Avis Budget Group, Inc. Stock

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 check-ins 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 prioritize 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 3 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. And 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 3 years. We also achieved record second quarter utilization globally with both the Americas and International improving sequentially and year-over-year. Importantly, we delivered 2 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 2 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 3 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, 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 the 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 them becoming current, 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 our 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.

[Operator Instructions] 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 is going to -- 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, so 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. So starting from the beginning of the year, that was an area of focus for us. So from a cost basis, we think that actually is what helped contribute to our profitability growth this quarter despite a lower revenue. We expect that to continue going forward. What I will say is that 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, kind of, future growth, yes, in terms of technology and new resources for our operations and improved processes. We are continuing to make those investments. And the way that 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 on in terms of ownership of these and placing orders for autonomous? I mean, does it feel like that decision-making process is being sped up at all for you guys?

Chris, sorry, before I answer your question, one thing to note. I robbed our AV operators by a month of operations. I think in the prepared remarks, I said that we took over operations for Waymo in Dallas in July, we actually took over in June. So I just wanted to clear that up. In terms of your question about purchasing the fleet, I don't think that anything is being accelerated right now in terms of having to make that decision. The environment in the ecosystem is still evolving currently. I think what we're trying to do right now is make sure that we develop the relationships directly with both the AV providers and the vehicle providers to give ourselves both options, whether that is kind of just 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 just a little bit more about the decision to kind of realign fleet in Q2 and kind of how that plays out in Q3. You made a point of calling out the 3% kind of like-for-like pricing that would have been achieved. Now that the fleet is kind of, I would assume, rightsized, do we get back to kind of a normal RPD contribution of the company in Q3 relative to like the market? And I guess my thought process is if the fleet is down and the market is still okay, like, should we expect a positive RPD development here in Q3? Or are investors kind of getting ahead of themselves thinking about that for the quarter?

John, from our perspective, listen, the demand environment weakened, let's say, I wouldn't say that the travel demand is weak, though. So what we're seeing in TSA is down roughly 2% month-to-date in terms of emplanements. That's off from what we had expected, but I wouldn't characterize that as, like, a foundational weakness over here, and you're seeing strength in different pockets of the travel ecosystem. The 2% decline in the TSA employments is different from our 5% decline in fleet. So -- and we said that in the prepared remarks that you should expect kind of similar-ish decline year-over-year in fleet. So we expect to be kind of in that mid-single-digit range, which is lower than what we think the overall kind of demand environment is. Given that, the dynamics of Q3 will still kind of look like the dynamics of Q2 where fleet is constrained. So given that, we are going to prioritize longer duration rentals in the third quarter as well. We think that this is having a positive contribution to our overall EBITDA margin. And even though the headline RPD number is higher for these shorter duration 1-day rentals, given the fact that we are going to be fleet constrained in Q3 and we are managing towards profitability, we need to take some of these longer length rentals. So I think that the dynamics that you're seeing in Q3 will look like what they see in -- but overall, like I said, if we were not making these shifts in terms of length of rental mix, the overall environment is up 3% for us in terms of like-for-like segmentation. So overall, it does seem like a fairly stable environment. It's just a little bit of noise given the changes that we're making to our fleet mix given the supply.

Understood. That's helpful. And then just kind of one financing-related question. You guys are always very active on both the fleet side and the corporate side. And I'm just trying to think about some of the moving parts for 2027. Any way you could kind of think about kind of the headwind or tailwinds of kind of some of these financings just kind of on the interest expense line, both corporate and fleet, maybe hypothetically for next year?

John, this is Daniel. A lot of the refinancings are going to come due in the medium term have been put in place quite a while, and they are predominantly fixed rate. So the refinancing cost is likely going to be higher than what we have. It will depend a bit on the tranche, but 100, 125 bps is probably our expectation. And so that's why I was mentioning in prepared remarks that as those come due, we're going to potentially stretch a little bit how long we hold on to them and just delay that transition. But that's the new environment we operate with. And I think it's not impacting us only. And as I was mentioning, we do think that it's playing to some extent an effect in the price environment in the 2 quarters of sequential RPD growth that we've had and that we have not seen in a long time as a result of higher interest rates, higher legal costs and so on.

John, I would just add that we're very well aware that the next maturity we have after paying down the $350 million is 4.75%. And hence, why we were putting the funds in the fleet for now, right, as Daniel was saying, and taking as long as we can to pay that piece down. So we're managing that interest as best we can. And -- but what's foundational for us is to make sure that our debt maturity ladder does not stack up like, that is something that I think is really important, and we'll make sure that we're doing things at the right time at the right moment at the right cost.

Okay. And just a clarification, you said that 125 bps would maybe be an expectation? Or I wasn't sure. I wasn't clear on that.

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 made the strategic move to tighten the fleet. Maybe you can just talk to what your competitors are doing as well as far as operating with certain fleet levels? And maybe if you could just talk to the broader competitive environment that you're seeing, especially given one of your competitors is going through some questions on liquidity.

