Earnings call transcript: Avis Budget Group beats Q3 2025 estimates, shares rise

Avis Budget Group Inc. reported its third-quarter earnings for 2025, surpassing analyst expectations with an earnings per share (EPS) of $10.11 against a forecast of $8.24, marking a 22.69% surprise. The company’s revenue stood at $3.52 billion, slightly ahead of the anticipated $3.46 billion. Following the announcement, Avis shares rose by 1% to $158.45 in pre-market trading, reflecting investor optimism. According to InvestingPro data, the stock has shown significant volatility, with a beta of 2.02, and currently trades above its Fair Value estimate.

Key Takeaways

• Avis Budget Group reported a 22.69% EPS surprise, exceeding forecasts.
• Revenue grew by 1% year-over-year, reaching $3.52 billion.
• Stock price increased by 1% in pre-market trading following the earnings release.
• The company highlighted a strong focus on customer experience and service innovation.
• Challenges remain in the commercial and government segments.

Company Performance

Avis Budget Group demonstrated robust performance in Q3 2025, with revenue increasing by 1% year-over-year to $3.51 billion. The company’s consolidated adjusted EBITDA saw an 11% rise, showcasing operational efficiency despite a mixed demand environment. While leisure travel remained strong, the commercial and government segments faced challenges, reflecting uneven demand across different geographies.

Financial Highlights

• Revenue: $3.51 billion, up 1% year-over-year
• EPS: $10.11, surpassing the forecast of $8.24
• Consolidated Adjusted EBITDA: Increased by 11%
• Year-to-date Adjusted Free Cash Flow: Negative $517 million

Earnings vs. Forecast

Avis Budget Group’s Q3 2025 earnings exceeded expectations, with an EPS of $10.11 compared to the forecasted $8.24, resulting in a 22.69% surprise. Revenue also surpassed predictions, coming in at $3.52 billion against an expected $3.46 billion. This marks a notable achievement for the company, reflecting effective cost management and strategic initiatives.

Market Reaction

Following the earnings announcement, Avis Budget Group’s stock price rose by 1% to $158.45 in pre-market trading. This positive movement aligns with investor sentiment, driven by the company’s strong financial performance and optimistic outlook. The stock has demonstrated remarkable strength with a 76% return over the past year and an 87% year-to-date gain, according to InvestingPro data. The stock’s current price remains well below its 52-week high of $212.81, suggesting potential room for growth.

Outlook & Guidance

Looking ahead, Avis Budget Group anticipates modest improvement in revenue per day (RPD) for Q4 2025. The company is preparing for significant events in 2026, such as the World Cup and America’s 250th celebration, which are expected to boost demand. Avis aims to maintain a $1 billion baseline EBITDA as a "floor" and will continue investing in customer experience enhancements.

Executive Commentary

CEO Brian Choi emphasized the company’s focus on service quality, stating, "We are not just a rental car company. We are a service company delivering a dependable product at the best value proposition." He also highlighted the importance of cost discipline, noting, "In our business, it’s foundational to survival to be lean."

Risks and Challenges

• Vehicle recalls have impacted the fleet, with a full-year cost estimated at $90-$100 million.
• The commercial and government segments face demand challenges.
• Fluctuations in exchange rates could affect international revenue.
• The company must navigate uneven demand across different geographies.
• Retaining older vehicles may affect fleet efficiency and customer satisfaction.

Q&A

During the earnings call, analysts inquired about the vehicle recall impacts and RPD trends. The company explained its fleet management strategies, emphasizing flexibility and readiness to meet peak demand. International segment performance and seasonal variations were also discussed, providing insights into the company’s adaptive approach to market conditions.

Full transcript - Avis Budget Group Inc (CAR) Q3 2025:

Conference Operator: Greetings and welcome to the Avis Budget Group third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A reminder that this conference is being recorded. I would now like to turn the conference over to your host, David Calabria, Treasurer and Senior Vice President, Corporate Finance. Please go ahead.

David Calabria, Treasurer and Senior Vice President, Corporate Finance, Avis Budget Group: Good morning, everyone, and thank you for joining us. On the call with me are Brian Choi, our Chief Executive Officer, and Daniel Cunha, 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. These risks, uncertainties, and other factors are identified in our earnings release, our periodic filings with the SEC, and on the investor relations section of our website. Accordingly, forward-looking statements should not be relied upon as predictions of actual results. Any or all of these statements may prove to be inaccurate, and we make no guarantees about our future performance. We undertake no obligation to update or revise any forward-looking statements.

