管理層發言
Greetings. Welcome to the Avis Budget Group Second Quarter 2026 Earnings Call. Please note that this conference is being recorded. I will now turn the conference over to David Calabria, Treasurer and Senior Vice President, Corporate Finance. Thank you, David. You may begin.
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 and information. Such risks and assumptions, uncertainties and other factors are identified in our earnings release and other periodic filings with the SEC as well as the Investor Relations section of our website. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results, and any or all of our forward-looking statements may prove to be inaccurate, and we can make no guarantees about our future performance. We undertake no obligation to update or revise our forward-looking statements. On this call, we will discuss certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website for how we define these measures and reconciliations to the closest comparable GAAP measures. With that, I'd like to turn the call over to Brian.
Thanks, David, and thank you all for joining us. I want to start this discussion not with the results themselves, but with the decisions that led to those results. Last quarter, we spoke about fleet reduction and supply discipline. This quarter, we put that operating philosophy into practice. The month of April started with summer bookings in the outer months holding at mid-single-digit growth. By early May, that momentum began to change. The strength we have been seeing in forward bookings started to erode and that deceleration appeared in the booking data before it fully worked its way into reported volumes. Once we saw it, we did not wait for the trend to become more pronounced. We moved quickly. We accelerated vehicle dispositions well beyond our original plan, taking advantage of a window in April and early May when the used vehicle market was still seasonally strong. That allowed us to monetize favorable residual values while realigning supply to a different demand environment. The result was a fleet position that looks different from what we would typically expect in the second quarter. In a normal year, this is the period when we would be building fleet ahead of the summer peak. Instead, our Americas fleet finished the quarter down 5% year-over-year, the lowest second quarter fleet size since the COVID environment of 2Q '21. That was a meaningful departure from our original plan, which contemplated growth tied to World Cup activity, America 250 and a more constructive summer travel environment. But the data changed, against the backdrop of broader consumer uncertainty, higher travel costs and geopolitical volatility. Year-over-year TSA enplanements decelerated from flat in April to negative 70 basis points in May to negative 1.3% in June. Overseas visitors to the U.S., based on the CBP I-94 data, were down 8% in the second quarter. When it became clear that demand was not developing in line with our original plan, we treated that as new information and resized the fleet accordingly. Quarter after quarter, we have said that we would rather run this fleet slightly under demand than slightly over it. This quarter, we did just that. Importantly, a 5% smaller fleet did not translate into a 5% decline in rental days. Rental days in the Americas were down only 2% due to improved utilization. Vehicle utilization finished the quarter at 73.2% in the Americas, our highest second quarter utilization level in company history. This improvement was made possible by the technology deployments, operating discipline and asset management mindset we have been building into the network over the past several quarters. It also reflects a different operating model for the business. We are treating fleet not simply as capacity to meet demand, but as capital at risk. When the data changes, the fleet plan has to change with it. In the second quarter, given the demand environment and the strength of the used vehicle market, we leaned deliberately into the asset manager side of the business and prioritized profitability and returns over rental days or market share. We believe this was the right decision, and we made it knowing it would affect the shape of our second quarter. Most notably, with fleet as a scarce resource this quarter, we made the deliberate choice to optimize for revenue per transaction versus revenue per day. Put simply, we accepted fewer 1-day rentals, which carry an RPD premium, in order to fulfill more weekly business. When supply is tight, longer duration rentals create better overall transaction economics because they reduce turns, handling costs and operational complexity. If we had maintained the same length-of-rental mix as 2Q '25, RPD would have been up nearly 3% year-over-year. Instead, RPD was essentially flat. That was a deliberate trade-off and the economics showed up in revenue per transaction, which was up 6% year-over-year. Last quarter, we said that our expectation was for the World Cup to be a clear travel tailwind, particularly in host cities. That expectation