Yes. Let me answer some of that -- answer what I can at a high level and then Daniel, you jump in. from our perspective, I think if you had told me that international inbound travelers was going to be down 8% in the second quarter, yes, with the World Cup happening, right? I don't think anyone planned on that. The -- and from our perspective, given that we are a rental car company that does the majority of its business on airports, like the ground truth that we follow is those TSA check-ins and the international travel data, like that can't be argued. So what we saw happening, we were keeping a close eye on. And I think that we made the call fairly early that demand was not playing out the way that we thought. It was also a situation where like you could choose like the used car market was constructive in the seasonally strong period of April and May. We had a bird in hand over there. And we thought that given the volatility that we've seen in terms of earnings like with the fleet write-downs that have happened over the last 2 years, playing with a bit of margin of safety was the right decision. So what we did was, as this was developing, we made the decision that we're going to take fleet down and harvest some of those residual gains. Again, like I said, I think this is something that we caught earlier when we saw this demand shift. Overall, I think some of our competitors have seen this -- have taken a similar approach as the months progressed. And after the 4th of July, we're seeing industry supply begin to rationalize a little as well. So I think the supply-demand dynamics are better aligned today going into August than they were going into May. For us, there's still several important weeks of summer left. We're focused on optimizing every day of that demand. And what I would imagine -- what I would say is that given the stability we're seeing in the pricing environment, we think that the industry is rationalizing as well.

I would just add then a little international perspective where some of the dynamics Brian described are also present, but we saw in some of our key markets, a significant increase in new vehicle registration by rental car companies, something in the order of 10%. We acknowledge that this is not a full picture, we don't have visibility of the deletes, right, that may be offsetting some of that. But we do see the inflow of new vehicles. That paired with significant declines from inbound travel, especially from the Middle East. I think it's creating a scenario market there that is a little bit more competitive than we have experienced in North America. We also expect that to continue in Q3.

Okay. Great. As a follow-up, there's been a lot of questions about one of your technology vendors that I think you had discontinued the relationship with them and then there was a press release last night that there was an agreement. And I think there was -- I think a lot of excitement on the potential profit benefit. I think some people were putting out upwards of $100 million a year. So maybe you could just talk to -- I mean, now that they have a press release, I don't know if you can comment on the potential benefit that you see on pricing or what approach you're taking? And then 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 one. After we submitted a termination notice, management of reengaged, right? We had for conversation. We were able to find a path forward, as you saw in their announcements, right? The position was generally pretty simple, right? We wanted to have control over the customer journey. We wanted to have more flexibility in the operating model. that we had and a better customer experience around tolling and the related products. With this new management, we're able to reach in terms of preserve those vehicles, allowing vendor to remain a provider of ours. And we think it's a pretty constructive outcome for ABG. It gives us continuity, and it allows us to manage the economics in a way that's aligned with our long-term objectives.

Is there something you can talk to as far as that and broader initiatives to streamline spend? Could this lead to material profit benefit?

The effort here on tolls, I think, is representative of other efforts that we are undertaking across the P&L. So major programs around vehicle damage, insurance, licensing and registration. I mean those are substantial line items for us. And just like with those, we had a very disciplined approach of reevaluating the entirety of our operations, how we perform those services internally, externally with one vendor, multiple vendors. Those are all conversations we're having across the board. In terms of expectations here, I would just point out that those are relatively complex parts of our operations. So we intend to chip at them very consistently over the quarters, but those are not simple fixes. Those are not changes that happen overnight.

Yes. And I can just add also that given the new technology that's available to us, we are taking a broad-based look at where we can improve the products that we're delivering to our customers. So yes, cost efficiencies are important, and we want to make sure that we get the best deal possible out there. But ensuring that we are delivering better products for our customer and delivering a better customer experience and being more efficient as a company is also, I think, something that we're evaluating on a regular basis.

And the next question comes from the line of Rajat Gupta with JPMorgan.

Just had a question on -- just a couple here. But the first one, just on the Waymo partnership, 2 months into the operation in Dallas. I'm wondering if you could double-click on what role you're playing as a fleet manager and maybe highlight some of key early innings learnings? And are you already making any incremental investments for autonomous vehicle fleet management in other regions ahead of potential contract conversions?

Yes. So Rajat, I think like what we're -- in terms of taking over as part of operations in Dallas is similar to what we had described when we first announced the partnership. So in terms of revenue generation and the AV technology themselves, acquiring the customers, that's on Waymo. I think everything after that is on us to making sure that the vehicles are properly maintained, that they have optimized uptime. They're in charge of all the real estate infrastructure. And from our perspective, like we are investing in Dallas, particularly in more efficient kind of real estate footprint to make sure that we're delivering on all the service levels that we have committed to. Dallas is an important milestone because we're learning what it takes to manage an operation of this complexity safely, reliably at scale. And the near-term focus for us is execution on Dallas. But over time, we want to make sure that we turn this into a repeatable operating model across additional markets, and we're in discussions. And we think that this is going to be a meaningful strategic capability for the company. But we're going to be disciplined about it. We're focused on Dallas today. We're evaluating future markets, and we'll keep you posted as things develop.