On this call, we will also discuss certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website, for definitions of these measures and reconciliations to the most comparable GAAP measures. With that, I’d like to turn the call over to Brian.

Brian Choi, Chief Executive Officer, Avis Budget Group: Thanks, David, and thank you to everyone joining us today for our third quarter earnings call. Last quarter, we took a different approach, less about line items, more about where this company is headed. The response was encouraging. Many of you appreciated the more strategic, forward-looking discussion. We plan to keep building on that. That said, a few participants pointed out that we didn’t actually talk about our quarterly earnings on our quarterly earnings call. Fair point. The good news is that we now have a seasoned CFO, nearly four months in, who will walk you through some of the numbers and trends. Before Daniel gets into that, I want to highlight something that I’m proud of: our revenue growth this quarter. We delivered $3.51 billion in revenue this quarter, up from $3.48 billion a year ago, a $39 million increase. Modest, yes, but meaningful.

This is the first earnings call in eight quarters where we get to say that our revenue is higher than last year’s. The question you’re all asking is, what’s normalized EBITDA? That’s tough to answer until you have some stabilization on the top line, and we haven’t had that post-pandemic. I believe that normalized EBITDA, and more importantly, sustainable EBITDA growth, cannot come from just cost-cutting alone, especially in this type of environment. You have to grow both volume and price by delivering a product that wins the customer’s share of wallet. That’s what makes you a relevant, viable company. Just to state the obvious, growth at any cost doesn’t work for us. Cost discipline is a necessary condition. In our business, it’s foundational to survival to be lean. We can’t afford to forego investments that drive productivity, elevate the customer journey, and differentiate us from the competition.

It’s a simple flywheel and not unique to Avis. Be operationally excellent and stay disciplined on cost. That affords you the right to invest in improvements to both the customer and employee experience, which eventually drives greater revenue and results in operating leverage if you remain disciplined on cost and on and on it spins. This quarter marks the first time in quite a while that we’ve seen all of those elements working together at Avis. Will it be a straight line to the moon from here? No, there will be bumps along the way. Simply put, this is our game plan going forward: cost discipline to afford reinvesting in our product and people to earn revenue growth through a better customer experience. We will be consistent and disciplined in executing that model. In the quarters ahead, I’ll share more about how we’re putting these words into action.

For now, I’d like to focus on that better customer experience portion and explain what that means for us today at Avis Budget Group. During my time at Avis, I’ve noticed that when we talk about customer experience, it often gets reduced to a handful of metrics: % of app bookings, number of counter bypasses or express exits, and NPS scores. All important things, but that’s not customer experience. Customer experience is not a number. It’s the overall perception a consumer has of a brand, shaped by every interaction. When done exceptionally, it creates preference, loyalty, and ultimately value creation. Here’s the reality: our industry hasn’t done nearly enough on this front. We at Avis intend to change that. One of the core initiatives of this leadership team is a hard reset on customer experience.

We try harder is in our DNA, but during the survival years of COVID, we drifted from that bedrock principle. Now it’s time to return to it with intent. Here’s the message we’re evangelizing. We are not just a rental car company. We are a service company delivering a dependable product at the best value proposition. Let me break that down. First, we have to fully embrace that we’re in the service business. We don’t sell merchandise you can hold in your hand. Our product is a rental thing, an experience. If our product is an experience, customers need to know what that experience will be. It has to be dependable. Think about McDonald’s.

Nobody would return if the drive-through sometimes took three minutes and sometimes an hour, if the Big Mac came out differently each time, or if you ordered a Big Mac and found chicken nuggets in the bag instead. In our industry, that kind of inconsistency is commonplace. No cars available, long lines, wrong vehicle class. We’ve all been there. Our commitment is simple: deliver products consistent enough to build brands around. In an industry often seen as unreliable, service and dependability can be a differentiator. Customers don’t just want the lowest price. They want the highest value. Great companies earn pricing power by delivering value worth paying for. That’s where we intend to live. So that when corporate procurement teams choose a rental partner, they know Avis holds itself to higher vehicle standards than they require.

Or when families plan annual vacations, they know Budget won’t waste their precious time waiting for a car. Delivering that peace of mind through a dependable product builds brand equity, trust, and loyalty. All of that is within our control. It’s repeatable if we impose discipline on ourselves, and it’s the path we’ve chosen. We will define and deliver a better product, exceed customer expectations, and build brands that actually stand for something. The alternative path is to keep participating in the zero-sum game this industry has been playing for years, fighting over basis points of share and torching brand equity in the process. We have no interest in that. We are a service company, and dependability delivered at the best value proposition is what we stand for. This is why we launched Avis First last quarter. It’s that principle in action. It’s only the beginning.