was broadly shared across the travel industry, but it did not play out the way we expected. That is not in our control. What we can control is how quickly we adapt and our teams did that well this quarter. Our adjusted EBITDA outcome was in line with our initial expectations, but the path to get there was very different than we anticipated. That has implications for how we will manage the third quarter and the same principles will apply. We will stay disciplined on fleet, protect utilization and prioritize returns over volume. I'll elaborate on that later in the call. Before I turn it over to Daniel, I want to briefly touch on three additional items that are important to shareholder value and the strategic direction of the company. First, on Pentwater. You'll recall that last quarter, I spent time addressing the volatility in our stock price and the trading dynamics involving our second largest shareholder. We are pleased to report that Avis and Pentwater have reached a settlement agreement related to short-swing profits under which Pentwater agreed to pay Avis $650 million in cash. We believe the settlement represents a fair resolution of the dispute and a meaningful recovery for our shareholders. The settlement remains subject to final court approval, but we expect this matter to be resolved by year-end. Second, our partnership with Waymo reached an important milestone with the launch of autonomous ride-hail operations in Dallas. Our teams assumed operational responsibility on July 1. Since then, we have delivered thousands of trips while steadily scaling both operation and the fleet. I want to recognize our AV team for the work they have done to build this capability the right way with the right people, processes and resources. We are now taking the early lessons from Dallas and applying them to a repeatable operating model, one built around uncompromising safety, world-class customer experience and operational excellence. Third, Avis First, our premium first-class rental offering, continues to gain traction. Since our last update, we expanded the program to additional major airport locations, including Orlando, Washington Dulles, London Heathrow, and Paris Charles de Gaulle. We also broadened the vehicle portfolio with high-demand models, including select Mercedes and BMW vehicles. Customer satisfaction remains strong with an average rating of 4.9 out of 5 stars, underscoring the value proposition and the momentum we continue to see in this segment. Each of these items is important in its own way, but they all support the same broader goal: creating better value for shareholders through disciplined execution, stronger customer experiences and new capabilities that can scale over time. With that, let me turn it over to Daniel, who will provide additional detail on the quarter.
Thanks, Brian. Before I discuss the results in detail, I want to highlight a few key takeaways from the quarter. The second quarter demonstrated the operating leverage of the actions Brian described. Despite a softer-than-expected demand environment and fewer rental days, adjusted EBITDA grew year-over-year, and we delivered our highest second quarter adjusted EBITDA margin in the last three years. We also achieved record second quarter utilization globally with both the Americas and International improving sequentially and year-over-year. Importantly, we delivered two consecutive quarters of positive global RPD growth for the first time in 12 quarters. With that context, let's review each of our segments, starting with the Americas. In the Americas, adjusted EBITDA grew 7.7% year-over-year on revenue that declined 1.9%, resulting in approximately 100 basis points of margin expansion. That performance underscores the fact that disciplined fleet execution can support profitability even in a softer demand environment. As demand built during the first quarter, we observed encouraging signals across both RPD and rental days, particularly in World Cup markets. That dynamic changed quickly early in the second quarter. As Brian outlined, we made a strategic decision to proactively rightsize the fleet in response rather than wait for conditions to deteriorate further. The revenue decline was driven primarily by a 2.1% decline in rental days, which reflected our intentional decision to operate with a fleet that was 5.4% smaller year-over-year. Rental day pressure was most pronounced in our inbound segment, which declined 5%. Importantly, the decline in rental days was significantly less than the reduction in fleet. That gap was driven by a 250 basis point improvement in utilization, reflecting stronger operating execution across the network. Even with continued no-fix recall constraints, Americas utilization reached 73.2%, our highest second quarter utilization level in company history. The utilization improvement validates the investments we have made in technology and the changes we have made to operating processes. It also demonstrates that our fleet discipline is delivering measurable operational returns. RPD, excluding exchange rate effects, increased 