Understood. That's helpful. And just a follow-up on recall, a 3-point headwind utilization in the second quarter. Could you give us any visibility on how you might see this easing through the remainder of the year? And how should we think about any impacts from DPU pricing, et cetera?

So maybe a quick comment, right? As I mentioned, we have today or have had in Q2 a bigger impact than we had exiting Q4. The availability of parts hasn't been plentiful, but what we have visibility is right now is that over the second half, we'll probably have slightly over half of the impact that we've had so far, something a little bit north of $50 million year-to-date. So about half of that for the balance of the year, right, assuming the parts continue to become available at the rates that the OEMs have promised. In terms of DPU, this is a little bit of a drag on the vehicles that are on recall tend to have 20%, 30% or higher DPU than the average. So that has, let's say, slowed down the improvement in DPU that we've had in spite of, as I mentioned in the quarter, we have had unusually low DPU because of the incremental sale activity that Brian described.

The next question comes from the line of Chris Stathoulopoulos with Susquehanna International Group.

Brian or Daniel, where are you in your -- the fleet purchase program for '27? I think conversations typically start around midyear, perhaps the spring before. And is there anything unique as we think about pressures or not with respect to the OEMs, things like supply chains, et cetera?

Chris, you're right in terms of timing. Typically, this would start in the spring in earnest with a lot of our OEM partners, especially the manufacturers. After COVID and how dynamic the supply chain became, this has been pushed out throughout the course of the year, and it's kind of stabilized that way. So right now, I would say that we're mid-innings with our OEM partners. We have a fair number of contracts that are inked already with certain manufacturers, but there's still a lot more to go. We've not been hearing from our OEM partners anything out of the ordinary in terms of supply chain issues. It's been a fairly normal, I think, yes, environment from that perspective. But listen, the topic on everyone's minds is recall and availability of cars. And so we're evaluating total cost of ownership from our perspective, understanding which OEM partners that we want to lean in more heavily with and that deliver a reliable product, and that's going to be reflected in what we can afford to pay for this product.

Okay. And then, Daniel, thank you for the commentary on the supply commentary on the international market. If I heard correct, I think, Brian, you said that the supply-demand dynamic as a whole today or at least where we are in the third quarter is a bit more balanced. But I took the comments around international to sound perhaps a bit tougher versus domestic. I want to make sure that I heard that right or if there's anything unique. I heard about excess registrations and things like that. Just wondering if you could give a little bit more color on the international side.

Yes. I don't have a ton more to add there. What I think we saw is that in the Americas, maybe just to tease out the contrast, right, we were more actively making tweaks to the mix, right, LRs and channels and so on to increase or maximize EBITDA margins, and that was a result of having fewer vehicles, right? We do not have the same dynamics in international. So the mix-related changes are not as present with the exception of Zipcar U.K. that tended to push RPD up because of the nature of the business, right, like short rentals, higher dollars per hour day and that business will continue. So if you compare the about 2 points of RPD growth that we had in the quarter to the about 3-ish that we had in the prior quarter, there was a small deceleration in the RPD environment. And as best we can tell, this is driven a bit by the combination of having a bit more supply in the market, right, as measured by the increasing registrations and at the same time, a lower amount of inbound travelers that were coming into Europe, right? So that I think is what's pressing maybe a little bit the RPD side of the equation in international and making -- capturing the data a little bit more competitive.

The next question comes from the line of Lizzie Dove with Goldman Sachs.

A lot of helpful commentary here. I guess just to kind of tie it all together, you maintained the guidance range of $850 million to $1 billion. Thinking about your comments that we might see a continuation of Q2 into Q3 on the revenue side that continuing decline. I don't know if that continues for the rest of the year, some of the DPU benefit you've got unwinds. Could you maybe talk about what's embedded elsewhere in the guidance and how you think about what gets you to kind of the low end or the high end of that range?

Yes. I'll take a first crack and then Daniel can chime in. But Lizzie, what you said is exactly correct. I think about Q3 as a continuation of the same operating posture that we had in Q2. So fleet will still be down, I think, down in the same kind of mid-single-digit range that we saw in Q2. And so we're definitely not planning the business around volume growth. So because of that, that's going to put some pressure on rental days and revenue. But we showed in the second quarter that fleet being down does not translate one-to-one to rental days being down. So we're going to continue driving utilization. That's been a focus of ours and especially in the new technology that we've implemented, the new processes that our operating teams have put in there, we think that, that's a sustainable benefit that we can continue into the third quarter. So we're entering the quarter with tighter fleet, better utilization, again, a focus on cost. We're going to make sure that we maintain as efficient cost base as we can and a focus on these higher contribution transactions. So similar kind of length of rental mix dynamics. We think that the overall RPD dynamic is going to be constructive in the third quarter, but we're planning for roughly flattish pricing in Q3.