The same rigor around customer experience will cascade through every brand in our portfolio: Avis, Budget, Payless, and beyond. The fact that we operate a family of global brands is a competitive advantage that we haven’t fully leveraged. I said it on our last call, but it’s worth repeating. We can’t keep relying on this old-school binary view of premium versus value. That framework doesn’t reflect how consumers behave today. In rental car, premium brands focus on commercial accounts. Value brands chase leisure customers, and the differentiation between those lanes is actually minimal. That’s very different from how the airlines across their cabin classes and hotels across brands have approached segmentation. It’s not limited to the travel industry. Think about streaming, the Netflix and Spotify of the world. They offer clearly defined segments: ad-supported, basic, standard, premium, family plans.

The more defined your product tiers, the better you can optimize value for both the customer and the business. We need to apply the same logic to our company. When we set out to operationalize this philosophy, we asked ourselves a simple question: what would our St. Regis look like? What would the ideal rental car experience be if you combined the agility of a digitally native company with the scale and expertise of an industry leader? The answer is Avis First. We’re not tweaking at the margins with this product. We’re making a statement. Avis First is the opening salvo in our broader transformation, proof to customers, employees, and investors that we’re serious about moving this business out of the commodity trap. It’s been just three months since launch, and the results confirm we have real product-market fit.

Concierge coverage has expanded rapidly at our earliest airports in response to strong demand. We’ve tripled our footprint from a dozen locations at launch to 36 today. We continue to refine the technology stack to minimize delivery and collection times, proving to our airport partners that even during busy periods, curbside flow remains smooth. Here’s what I’m most proud of. With Avis First, we don’t have to rely on proxy metrics like NPS to gauge customer satisfaction. Every transaction comes with a direct customer rating: zero to five stars. Launched to date across thousands of rentals nationwide, Avis First renters are giving us an average of 4.9 stars. Did anyone think that was even possible in the rental car industry? Name another major consumer brand with ratings like that. It’s rare. Our customers clearly see the value and are willing to pay for it.

At an RPD of over $100, Avis First proves that when we deliver consistent excellence, we earn both customer satisfaction and meaningful margin expansion. It’s a true win-win for the traveler and for our business. Let me level set expectations. Avis First’s RPD is higher, but it hasn’t scaled yet. Our overall Americas RPD still declined 3% this quarter, and I’m not okay with that. Given the pressures we’re seeing from rising costs, everything from vehicles to wages to financing, we believe we can reach a structurally higher base RPD. We have a lot of work ahead of us to reshape how consumers perceive car rental, but we now know it’s possible.

We simply need to be brave enough to hold ourselves to higher standards, to reinvest in our people and technology, and rental by rental, location by location, day by day, deliver a service that we can be proud of. Brand equity and customer experience don’t show up in this year’s EBITDA. They’re investments, and we’re making them because we believe that over time, those returns will flow to the bottom line. Jeff Bezos put it best when he wrote, "Take a long-term view and the interests of the customers and shareholders aligned." We couldn’t agree more. We ask for your patience and support as we stay true to that principle. On our calls next year, I’ll share more about the operational work underway and the resources we’re deploying to deliver on this game plan.

For now, though, I’ll hand it over to Daniel, who will walk you through the highlights of this quarter’s results.

Daniel Cunha, Chief Financial Officer, Avis Budget Group: Thanks, Brian, and good morning, everyone. I’ve now completed my first full quarter with Avis Budget Group. I’m excited to share my perspective on the company’s performance and financial position. Over the past several months, I’ve seen firsthand the strength of our operating model, the resilience of our business, and the dedication of our global team. Today, I’ll cover our third-quarter performance and provide updates on liquidity, capital allocation, and outlook. My comments will focus on adjusted results, which are reconciled to GAAP in our press release and in the supplemental financial materials posted on our website. Overall, we’re pleased with how the summer played out. As Brian mentioned, revenue grew 1% year over year, while consolidated adjusted EBITDA increased 11%. This adjusted EBITDA growth came despite a challenging RPD environment in the Americas and meaningful fleet recalls. Let’s go through some of that in more detail.