0.2% year-over-year. While that was more modest than the growth we delivered in the first quarter, the underlying drivers are important. With fleet as a scarce resource, we deliberately shifted mix toward longer duration, higher contribution transactions. Absent that length-of-rental and other shift in mix, Americas RPD would have increased approximately 3% year-over-year. This marks the first time in 12 quarters that the company has delivered two consecutive quarters of positive global RPD growth, and the inflection is even more pronounced in the Americas, where we had not achieved consecutive quarterly RPD growth in 16 quarters. We view that as significant because it suggests that the RPD erosion experienced since the post-pandemic peak in 2022 has stabilized. The industry appears to have adjusted to the realities of higher interest rates and elevated vehicle costs contributing to more normalized pricing dynamics. At the same time, RPD is only one measure of transaction economics. RPD has long been used as a proxy for profitability. And all else equal, higher pricing supports higher EBITDA margins. But across segments and channels, all else is not equal. Commission rates, miles driven, accident propensity, transaction length, handling costs and depreciation all affect the ultimate profitability of the transaction. As we continue to evolve our asset management approach, we are increasingly focused on optimizing contribution and return on assets rather than simply maximizing headline RPD. Ultimately, we are solving for EBITDA, contribution and return on assets, not simply RPD in isolation. This quarter, we also continued to manage through significant recall-related constraints. Like the broader industry, we were impacted by extensive recall campaigns in July 2025, which grounded approximately 4.6% of our fleet at peak impact. While we expected to have cycled through most of that pressure by the second quarter, we were notified in April 2026 of additional recalls from three different OEMs, resulting in a total of approximately 18,000 grounded vehicles that exceeded the approximately 15,000 grounded vehicles we exited 2025 with. Year-to-date, recalls have represented more than $50 million of directly attributable costs before considering lost profit. This was a material headwind in the first half and will continue to affect the business in the second half. That said, the utilization improvement we delivered despite those constraints reinforces the strength of the operational execution in the quarter. Our decision to accelerate dispositions early in the quarter also proved important from a residual value perspective. Rental demand began to soften while we were still in the seasonally strongest period of the used car market. We leaned into that market strength, accelerated disposition and reduced exposure to residual value risk. While that decision affected revenue, we believe it ultimately protected shareholder value. Because of the elevated sales activity in the quarter, per unit depreciation was unusually low at $301 per unit. Under a more normalized sales pattern, we estimate per unit depreciation would have been approximately $320. Now let's turn to our International segment. Our International segment faced a more challenging operating environment in the first half than the Americas. Revenues, excluding exchange rate effects, declined 2.5% year-over-year and adjusted EBITDA declined 11% year-over-year, further pressured by higher variable costs associated with our mix shift. Rental days declined 2.9% year-over-year, which was a 100 basis point improvement from the first quarter, but still below our expectations. We anticipated weakness in commercial segments as we cycled through the structural mix shift actions executed in the second half of 2025. However, the weakness was more pronounced than planned with strategic accounts declining 10% year-over-year. Geopolitical developments, particularly Middle East tensions, also pressured inbound travel to Europe with flight capacity down as much as 38% in April and May. RPD, excluding exchange rate effects, increased 0.4% year-over-year or plus 2.2%, excluding the impact of Zipcar U.K. whose operations we suspended. RPD growth decelerated sequentially, reflecting a less constructive rate environment than in the Americas. Elevated fleet supply in several key international markets created additional industry capacity and placed pressure on pricing. Vehicle registration grew more than 10% in several of our largest European markets. We remain committed to our mix shift strategy toward higher return leisure demand. At the same time, we recognize that leisure demand can carry higher selling costs. Our focus is to continue improving mix while reducing the cost to acquire that demand over time, which reinforces the importance of further developing our own digital channels. With that, I'll turn to our leverage, liquidity and outlook. As of June 30, we had more than $1 billion in available liquidity and approximately $1.9 billion of fleet funding capacity. Our net corporate leverage ratio of 