On the fleet size, Lizzie, I would just add that even though we exited the first half a little bit above plan, there was a little bit of pull forward here on the gains related to fleet rotation, right, which is why this performance year-to-date doesn't necessarily translate into an increase in our expectations for the full year, right, in addition to, as you know, Q3 being a quarter where we make the lion's share of our earnings and small fluctuations in RPD can have a substantial impact in the quarter, right? So we think we're still in the range. But obviously, the next month or 2 here will definitely tilt the scale one way or the other.

From our perspective, Lizzie, I think we've done what we feel is the responsible decision to understand what the demand environment looks like and fleet slightly below that. I think the delta between the lower and the higher end of the range is going to be if the industry look at it that way as well.

Makes sense. And then I guess just considering balance sheet cash flow, hopefully, you're going to have this pretty nice settlement from Pentwater coming. I guess with that context in mind, assuming you get it and just where leverage is at right now, I think somewhere in the 7x range. How do you think about kind of the right ratio for you, where kind of capital allocation priorities would be with that settlement or just other cash flow otherwise and how to kind of think about that long term?

Lizzie, we exit '25 at 7.5. We're now at 7.4%. I think there's full acknowledgment from us that this on the high end of the spectrum is not where we want to live or stay. We're definitely prioritizing deleveraging, right? We expect during this year, a combination of debt repayment and EBITDA growth to reduce it by more than 1 turn and we will not be satisfied with that. We will continue to prioritize it as we go forward, right? So that, I think, is the direction. In terms of the levers, right, we are expecting, as you mentioned, the fund from the settlement, we will allocate this to debt repayment, and that will definitely contribute. Other than this, we're pulling all the other levers that you would expect, right? We're working on cash flow in general, being very tight on CapEx and being very disciplined on where we allocate our capital. We're working on some working capital levers to improve cash flow generation. And we've been allocating every bit of excess cash flow to debt repayment. So those are the levers we control, obviously, and growing the company also has a big impact on the medium-term deleveraging efforts.

The next question comes from the line of Stephanie Moore with Jefferies.

Congrats on the good quarter and certainly the utilization performance. I do have a 3-part question, but bear with me because I promise I all work together here. But -- so first, maybe you could give us more specific actions or examples of what technology and other changes you have made in the last several quarters that have enabled you to better respond to the weaker demand environment and keep these utilization returns so robust? And then how does this just change to the prior actions on the company? I think that color would be helpful. And then the second part of the question is, what is your outlook for the used vehicle market over the next 6 to 9 months? And then third, putting that all together, let's say the demand environment does remain somewhat subdued and used vehicle prices maybe start to moderate or fall, how would Avis respond with your new tech and best practices in place in that scenario? So a lot there, but I think it kind of goes together.

I'll take a first stab at and Daniel can chime in. In terms of the tech investments, Stephanie, this is a journey that we've been on for several years now actually. It has to do with an overhaul of our entire tech stack within operations, and it focuses around having better visibility around fleet. So I think connected car has been talked about for ages. But if it's not connected to anything on the other end and a platform that allows you to make efficient decisions, like there's not a lot of benefit to that. So I think what we've been implementing is a brand-new platform that now is in the vast majority of our Americas business, I think over 90% of our Americas fleet is now running on the new platform, just a better way for our operators to manage the fleet that they have. And this has a lot to do with just kind of the asset management side of our business about being efficient with those assets that we manage. Can you sweat your assets? So it has a lot to do with minimizing unrentable days and unrentable vehicles. So quick turns around the supply chain, making sure there's no leakage around shuttling in order to run the tightest fleet possible while delivering on the rental demand. Again, like I said, we're still rolling this out. Certain markets are more experience with these new tools than others. And we're going to continue to invest in this. The good news is that it's on a SaaS platform. There's a dedicated team here that's focused to optimizing it, and we're version 1.0 here. As we develop this, this is something that's likely to do a deeper dive on in a future earnings call, but let me leave it there for now.

And Brain, maybe just jumping in. The impact of that is massive, right? So we spoke about the 2.5% improvement in utilization. If we adjust here for the recalls that are unrelated and frankly, there are no parts that's not much the operations team can do, utilization would have grown about 5.3 points in the quarter, and we would be at all-time high in any quarter, any period in the Americas here. So the impact here is pretty substantial.