Consolidated pricing declined 1%, but dynamics between our regions varied significantly. In the Americas, RPD decreased 3%, reflecting softer leisure pricing consistent with the weak pricing we saw in the industry overall. Our mix continues to shift towards leisure, which carries higher ancillary attachment rates, a trend that partially offset the broad RPD decline. In International, RPD grew 5%, excluding exchange rate effects, driven by an intentional mix shift towards higher margin leisure and inbound business. As Brian mentioned last quarter, we were impacted by a large safety recall affecting vans and minivans, vehicles that typically yield higher RPD. These units remained out of service through the quarter, reducing utilization and pressuring fleet costs. To meet peak summer demand, we retained some older vehicles we had planned to sell earlier. These carried a higher depreciation expense and impacted per unit fleet cost.

We had initially expected most recall-related repairs to be completed by the end of Q3. However, roughly two-thirds of those vehicles are still awaiting parts. We now expect the majority of this impact to linger through the fourth quarter and potentially into early 2026. We remain in active dialogue with our OEM partners to accelerate repairs and return these vehicles to service as quickly as possible. Speaking of OEMs, let me also provide an update on our model year 2026 buying. Our 2026 model year buying took longer to finalize than in previous years, largely due to uncertainty around tariffs. Our discussions with long-standing OEM partners were constructive. Both sides approached the table with a shared understanding that this is a long game, not just about this year’s purchase volume, but about relationships we’ve built over decades through multiple economic cycles.

I’m pleased to report that the vast majority of our anticipated purchases are now complete. We’ve achieved our goal of refreshing the fleet to deliver exceptional customer service while maintaining strict ROI discipline. A few negotiations remain outstanding, and on our next call, we’ll be in a position to share more detail around our expected depreciation per unit for fiscal 2026. Now, let’s move on to liquidity and capital allocation. As of September 30, we had available liquidity of nearly $1 billion and an additional borrowing capacity of $1.9 billion in our ABS facilities. In July, we extended our $1.1 billion floating rate term loan debt, pushing the maturity out to 2032. Year to date, our adjusted free cash flow was negative $517 million, driven by more than $1 billion in voluntary fleet contributions.

This $1 billion was funded by $500 million of our operating cash flow and $500 million of corporate debt raised in this first quarter with the intention to repay in the fourth quarter. Our long-term allocation priorities remain unchanged, which are to maintain a strong balance sheet, invest in fleet and technology modernization, as well as return capital to our shareholders opportunistically. Looking ahead, we now expect our 2025 EBITDA to be toward the low end of our previously stated range. The shift in vehicle recall impact into the fourth quarter represents the single largest headwind relative to our prior outlook. We are also monitoring declines in the government business tied to the shutdown and softer commercial demand internationally. Even so, our teams remain focused on closing the year with the same discipline and execution that defined the third quarter.

With that, I’ll turn the call back to Brian for closing remarks.

Brian Choi, Chief Executive Officer, Avis Budget Group: Thanks, Daniel. Before we wrap up, I want to take a moment to speak directly to our people, the employees who make this company run every day, everywhere around the world. The progress we’ve talked about today, from stabilizing revenue to launching Avis First, didn’t happen in PowerPoint slides or in the boardroom. It happened at our rental counters, in our service bays, and across our airports. It happened through the effort and pride of thousands of people who still believe that service matters. Over the last few years, this industry and our company have been through a lot. We had to fight for survival, and we did it by tightening our belts and pushing through uncertainty. Now, we’re doing more than surviving. We’re building our brands back up. Every car prepared to standards, every customer greeted with respect, every rental turned around just a little faster.

That’s what drives our flywheel. That’s how we can earn trust one customer at a time. It’s the kind of excellence that can’t be mandated. It has to be owned. Thank you for stepping up and owning that responsibility. Let’s keep the momentum, and let’s keep holding ourselves and each other to the higher standard that’s now defining Avis Budget Group. Okay, operator, let’s open it up for questions.

Conference Operator: Thank you. If you’d like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of John Michael Healy with Northcoast Research Partners. Please proceed with your question.

Thanks for taking the question, guys. Brian, I was hoping we could talk just a little bit about the summer season. You kind of expressed some disappointment in the U.S. RPD, but also in the prepared remarks, you guys seemed happy with how the summer went. We’d just love to understand kind of where we’re at in the kind of continuum of pricing and, you know, what do you describe as kind of the main factor of why we saw RPD down this year, at least through the summer months? Thanks.