7.4x is down 100 basis points since year-end in 2025. We remain focused on deleveraging towards normalized levels during the balance of the year and expect to reduce leverage by at least a full turn of adjusted EBITDA by the end of 2026. This quarter, we have successfully addressed our near-term debt maturity profile, executing several refinancing transactions that strengthened our financial position and extend our debt maturity ladder. On May 29, we issued $300 million of senior notes due in 2031. The proceeds were used to partially redeem our senior notes due in 2027, reducing that maturity from $650 million to $350 million and providing meaningful flexibility heading into year-end. On June 29, we extended the maturity of our $2 billion revolving credit facility from December 2028 to June 2031 and added a temporary $200 million facility through June 2028 or upon receipt of the Pentwater settlement proceeds, further strengthening our liquidity position. Beyond the corporate debt refinancing, we also executed tactical refinancings across our vehicle financing programs. In June, we issued $650 million of AESOP term ABS debt, $200 million of Canadian term ABS debt and renewed our CAD 580 million Canadian bank facility. The term transactions were oversubscribed and closed at tighter spread levels than the next most recent transactions, demonstrating continued capital markets confidence in Avis Budget Group. Most significantly, we expect to receive $650 million in proceeds from the Pentwater short-swing profit settlement. While this settlement is contingent on court approval, making the timing of payments uncertain, we expect to receive the funds by year-end and plan to deploy a portion of the proceeds towards retiring by year-end the remaining $350 million senior notes due in 2027. Our debt profile includes several attractively priced tranches maturing in the near and medium term. Rather than retire these low-cost obligations early, which would not be economical given current refinancing rates, we intend to take an opportunistic approach. We may refinance these lower-cost tranches closer to their maturity, provided we have the liquidity on our balance sheet and a clear path to refinancing. In summary, we are pleased with how the second quarter turned out and how our team reacted to the changing market conditions. During the first half of 2026, we exceeded our adjusted EBITDA plan, and we entered Q3 peak season demand with strong operational fundamentals. As a result, we are reiterating our full year guidance of $850 million to $1 billion in adjusted EBITDA. With that, I'll turn it back to Brian.
Thanks, Daniel. In summary, the business environment has changed, but our operating principles remain consistent. We are pleased with how our team has navigated the second quarter, and we are managing the third quarter with those implications in mind. Because we accelerated fleet dispositions in April and May, our third quarter availability will also be lower than our original plan. We expect fleet in the Americas to remain down by a similar amount year-over-year with utilization efficiencies offsetting a portion of that impact on rental days. Given that we are in our peak demand period, we will not have the same opportunity to generate gains from incremental fleet sales that we had in the second quarter. And with the fleet remaining tight, we expect to continue prioritizing longer duration, higher-value transactions over shorter rentals that may carry a higher RPD but create less attractive overall economics. As a result, we expect the third quarter to look similar to the second quarter in several respects: lower fleet, strong utilization, disciplined transaction mix and an RPD that is roughly flat year-over-year. Overall, we are entering the quarter with better operating discipline than a year ago. We have a tighter fleet, stronger utilization and a cleaner cost base and sharper focus on returns over volume. Those are the factors that give us confidence in year-over-year adjusted EBITDA growth in the third quarter and support our full year adjusted EBITDA guidance of $850 million to $1 billion. The environment remains dynamic, and our outlook does not depend on a broad demand recovery. We are managing the business based on the same principles we demonstrated this quarter. When the facts change, the plans have to change with them. We will stay disciplined on fleet, protect utilization, prioritize profitability and returns and continue building a business that can deliver across different demand environments. With that, operator, we'd be happy to take questions.
分析師問答
And our first question comes from the line of Chris Woronka with Deutsche Bank.
So Brian, I think I understand the rationale for cutting fleet. The demand picture clearly changed. But I guess the question is, given that you have a fairly high fixed cost structure on the operating side, is there anything you can do if this lower demand situation is going to persist, is there anything you can do to start or further attack costs on the DOE side? And then I have a follow-up.