In terms of the used vehicle outlook, this is the period seasonally, every year where you see kind of a pullback in terms of used vehicle prices. I mean, look at any curve you want in any year for Manheim besides like the weird ones post-COVID. But it's modelable. What you see is an increase April, May and then the curve degrades into the end of the year. And so from our perspective, it seems like a relatively normal year. We had planned for this. And so what you see is a -- like I think what you see in terms of gross depreciation that you put in the year, the equity that you have in the fleet might change throughout the year, but the gross debt that you're putting into the fleet has to account for the entirety of the curve. You're not switching that quarter-to-quarter depending on at least from our perspective, on how we model the end residual values. So listen, the used car market seems okay, right? It's what we expected at the beginning of the year. And month-to-month, we continue to model and reforecast and we put into the fleet to have that margin of safety to be able to sell vehicles when we need. Stephanie, can you remind me of your third question again that dovetails from that second question?

Yes. Sorry, I kind of hit you with a lot there. I guess the third one is, let's just assume used vehicle prices start to moderate. What would be the scenario? Or how would you respond based on some of the new investments and actions that you have put into place would help maybe manage that environment. So let's just say used vehicle prices moderate and demand also remains subdued.

Yes. Listen. I think the way that you get around that, kind of, that scenario where if demand is weak, you have to get out of cars. Like there's -- that's the responsible thing to do. In order to be able to get out of cars, even in a weakening demand environment, you have to build a cushion into the fleet. So from our perspective, we're trying to be conservative in terms of how we our vehicles. Again, even in a declining -- overall declining market, it doesn't decline the same way for all vehicles. I think the technology that we've put in place allows us to better understand what we want to hold today versus sell today, what we want to elongate the length on, what's worth it to put in additional supply chain dollars to lengthen the life of the vehicles. All of that is at our disposal today. And from our perspective, given what we've seen on the fleet side, on the balance sheet side over the last 2 years, this is the one thing that we cannot compromise on. We have to make sure that our fleet position and the financial health of our fleet and ASOP are rock solid. And that's what we've been doing all year. That's what we'll continue to do regardless of the demand environment.

And the next question comes from the line of Andrew Percoco with Morgan Stanley.

Just one on my end. I think you mentioned that RPD was impacted by a longer duration within the transactions in the quarter and that you expect that to continue, I guess, through the balance of the year. I'm just curious like what gives you the confidence that, that's going to happen? And maybe what are you seeing on the customer side that's ultimately driving that? Because that to me seems to be like more of a consumer and customer-driven dynamic versus something that maybe you guys can control yourselves. So just curious if you can provide any more kind of color on the dynamics there.

Sure. Andrew, one clarification. We expect that our length of rental mix is going to be impacted in the third quarter. I wouldn't say that it's going to be for the balance of the year. We don't know what the fourth quarter yet is going to look like on that front. And I think the biggest thing that gives us confidence, think about it as you look at it in terms of cohort of business. You have 1-day rentals. You have 2- to 4-day rentals. You have 5- to 14-day rentals, whatever it is, the different cohorts we look at. On a cohort-by-cohort basis, RPD is up across those different cohorts. Now by different magnitude on different cohorts, but they're all universally up. One-day rentals carry a significant premium. 2-day rentals carry a significant premium versus a week-long rental versus a monthly rental. And so we don't think that this is something that's structural from our perspective, just given the fact that our fleet is down right now, we took a conservative approach and that our fleet is down more than transient demand is. We need to be choosy about what demand that we do take in. And in this period where we are constrained, we're choosing to optimize for revenue per transaction versus revenue per day. So listen, RPD, obviously an important metric. This quarter, I don't think it tells the full story. What gives us confidence is we are selecting what business we take, and we're choosing to shape the curve this way for the third quarter in terms of our business mix. This isn't something that we expect to be consistent over the long term. That's right.

And I would just add that you get to do this when we're very busy, right, during the peak of the season. Obviously, in Q4, as demand seasonally slows down, you have a smaller ability to influence the mix and be more choosy.

Yes. I think the takeaway from our perspective is that overall, the underlying pricing environment still fairly constructive. It's similar to what we saw in the first quarter. It's just not fully reflected in our reported RPD figure because of the mix we choose to manage towards.

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.

Greetings. Welcome to the Avis Budget Group Q1 2026 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to David Calabria, Treasurer and Senior Vice President of 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 to everyone joining us today for our first quarter earnings call. There's a lot to cover this morning, and as you've seen in our earnings release and financial supplement, we've begun executing on the changes we outlined last quarter. In particular, the actions we've taken around fleet reduction and supply discipline are starting to show up in both our operational performance and our financial results. We believe these changes do much to strengthen Avis.

Daniel and I will walk you through the details of the business, but before we do that, I want to address what I know is top of mind for many of you, the recent volatility we've seen in our stock price. We've received a number of questions, so I think it's worth taking a moment to walk through the facts as we understand them based on disclosure from public filings.

Let's start with what's well understood. Our second largest shareholder, Pentwater Capital, who filed as a 9% owner of our company as of December 31, 2025, cross the 10% ownership threshold on February 20 and became a Section 16 Insider. On that day, Pentwater disclosed they held an economic interest of 39% of our company through stock and cash settled swaps. By March, they disclosed that economic interest increased to 51%. So in the span of a month, Pentwater's public filings showed their economic interest increased substantially. We believe that this significant increase in ownership, combined with the high short interest in our name resulted in a short squeeze. That much is well understood.