Brian Choi, Chief Executive Officer, Avis Budget Group: Hey, John. In terms of the RPD decline for the summer, the 3% decline is an average for the quarter, but within the quarter, we saw a stronger performance in July and August, and then there was some softening in September. What we’re seeing in the market is fairly typical seasonal behavior: higher RPD during the peak leisure demand, like summer, and lower RPD in shoulder periods post Labor Day. You know as well as I do, that’s normal market dynamics. Like you said, and I said on my prepared remarks, I’m not satisfied with it. Just given the inflationary pressures we’re seeing, we believe that a structurally higher base RPD is justified. We’re going to continue to push for that to meet our return on capital thresholds.

One thing that’s encouraging, though, is when you look at RPD over the past four quarters on a two-year stack, you can see clear stabilization in the trend. When we look forward to the fourth quarter, it’s always harder to predict because demand is concentrated around Thanksgiving and Christmas. That said, we’re pleased with how the book of business is shaping up so far, even though it’s still early. America’s RPD down 3% in Q3, but from where we stand right now, we currently expect a modest improvement in Q4.

Got it. Thank you. For the finance team there, I was hoping we could get maybe just a little bit of a Cliff Notes way to think about kind of interest expense going into next year. Obviously, there’s been some rate movements and probably some expected ones, and you guys have done some refinancing and stuff like that. I was just trying to think about how we might think about interest expense both on the fleet and the corporate level for next year, given all the movements. Thanks.

Sure, John. From a vehicle interest standpoint, we have $3 billion in maturities, term maturities next year. Half of those were issued at lower interest rates. Half of them were at these higher interest rates. You have to take a look at that as we’re going through and as you’re modeling out what size you think we are. That’ll have that impact. We’ll have to refinance half of it at higher rates and the other half at a little bit lower rates. On a corporate interest standpoint, I would say it’s probably going to be pretty steady, right? We have some debt that we’d like to pay down at the end of this year. You remove that, it’ll be a little bit lower, and we’ll go from there. The rates, as they continue to drop, most of our debt is fixed.

You’re going to have a little bit that’s going to come down just based off the lower rates going forward.

Conference Operator: Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Hey, good morning, guys. Thanks for taking the questions. I guess I was to start off, Brian or Daniel, I was hoping maybe you could at least bucket for us the recall impact, whether you want to talk about kind of Q3 or maybe full year 2025 basis, just between things like RPD, volume, DOE, fleet costs, because I think not everyone appreciates the fact that those are all intertwined when you have a bunch of elevated recall. If there’s a way to kind of bucket that out in terms of overall impact, I think it would be super helpful. Thanks.

Daniel Cunha, Chief Financial Officer, Avis Budget Group: Yes, Chris, thanks for your question. To me, we were able to navigate the summer a little better. As you saw, we had a modest decline in utilization in spite of almost 5% of the Americas fleet being grounded. We have seen a sizable impact just in cost alone, right, between depreciation, interest, shuttling, parking expenses. I think closing out to $60 million in Q3, we anticipated another $40 million. We’re probably going to be in the $90 to $100 million range for the full year, right? In terms of expectations here for Q4, I think you should expect it to be a little bit more challenging for us to continue to post a high utilization for two reasons. One, there’s a seasonal decline. Typically, demand falls down in Q4, and with less demand, it’s a little harder to optimize the fleet.

We still have a significant amount of vehicles that are waiting parts, right? We would typically have sold them by now. We’re going to have to carry them for the bulk of Q4, potentially into Q1.

Okay. That’s very helpful. Thanks, Daniel. As a follow-up, Brian, I’m encouraged by what you’re saying about trying to, I guess, decommoditize this industry for your company specifically. I guess the question would be, do you expect do others need to follow your lead in terms of making their product differentiated? Do you think they will? If they do, is that a good thing? Or do we ultimately end up back at square one with a kind of recommoditized product? I’d love to hear your thoughts on that. Thanks.

Brian Choi, Chief Executive Officer, Avis Budget Group: Yeah, listen, we think that we’re going to focus on customer experience as a differentiating factor for Avis. We think the bar is fairly low, like I said, in the industry. If the rest of the industry comes and delivers a better product to the overall customer, I think that’s better for the traveling consumer. We’re happy to compete in that environment. I think that the benefit you get from there is that in order to get a structurally higher RPD, you need to give the customer something a little more. I think that we as an industry can hold ourselves to higher standards in terms of what’s possible. We’re going to lead the charge. If others follow, we’re welcome to see them do the same.

Conference Operator: Thank you. Our next question comes from the line of Lizzie Dove with Goldman Sachs. Please proceed with your question.