Chris, from our perspective, cost discipline is foundational to everything we do. We understand the makeup of our business. And as a levered company with a lot of operating leverage around the business as well, we need to control that which we can control, which is cost. Starting from the beginning of the year, that was an area of focus for us. From a cost basis, we think that actually is what helped contribute to our profitability growth this quarter despite lower revenue. We expect that to continue going forward. There are core operating costs, which we have really tightened our belts on. Then there are costs that flow into DOE that have to do with investments into our future growth, such as technology and new resources for our operations and improved processes. We are continuing to make those investments. The way we think about it is that the cost discipline around our everyday expenses is what helps fund the investments that we're making. So we think we're taking a balanced approach to this while monitoring what's happening in the overall revenue environment.
Okay. And then shifting gears a little bit on AV. I know you guys have rolled out Dallas. But as we see some of the rideshare companies, at least one of them start to invest in AVs, does it ever reach a point where you guys have to kind of make a decision in terms of ownership of these and placing orders for autonomous vehicles? Does it feel like that decision-making process is being sped up at all for you guys?
Chris, before I answer your question, one thing to note: I robbed our AV operators by a month of operations. In the prepared remarks, I said that we took over operations for Waymo in Dallas in July; we actually took over in June. I wanted to clear that up. In terms of your question about purchasing the fleet, I don't think anything is being accelerated right now in terms of having to make that decision. The ecosystem is still evolving. What we're trying to do is develop relationships directly with both the AV providers and the vehicle providers to give ourselves both options, whether that is managing a fleet on someone else's balance sheet or purchasing the vehicles ourselves. At this point, it's too early to make a call one way or another, but we are keeping both options open.
The next question comes from the line of John Healy with Northcoast Research.
Brian, I wanted to ask a little more about the decision to realign fleet in Q2 and how that plays out in Q3. You made a point of calling out the 3% like-for-like pricing that would have been achieved. Now that the fleet is rightsized, do we get back to a normal RPD contribution of the company in Q3 relative to the market? If the fleet is down and the market is still okay, should we expect positive RPD development in Q3? Or are investors getting ahead of themselves thinking about that for the quarter?
John, the demand environment weakened relative to what we had expected, but I wouldn't characterize travel demand as fundamentally weak. TSA enplanements are down roughly 2% month-to-date, which is off from our expectations, but you're seeing strength in different pockets of travel. The 2% decline in TSA enplanements is different from our 5% decline in fleet. We expect fleet to be down in the mid-single-digit range year-over-year, which is lower than what we think the overall demand environment is. Given that, Q3 dynamics will look similar to Q2 where fleet is constrained. We will prioritize longer duration rentals in the third quarter as well, which we believe is positive for overall transaction economics and EBITDA margin. Even though headline RPD is higher for shorter duration one-day rentals, given our fleet constraint in Q3 we are managing toward profitability and will accept longer length rentals. If we were not making these shifts in terms of length-of-rental mix, our like-for-like segmentation suggests RPD would be up about 3%. So overall, the environment appears fairly stable; the reported RPD is muted because of the deliberate mix choice.
Understood. That's helpful. And then just one financing-related question. You guys are always active on both the fleet side and the corporate side. I'm trying to think about moving parts for 2027. Any way you could think about headwinds or tailwinds of these refinancings on the interest expense line, both corporate and fleet, maybe hypothetically for next year?
John, a lot of the refinancing tranches that come due in the medium term were put in place quite a while ago and are predominantly fixed rate. The cost to refinance is likely going to be higher than what we have today. It will depend by tranche, but 100 to 125 basis points is our general expectation for the near term. That's why, as those come due, we're considering stretching some maturities and delaying transitions where sensible. This is the new environment we operate in. It is affecting everyone and, to some extent, affecting price behavior in the market and contributing to the pricing improvement we've seen in recent quarters.
John, I would just add that we're very aware the next maturity we have after paying down the $350 million is 4.75%, and that is why we are putting funds in the fleet for now and taking as long as we can to manage that. We're focused on ensuring our debt maturity ladder does not stack up and we'll make sure we act at the right time and at the right cost.