Here's what we're absorbing just now. After market closed yesterday, Pentwater disclosed the sale of 4.3 million shares for gross proceeds of $1.75 billion on April 22 and April 23. Given the quantum of shares sold in such a short span of time, our stock price experienced a significant decline. It is important to note that Avis has not bought or sold a share since 2024. Our largest shareholder, [ SRS ], has not bought or sold a share since 2023. So it seems the only insider active during this period of excess volatility was Pentwater Capital.

Pentwater has acknowledged that its sale of Avis stock, at least in part, was violative of the SEC Section 16 short swing profit rules. Avis has requested Pentwater [ furnished it at ] all relevant information concerning the trades and Avis will aggressively pursue all rights on behalf of our stockholders. From the company's perspective, nothing about how we operate the business has changed, and our focus remains squarely on execution and long-term value creation. With that context, let's turn back to the fundamentals of the business.

On our last earnings call, we laid out the difficult but necessary decisions required to put this business on a stronger footing. We executed on that plan in the first quarter and the early results reflect that progress. Overall, we're pleased with our first quarter performance, which delivered adjusted EBITDA above plan. Before I turn it over to Daniel to walk through the details, I want to highlight a few proof points that demonstrate how the business is responding.

Starting with revenue. This was the first quarter in [ 10 ] where we delivered growth in the Americas, driven by strong RPD performance. That was a direct result of our decision to better align supply with demand, allowing us to be more selective in the business we accepted and improve pricing discipline. International continued to execute well on its mix strategy, also delivering strong RPD growth. On the fleet side, we were able to take advantage of a stronger-than-expected first quarter used car demand. The Manheim index tracked above prior years at this point in the seasonal curve, and our teams moved quickly disposing a record number of vehicles in the Americas where we did not expect residual values to hold.

Operationally, utilization was the highest we've seen in over 15 years for the first quarter in the Americas despite continued recall-related constraints. We effectively managed our assets through a volatile environment, including weather disruptions early in the quarter, TSA-related impacts and broader geopolitical uncertainty. Beyond day-to-day execution, we continue to invest in key areas of our longer-term strategy. Avis [ first ] is now in 36 locations, including 9 international airports, and we continue to see strong customer satisfaction metrics. While still early, we're seeing encouraging adoption and believe the product has significant long-term potential.

On the Waymo front, we remain on track for our [ Dallas ] launch in the third quarter and are nearing public rider availability. As we've said previously, we expect to expand into additional cities over time and remain in active discussions with our partner.

With that, I'll turn it over to Daniel to walk through the quarter in more detail.

Let me start with the Americas segment, where we saw several clear signs of progress this quarter. Revenue grew 2.9% year-over-year, the first search increase in Americas in 10 quarters. Just as important as the growth itself is how it was constructed. Rental days were essentially flat, while RPD increased 2.8%. This marks the first quarter of positive pricing in the Americas since the fourth quarter of 2022, and we view that as a meaningful inflection point.

RPD was modestly positive in January and exited the quarter up nearly 4% year-over-year. We also saw improved ancillary performance, which grew 1.9% year-over-year and continue to support a shift towards higher quality revenue. Leisure share of revenue increased by 1.1 point in the quarter. The key driver of this performance was the shift in fleet strategy we aligned last quarter. TSA volumes grew 1.6% in the quarter, while we reduced fleet by 0.6%, a deliberate decision to better align supply with demand.

Despite a smaller fleet and continue correlated constraints, we maintained rental days to improve operational execution and higher utilization. We also took advantage of [ first ] quarter strength in the used car market to further rightsize the fleet. In doing so, we prioritize speed yield, which helped accelerate normalization of depreciation. Monthly depreciation in the Americas averaged approximately [ $380 for the ] quarter starting above $500 in January and improving into the mid-300s by March. As noted in our supplemental financials, we expect depreciation to decline meaningfully in the second quarter. We exited the quarter with the healthiest fleet position we've had since the pandemic and a fleet that is approximately 20% younger, positioning us well for the balance of the year.

Our International segment continues to execute on this strategy of shifting revenue mix towards higher return segments. As a result, rental days were down 3.8% year-over-year while RPD increased 3% on a constant currency basis. This transition began in the second quarter of last year, and we're in the process of aligning our staffing real estate footprint and go-to-market to support that new mix. That has created some temporary cost inefficiencies, but we view those as transitional while the improved revenue mix is structural.

From a demand standpoint, the international environment remains uneven and difficult to predict. We are seeing variability across regions influenced by geopolitical developments and higher travel costs. That said, we are positioned to benefit from shifts in travel behavior, particularly toward intra-regional travel within Europe, where rental can be a more attractive alternative.