Hi there. Thanks for taking the question. Just to expand on Chris’s question, bigger picture question here on RPD, it sounds like you do think that can be structurally higher for all the reasons that you pointed out. I guess, how long do you expect these investments to kind of take to play out? Or said differently, is the base case that RPD in the Americas can be up next year? What needs to happen from a competitive standpoint or an industry defleeting standpoint? How do you balance that? Are you willing to kind of, I guess, give up some share at the expense of RPD? Just curious about the kind of overall algo, I suppose.

Brian Choi, Chief Executive Officer, Avis Budget Group: Yeah. Lizzie, we’re not going to get into guidance in terms of what RPD can be for next year. I’m going to stick to kind of what we said before, that we think that RPD, just given the cost inflation that we’re seeing across several major categories of our business, should be going up. We are pushing for that. We don’t manage to share over here. We manage to thresholds on return on invested capital, and that has a high pricing component to it. We are very focused on making sure that we meet those thresholds. The last thing that I point to is what I said earlier. I can’t forecast for you, and we’re not prepared to give out guidance, like I said, for next year. If you do look at what the two-year stack has been doing with pricing, there is some stabilization there. We’re encouraged by that.

Got it. That’s helpful. I guess like nearer term and in terms of what you have been seeing, could you maybe share how the competitive environment has been tracking? Has it been more aggressive, less aggressive than usual, and how you’ve seen that kind of play out quarter to date?

I think it’s reflected in the trends we’ve been seeing this summer and actually all throughout the year. It’s a competitive market. It always has been. I wouldn’t characterize it as any more or less aggressive than in previous years. That’s why I think our focus has to be, if we want to offer a differentiated product, our stand is going to be on customer experience. We’re going to have to find a way to have the customer choose to come to Avis. My hope is that by offering a better product, we can command a slightly higher price. We don’t want to be subject to just always the overall market demands. We’re a macroeconomic-driven business. Some of that you can’t avoid, but that which we can, we’re going to try and put a line in the sand, offer a differentiated product, and hopefully earn some pricing power for ourselves.

Conference Operator: Thank you. Our next question comes from the line of Christopher Stathoulopoulos with Susquehanna International Group. Please proceed with your question.

Good morning. Thanks for taking my questions. Brian, if we could dig a little bit more into demand here. I’m surprised on the September side with leisure, or perhaps not, though, that’s usually when corporate shows up. I’m curious if actually did corporate show up or sort of quote-unquote "take the baton" from leisure there because it is a dynamic that we did see in airlines. Bigger question here, if you could want to dig into the travel segment pie here, maybe speak to what you’re seeing here with leisure and business for the fourth quarter, U.S., domestic, international, inbound, cross-border, how you’re thinking about the shutdown. Next year, there are a few events here as I think about leisure and certainly my coverage here, potential catalyst, World Cup, America’s 250, midterm elections. Your thoughts on how Avis is preparing or just sort of participation around that. Thank you.

Brian Choi, Chief Executive Officer, Avis Budget Group: Okay. Sure. Chris, a lot to unpack here. Just jump in with the follow-up if I get one of those things. Let’s start with a high-level macro overview in terms of what we’re seeing. We’re seeing a mixed environment. Demand has held up better than many expected, but it’s uneven across segments and geographies. Like you said, leisure remains healthy, although that’s causing peaks during the weekends. I mentioned our government segment being affected by the shutdown. Even more than that, before that even, on the commercial side of things, and I think this is something more unique to Avis, we have a large government-adjacent business. Think of the defense segment. That’s been challenged all year long, and we’ve been seeing that in our business. From our perspective, I think the right way to navigate this environment isn’t to forecast the macro. It’s to stay disciplined and agile.

Our cost basis is lean, our fleet planning is flexible, and we’re focused on controlling what we can, which is service consistency, dependability, and execution. I think those are levers that perform in any cycle and will perform next year as well. We think that the World Cup, we’re planning for that side by side specifically. In certain areas, we think it’s going to be a benefit. In certain areas that are maybe more city-centric, maybe less so, it would be like the Olympics. It kind of depends on the city. America 250, I think, is going to be a help. We’re not exactly sure how to model that at this point, but we are positioning ourselves to provide vehicles to our consumers for the Great American road trip. We think both of those will be net positive for 2026.

Okay. My follow-up here. I appreciate all the commentary and the color around the customer experience. There are two airlines out here in the U.S. that have been working towards this more premium focus or customer-centric brand-loyal focus here for 10 or so years. That’s Delta and United, and I’m sure you’re aware of that. It’s certainly not an overnight event. I’m curious, at a high level, this is the second call that we’ve been talking about this. What does this plan look like sort of over the next one, three, and five years? This is going to take some time. Ultimately, of course, this has to translate into margin improvement, earnings, free cash flow, ROIC. What are some of the guardrails here? Maybe, Daniel, you can speak to us at a high level. I know you’re not giving guidance for the out year.