Okay. Just a clarification: you said that 125 basis points would maybe be an expectation? I wasn't sure.
Yes. It will depend a bit on the tranche, but that's generally what we're seeing for the near term.
The next question comes from the line of Dan Levy with Barclays.
So in this environment where demand is a bit weaker and you've tightened the fleet, maybe you can talk to what your competitors are doing as far as operating with certain fleet levels? And maybe speak to the broader competitive environment, especially given one competitor is going through questions on liquidity.
Let me answer at a high level and then Daniel will add. If you had told me that international inbound travelers would be down 8% in the second quarter with the World Cup happening, I don't think anyone planned on that. We follow TSA enplanements and international travel data closely. We saw the demand shift developing and made the call early to reduce fleet and harvest residual gains while the used car market was seasonally strong in April and May. We had a bird in hand there and thought playing with a margin of safety was the right decision given the volatility we've seen in fleet valuations over the last two years. As the months progressed, some competitors took similar approaches. After the 4th of July, industry supply began to rationalize. The supply-demand dynamics are better aligned today going into August than they were in May. We still have several important weeks of summer left, and we're focused on optimizing every day of demand. Given the stability we're seeing in pricing, we think the industry is rationalizing as well.
From an international perspective, some key markets have seen significant increases in new vehicle registrations—on the order of 10% in several markets. We acknowledge this isn't a full picture because we don't see deletes that may offset some of that, but the inflow of vehicles paired with declines in inbound travel, especially from the Middle East, is creating a more competitive market in Europe than we've experienced in North America. We expect that dynamic to persist into Q3.
Okay. As a follow-up, there's been questions about one of your technology vendors where you had previously discontinued the relationship and then there was a press release last night that there was an agreement. Some people estimated material profit benefit. Can you comment on the potential benefit you see on pricing or approach you're taking? And more broadly, are you taking a different look at your broader use of vendors and spend and what that could do on the DOE line?
I'll take that. After we submitted a termination notice, management reengaged and we had conversations that allowed us to find a path forward, as you saw in their announcements. Our position was straightforward: we wanted control over the customer journey, more flexibility in the operating model and a better customer experience around tolling and related products. With new management, we're able to preserve the relationship and allow the vendor to remain a provider. We think it's a constructive outcome for Avis Budget Group, providing continuity and allowing us to manage the economics aligned with our long-term objectives.
Is there something you can say about broader initiatives to streamline spend? Could this lead to material profit benefit?
The tolls effort is representative of other efforts across the P&L. Major programs around vehicle damage, insurance, licensing and registration are substantial line items for us. We have a disciplined approach of reevaluating how we perform those services internally and with vendors. These are conversations we're having across the board. In terms of expectations, these are complex parts of our operations, so we intend to chip away consistently over quarters. These are not simple fixes or changes that happen overnight.
I would add that given the new technology available to us, we are taking a broad-based look at where we can improve the products we deliver to customers. Cost efficiencies are important, and we want to get the best deal possible, but ensuring better products and customer experience and improving overall efficiency are also priorities we evaluate regularly.
And the next question comes from the line of Rajat Gupta with JPMorgan.
Two questions. First, two months into the operation in Dallas with Waymo, can you double-click on the role you're playing as a fleet manager and highlight some early learnings? Second, are you making incremental investments for autonomous vehicle fleet management in other regions ahead of potential contract conversions?
Rajat, taking over operations in Dallas is consistent with our initial description of the partnership. Waymo manages revenue generation and the AV technology, acquiring customers. Everything after that—ensuring vehicles are properly maintained, optimized for uptime, and managing real estate infrastructure—falls to us. We are investing in Dallas, particularly more efficient real estate footprint, to deliver on service levels we've committed to. Dallas is an important milestone because we're learning what it takes to manage an operation of this complexity safely and reliably at scale. The near-term focus is execution in Dallas. Over time, we want to make this a repeatable operating model across additional markets. We're in discussions and see this as a meaningful strategic capability, but we will be disciplined and focused on Dallas today while evaluating future markets.