With that, I'll turn to our leverage, liquidity and outlook. As of March 31, we had over $900 million of available liquidity, along with approximately $2.9 billion of additional capacity across our [ ABS ] facilities. Our net corporate leverage ratio was 7.6x, and we expect to reduce that to below [ 6% ] by year-end through earnings growth and continued debt repayments. We remain focused on returning to more normalized leverage levels. And importantly, we have no corporate debt maturities until 2027.

During the first quarter, we executed a number of refinancing transactions that reinforce our access to capital. In February, we renewed our European securitization facility for approximately EUR 2.4 billion, extending its maturity by 2 years. In March, we issued $668 million of [ ASP ] term debt across 3- and 5-year tenors to refinance maturing obligations. This reduction was well received oversubscribed and price on favorable terms, reflecting continued demand for credit.

We also expect to renew our $2.4 billion [ ASP VFN ] facility at the end of the month. along with an additional $480 million of seasonal capacity through October 2026. Overall, the first quarter represents a strong start to the year. We exceeded our adjusted EBITDA plan by approximately $50 million supported by improved pricing and disciplined fleet execution. As a result, we are raising our full year guidance to a range of $850 million to $1 billion in adjusted EBITDA.

With that, I will turn it back to Brian.

Thanks, Daniel. As we look ahead, there are a few key areas that we are monitoring closely. First, the geopolitical environment, particularly in the Middle East, has already begun to impact energy prices and remains an important variable for the balance of the year. Higher fuel costs can influence consumer behavior, including vehicle preference and overall demand. We are beginning to see early signs of a mix shift and are actively managing our fleet composition and disposition strategy in response.

From a demand perspective, we are seeing a healthy buildup into the summer season. Rental days in the Americas are trending mid-single-digit growth with RPD Holding. The Easter shift will impact second quarter comparisons, but underlying demand remains constructive. We are also seeing strong demand in key markets, including World Cup host cities where both rental days and pricing are performing well.

For Avis team listening today, our priorities remain clear and unchanged, we will continue to manage fleet with discipline, drive utilization across the network and execute consistently. These are the fundamentals of how we run the business, and they position us to serve customers well, protect profitability and create long-term value.

With that, operator, we'd be happy to take questions.

[Operator Instructions] our first questions come from the line of Dan Levy with Barclays.

Can you please just address the pricing trends? And [ Milton ], this is the first positive quarter of pricing in Americas in several years now. What flipped in the quarter? And I know you gave some commentary on how things are looking into the second quarter so far. What's the confidence that this can hold for the balance of the year? Maybe you could just give a sense of how the trends have changed and why this has flipped.

Yes. Sure. Dan, I'll start, and then Daniel can add. But you're right, this is the single biggest fundamental change that we've seen in years in our business. And I think the biggest shift that we've seen at least is, like I said on our fourth quarter earnings call, is us taking a pretty different philosophical approach with how we view supply and demand in the industry. We're not there to take every last rental, and we're feeding to account for that.

I think the lower supply, and this was shown by kind of the number of cars that we disposed of in the quarter, did a lot to help this. So pricing was constructive in the first quarter, like we said in our prepared remarks, it got better in February. March benefited from a little bit of an Easter shift mix. But as we look out, we do believe that things have normalized. Like as we're looking at April, again, that benefit that we saw from the Easter mix is impacting a little bit. But looking further towards May and June, we see things stabilizing. So we're pretty constructive on where we see pricing today.

I'll just add, Brian, that this is first positive price in the fourth quarter of 2022, right? And since then, we have experienced, especially the Americas quite a bit of inflation, labor, vehicle costs, and we believe those are pressures that the entire industry experience. So at some point, to sustain the economics of asset [ pay ] business, pricing to sustain and stop declining. So we do think that we -- there's a bit of an inflection point. And as far as we can influence it by maintaining supply and demand aligned, we'll be contributing.

Great. The second question is on the balance sheet. And I know now you're in the sort of mid-7x net debt-to-EBITDA range. pre-COVID, you were in the sort of [ 3 to 4 ] range. What's the right leverage ratio for you? And what steps can you take? I know free cash flow generation, obviously, but what steps can you take to reduce the leverage ratio if that's something that you want to pursue?

No, I think, Dan, we've been pretty consistent in our messaging, saying that the focus in terms of capital allocation is going to be shifting towards debt repayment. We still generate free cash flow in this business. So proceeds of that will go down paying debt. But the real thing that has to happen is we need to start growing our EBITDA.

And we're coming off right now 2 years where we've had issues with our fleet, and that's reflected kind of in the income statement. We think that as we get out of this first quarter and as we normalize going forward, you will see EBITDA growth that justifies kind of meaningful deleveraging. So we said that a combination of EBITDA growth and debt paydown will already get us down to below [ 6 -- or ] sorry, in the 6x range, this -- by the end of this year. And we're going to continue that EBITDA growth and debt repayment strategy till we get to our target leverage ratio of 2 to 4x.

Our next question has come from the line of Chris Woronka with Deutsche Bank.

