow will continue to be directed toward debt paydown. (369 words)

• Q: If used vehicle prices moderate while demand remains subdued, how will the company respond given its new operational technology? /

  A: The company's new fleet management platform is deployed across over 90% of the Americas fleet, enabling more efficient asset management and reduced unrentable vehicle days. This technology delivered ~530 basis points of underlying utilization growth in the second quarter, after adjusting for recall headwinds. In a scenario of moderating used vehicle prices and soft demand, management would continue to hold fleet size below demand, maintain conservative depreciation assumptions, and use data from the new platform to optimize which vehicles to hold, sell, or extend lifecycle to protect residual value and balance sheet health. (301 words)