As we put all this together here, conceptually, ultimately, this has to be one about confidence and sustainability of EBITDA. At a high level here, anything we should think about with respect to equity earnings or ROIC. Thank you.

Yep. Chris, I appreciate the question, and you’re absolutely right. Investing in your brand, investing in your customer experience is not for the faint-hearted, and it is a long game. Like you said, with Delta and United, it’s been a 10-year journey, but you can see clearly today how that’s benefiting both the business and the consumer. We take that as a framework to model after ourselves. We’re making a very deliberate shift from treating the customer experience as an abstract NPS number, which is a year-to-year thing, to running it as an operating system for the company. You know, our Head of Americas always says, "You only manage what you measure." We’re doing just that and building customer service around two pillars, one being the customer journey and the other being customer care. The customer journey comes down to three things. One is predictability.

We’re improving vehicle readiness and accuracy. We now monitor fleet uptime and car-ready status real-time, day-to-day, hour-by-hour at our major locations. Number two is speed. We want to be deploying technology that lets customers, no matter how they book across channels, pre-check before pickup for a smoother, faster experience. The third is empowerment. That’s giving our frontline teams tools to resolve issues on-site in the moment instead of escalating them to the back office. That’s one side on the customer journey. On the customer care side, we’re re-engineering our contact center model with an AI lens. The goal is to resolve the most common post-rental issues: billing, rental extensions, roadside assistance. We want to solve all of that faster and with less friction. There’s a lot of exciting things happening there. I’ll share progress on that in the quarters ahead. This is going to require investments.

The way that we’re viewing this is that we need a baseline of EBITDA for the business. We’ve said this before in the past that it’s going to be over $1 billion in a normalized annual environment. We want to maintain that base level of EBITDA. That $1 billion isn’t a target. It’s a floor, which we intend to build from. While maintaining that floor and growing that base, we want to continue to invest in the customer experience. From our perspective, Chris, we have to do both. We’re going to continue to deliver on a level of EBITDA that we think the company is capable of and requires. At the same time, we’re going to look forward into the future and continue to invest in ourselves and providing a better experience for our customers.

Conference Operator: Thank you. Our next question comes from the line of Ryan Brinkman with JPMorgan Chase. Please proceed with your question.

Hi. Thanks for taking my questions. I thought to ask first on fleet management, including utilization. It looks like it only fell 20 bps year over year in the Americas despite the massive increase in recall vehicles being held back as they await repair. Firstly, just how did you manage that better underlying result? Secondly, what kind of utilization rate or progress in the fleet management front might we be talking about this quarter if it were not for the elevated level of industry recalls?

Daniel Cunha, Chief Financial Officer, Avis Budget Group: I’ll take this one. As I pointed out, the operations team really did a fantastic job over the summer. I think one of the key levers here, repositioning the fleets, moving it where the demand was the highest to maximize utilization as much as we could, was how the team got there. Brian can probably touch on a few technology investments the company has made that have also facilitated getting those results. As you pointed out, the fleet being 5% of the Americas fleet being out of service had about a 2.8 point utilization impact in Q3. That was significant, and that was mostly offset by this great execution. Anything you want to add, Brian?

Brian Choi, Chief Executive Officer, Avis Budget Group: No, just like you said, maybe the one thing I’d add is we’ve been investing heavily in our field operating systems, and the benefits are starting to show. It’s new technology we’re excited about. We’re very proud of what the teams are building, but it’s still in rollout mode. We’ll share more detail on that platform and results in a future call once the implementation is further along.

Okay. That’s helpful. Thanks for the color too. I think I heard you say in response to an earlier question that the full-year impact of the elevated level of recalls might be $90 million to EBITDA. Did I hear that right? My follow-up to that is, what line of sight, if any, might you have based on your conversations with your OEM partners or anything else you might be hearing as to when the level of the elevated level of recalls might settle down to something more normal for the industry overall or even specifically for the vehicles that are most impacting you right now?

Daniel Cunha, Chief Financial Officer, Avis Budget Group: Yes, you did hear that right. We’re estimating $90 to $100 million of impact for the full year. This is just cost, right? There’s no estimate here on lost profits or anything else. This is all very tangible. As I mentioned, we still have now over two-thirds of our vehicles awaiting parts. The parts are starting to come in. They are not coming in in very large numbers. The repair itself is somewhat of a lengthy process, you know, two to four hours per vehicle. We are anticipating bleeding down the number of out-of-service vehicles through the quarter, but we’re potentially going to have still some amount into Q1. That’s what we know right now.