Understood. That's helpful. A follow-up on recall: a three-point headwind to utilization in the second quarter. Could you provide visibility on how you see this easing through the remainder of the year? And how should we think about any impacts from DPU pricing, etc.?
We had a bigger recall impact in Q2 than we had expected exiting Q4, and parts availability has been limited. Based on current visibility and OEM timelines, we expect slightly over half of the recall-related impact we've had year-to-date to occur in the second half of the year, assuming parts continue to become available at promised rates. Year-to-date recalls have represented a bit north of $50 million in directly attributable costs. In terms of DPU, vehicles on recall tend to have 20% to 30% higher DPU than average, which has slowed DPU improvement even though per unit depreciation was unusually low in the quarter due to elevated sales activity.
The next question comes from the line of Chris Stathoulopoulos with Susquehanna International Group.
Where are you in your fleet purchase program for 2027? Conversations typically start in midyear. Is there anything unique as we think about pressures with respect to the OEMs, supply chains, etc.?
Chris, timing is right that conversations typically start in the spring, but since COVID the cadence has stretched through the year. We're mid-innings with our OEM partners. We have a fair number of contracts inked already with certain manufacturers, but there's more to go. We haven't been hearing anything out of the ordinary about supply chain issues from OEM partners. The topic on everyone's minds is recall and vehicle availability. We're evaluating total cost of ownership and which OEM partners deliver reliable products that we can afford to pay for. That will be reflected in our purchasing decisions.
Okay. Thanks. Second, I thought I heard you say supply-demand dynamics are more balanced today in Q3 compared to earlier. I took your international comments to sound tougher versus domestic. Is that right? Any additional color on the international side?
There's a contrast. In the Americas, we were actively tweaking mix—looking at channels and lengths of rental—to maximize EBITDA margins because we had fewer vehicles. Those dynamics are less present in International, with the exception of Zipcar U.K., which pushed RPD up due to the nature of that short-term business. Comparing about 2 points of RPD growth this quarter to about 3 in the prior quarter, there was a small deceleration in RPD in International. That appears to be driven by a bit more supply in the market, as measured by increasing registrations, and a lower level of inbound travelers to Europe. Those drivers are making the international market a little more competitive and pressuring RPD.
The next question comes from the line of Lizzie Dove with Goldman Sachs.
A lot of helpful commentary. You maintained the guidance range of $850 million to $1 billion. Thinking about your comments that Q3 might be a continuation of Q2 on the revenue side with continuing decline, DPU benefit unwinds, etc., can you talk about what is embedded in the guidance and what gets you to the low end or the high end of that range?
Lizzie, Q3 is a continuation of the operating posture from Q2. Fleet will still be down in the mid-single-digit range year-over-year, and we are not planning the business around volume growth. That will put pressure on rental days and revenue, but fleet being down doesn't translate one-to-one to rental days being down. We will continue driving utilization, and the technology and process improvements we've implemented are sustainable benefits into Q3. We're entering the quarter with a tighter fleet, better utilization, a focus on cost and on higher contribution transactions. We think this is manageable and are planning for roughly flattish RPD in Q3, but small fluctuations in RPD can have substantial impacts in this peak quarter.
On fleet size, even though we exited the first half a little above plan, there was some pull-forward on gains related to fleet rotation, which is why year-to-date performance doesn't necessarily translate into an increase in full-year expectations. Q3 is the quarter where we make the lion's share of our earnings, so small swings matter. We remain in the guidance range and the next month or two will tilt the scale one way or the other.
From our perspective, we've acted responsibly to align fleet with demand. The delta between the low and high end of the guidance range will be influenced by how the industry and demand environment evolve over the coming weeks.