Conference Operator: Thank you. Ladies and gentlemen, as a reminder, if you’d like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Dan Levy with Barclays. Please proceed with your question.

Hi. Good morning. Thanks for taking the questions. International is a segment that doesn’t generally get a ton of airtime, and I know it’s the smaller of the two segments. Maybe you can just talk about the underlying trends in International because it has driven some of the upside versus industry expectations. I know it’s gone through a bit of a transformation here. You’ve done some restructuring. Maybe you could just talk about the underlying trends in International, what the runway is on some of the increasing RPD which we saw in the third quarter.

Brian Choi, Chief Executive Officer, Avis Budget Group: Hey, Dan. Thanks for the question. A few things are happening in International. First, I want to acknowledge that the leadership team there is really hitting its stride. Anna, our President of International, and James, our Chief Commercial Officer in the International segment, are about a year in, and the organizational and strategic changes they’ve implemented are really coming together. We’ve taken a very deliberate approach to shifting our business mix internationally. This involves increasing exposure to higher RPD leisure demand and exiting some local market monthly business that didn’t meet our return requirements. You’re seeing that reflected in the higher RPD and lower volume numbers that we’re reporting. That’s by design. Like you pointed out, this top-line mix shift combined with disciplined cost management is what’s really driving the substantial EBITDA increase, which is up nearly 40% year over year.

Are we going to expect that level of increase next year? No. I think we’re not going to be operating at those levels. The overall strategy and trend will remain where we’re going to be more deliberate about the leisure business that we take and pruning that business that doesn’t really make sense for us. What I would say, Dan, as you rightly pointed out, no other rental car company has the global reach that we do. Historically, given the relative size and where HQ sits, Avis Budget Group has been Americas-focused, but we’re really changing that mindset today. We’re embracing the fact that we’re a truly global company, and you’ll see increased focus and investment in our International business going forward.

Great. Thank you. My second question is on DPU trends and overall depreciation. I know you’ll give us an outlook for early next year, but maybe you could just talk within the quarter, you know, to what extent the recalls were weighing on the total DPU. Into next year, A, I know you said that you’ll give us a commentary on, you know, the cap costs, but if there were any early reads. B, given you just did a big fleet refresh for model year 2025, shouldn’t we view that as really the driving factor on your DPU next year and the broader residuals because you’ve already done the lion’s share of work and you’ll have proportionately lower refresh next year?

I’ll start, and then maybe Daniel, you can chime in. Broadly speaking, I agree with your assessment, Dan. If you take what’s happened this year, the impact of tariffs certainly provided some uplift to the used car market this year. What we’re seeing is pretty consistent with what the Manheim value index, the used vehicle value index, is showing. There was a bump during the April tax refund season, and values have remained relatively stable since. In the first half of October, we’re seeing a bit of give-back, which follows normal seasonal trends. You know as well as I do that by the fourth quarter, when next year’s models really hit the market, it’s typical to see a sequential decline in the used car market. The good news is, yes, we did plan for that.

Like you said, we’ve already disposed of a substantial portion of our model year 2023 and 2024 vehicles throughout the year. We still do have some that we’re going to sell in the fourth quarter and in the first quarter of next year. Our fleet mix is shifting toward the newer model year 2025 cohort as planned. Like you said, we do think that should be the primary driver next year of where our depreciation shakes out. I can’t really give you too much commentary around the model year 2026 buy. We’re still in negotiations with a few of our large OEM partners. Generally speaking, we think that the model year 2026 is going to look pretty similar to the model year 2025. That’s what we’ve seen in the deals that we’ve closed.

We do think that model year next year, it will be more specifically model year 2025, model year 2026 driven, and we don’t think that we need to rely on kind of the macro shifts we see in the overall industry.

Daniel Cunha, Chief Financial Officer, Avis Budget Group: Okay. Maybe the only color I would add is that those macro changes in the fleet mix were mostly executed like Brian shared. Due to the recall, because those vehicles tend to be larger, because they tend to carry higher DPU, you know, in the $400, $500 range per unit, in and out 4% to 5% depending on what fleet you’re looking at and what quarter it was. Rounded that head, you know, be close to a $20 impact on our per unit in the quarter, and we expect it to continue in Q4.

Conference Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session, and we’ll conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.

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