Makes sense. Considering balance sheet and the Pentwater settlement, assuming you receive it, how do you think about the right leverage ratio, capital allocation priorities with that settlement or other cash flow otherwise, and how to think about that long term?
We exited 2025 at 7.5x leverage and are now at about 7.4x. We acknowledge that's on the high end and are prioritizing deleveraging. We expect a combination of debt repayment and EBITDA growth to reduce leverage by more than one turn during this year and will continue prioritizing it. We expect to allocate the Pentwater settlement proceeds to debt repayment when received. Other levers include being tight on CapEx, disciplined capital allocation, working capital improvements and allocating excess cash flow to debt repayment. Growing the business also helps delever over the medium term.
The next question comes from the line of Stephanie Moore with Jefferies.
Congrats on the quarter and utilization performance. I have a three-part question that ties together. First, can you give more specific examples of the technology and operational changes you've made that enabled you to better respond to weaker demand and keep utilization robust? Second, what's your outlook for the used vehicle market over the next 6 to 9 months? Third, putting that together, if demand remains subdued and used vehicle prices moderate or fall, how would Avis respond with the new tech and best practices in place?
I'll start with technology. This has been a multi-year journey. We've overhauled our tech stack within operations and focused on fleet visibility and connected-car capabilities tied to a platform that enables efficient decisions. The new platform is in the vast majority of our Americas business—over 90% of our Americas fleet is now on it. It provides operators a better way to manage fleet, focusing on asset management and minimizing unrentable days. It enables quicker turns in the supply chain and reduces leakage in shuttle and handling. We're still rolling this out; certain markets have more experience with the new tools than others. It's on a SaaS platform with a dedicated team focused on optimization; we're in early versions and expect to iterate. We'll likely provide a deeper dive in a future call.
The impact has been substantial. We spoke about a 2.5% improvement in utilization. If you adjust for recall-related constraints that operations couldn't mitigate, utilization would have grown about 5.3 percentage points in the quarter, which would be an all-time high in any quarter in the Americas. So the operational and technology investments are materially improving outcomes.
On used vehicle outlook: seasonally, you see a pullback after the spring, with increases in April and May and degradation into the end of the year. This looks like a relatively normal seasonal pattern. We planned for this at the beginning of the year and continue to model and reforecast. The used car market seems in line with our expectations and we've positioned the fleet to maintain a margin of safety to sell vehicles when needed.
Yes. The third question is: if used vehicle prices moderate and demand remains subdued, how would Avis respond given your new tech and practices?
We would respond by being conservative with fleet and building a cushion. Even with a declining market, not all vehicles decline equally. The tech allows us to better decide what to hold versus sell, and to optimize supply chain dollars to lengthen vehicle life where appropriate. Our priority remains the financial health of the fleet and our vehicle funding structures. We are committed to making disciplined decisions on fleet to protect shareholder value regardless of demand environment.
And the next question comes from the line of Andrew Percoco with Morgan Stanley.
You mentioned RPD was impacted by longer durations and you expect that to continue through Q3. What gives you confidence that will happen? What are you seeing on the customer side that's driving that? It seems more consumer-driven than something you can control.
Andrew, a clarification: we expect our length-of-rental mix to be impacted in Q3; we are not making a long-term statement about the entire year. We look at cohorts—one-day, two-to-four-day, five-to-14-day rentals—and on a cohort-by-cohort basis RPD is up across those segments, by varying magnitudes. One-day rentals carry a significant premium. Given our fleet is down more than transient demand, we need to be choosy about which demand we accept. In Q3, when fleet is constrained, we are choosing to optimize for revenue per transaction versus revenue per day, which leads to accepting longer duration rentals. This is an active decision we are making for Q3 to manage toward profitability.
I would add: you get to be choosy when you're busy in peak season. In Q4, as demand seasonally slows, you have less ability to influence mix. The Q3 environment gives us the capacity to select higher contribution transactions rather than the shortest-duration rentals.
This concludes the question-and-answer session, and this will conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation and be well.