Congratulations on the better-than-expected quarter. I wanted to hope we could maybe talk a little bit about fleet size. You guys have always said you try to fleet a little bit under demand. You've done that in the last couple of quarters now with positive utilization in the Americas.

So as pricing has gotten nicely better here, do you think you will continue to try to fleet under demand? And do you -- are there any indications that the industry will we'll follow that trend. I know that you guys sometimes have to react to what competitors are doing. But is your plan to continue fleeting under demand?

Yes. I'll start and Daniel, you can chime in. But as we've said consistently that we fleet under demand, which is true. But when we said that, I think what I was trying to say is like at the peak of any given quarter, like if it's a Memorial day or something like that, you're trying to peak under that demand, but that leaves you pretty overfleeted during the shoulder periods.

I think what we're trying to do right now is say, hey, we needed to over the course of the quarter and over the course of seasons, understand what the minimum level of fleet that you can maintain to make sure that you aren't overfleeted during those shoulder periods and then really rely on operational efficiency and utilization to get those days during the peak demand. I think that's the structural difference that we've taken. And I think that does have a positive increase on price. From our perspective, that's what we can control, and that's what we continue to do going forward.

And the only thing I would add, Brian, is that like, Chris, like you pointed out, Chris, there is a portion of that we don't control, right? The portion that we do control is how we utilize our assets, right? We're asset managers. We need to drive return on assets, right, in each of our operations, and we can keep pushing the envelope there by reducing the asset base, right, which we do by increasing utilization. That's a key focus of ours, and you've seen progress [ over the last several ] quarters. and increased EBITDA, which is to point out, Brian has been pushing very strongly about growth, improving margins and so on.

So those or things that we do -- that we control that help, I think, both Avis and help maintain the industry in a more balanced supply and demand position.

Okay. And just as a follow-up. Brian, I think you mentioned last year that your Avis First initiative and your -- the initial Waymo contract would certainly not be like material to financials last year or even this year. But I'm curious as we look out to kind of exit rate for '26. I know it's still kind of early in the year, but do you expect one or both of those to kind of be noticeable through the financials either by the end of this year or next?

Yes. Chris, I think we need to bifurcate that. I think Avis First towards the end of this year, we'll -- you'll see more of an impact on the financials. But at this time, because we're still really positioning our test pieces and negotiating with airports in order to make sure that we can offer the service, it's still pretty early for us to give guidance around where that will be.

In terms of Waymo, I think you'll see the benefits of that more so next year in 2027 as we really start to ramp our [ Dallas ] and what we're hoping are additional cities.

Our next questions come from the line of Lizzie Dove with Goldman Sachs.

Just wanted to ask about your EBITDA guidance. I appreciate you kind of flowed through the 1Q beat there. But any way to think about, I guess, firstly, a reminder of just what's embedded there in terms of what gets you to the low end versus the high end of the range? And is that $850 million to $1 billion the right way to think about kind of, call it, normalized EBITDA longer term?

Lizzie. Yes, listen, like I think -- what we said in the prepared remarks that we outperformed our expectations in the first quarter. What we would say is that like looking forward into Q2, 3 and 4, it's still too early to say kind of where things shake out because the bulk of our earnings come in the summer season.

It looks constructive, like Daniel said, but I think right now, that $850 million to $1 billion range is what we're comfortable with for [ 20 -- ] for this fiscal year. Going forward, though, I wouldn't say that that's a normalized level because you're still coming off a pretty tough 1 quarter of this year. Yes, we outperformed our expectations, but this isn't what normalized should be. For us, we shouldn't be in a quarter where we're losing money. And the reason why this happened was we had -- with the write-down we took with us like we said, prioritizing kind of speed over capturing every last dollar in terms of vehicle dispositions.

We had to rightsize the fleet that came at a cost, and you saw that in the EBITDA impact this quarter. I don't expect that to continue for '27. So I do think that structurally EBITDA should be higher than this range that we're giving you right now.

Got it. That's helpful. And then I guess just on the fleet cost side of things, I think what's embedded in your guidance for the second half is maybe [ 300 ] or so. I appreciate that to start that can be lumpy. There's always kind of different moving pieces, but certainly maybe 15% above where fleet costs were in 2019. So I guess just how do you assess longer term like comfortability with that kind of [ 300 ] or so range and how that can be maintained?

Yes. Listen, I think for us, given the significant increase in the overall cost of new cars, we've had to get better about how we manage these assets, how we dispose of them, how long we hold them. And I think a lot of the work that our teams are doing here on the fleet side have contributed to that.

So we think that longer term in the low 300s is possible to achieve. Now it comes with work and it comes with us being more nimble than we were before. We can't rely on a [ stat K ]. We hold these cars for 18 months and dispose them at 35,000 miles. You are more playing money ball with these assets. The good news is we've been investing in that capability for a long time. We think that we're getting better at it. But a lot of this also has to do with just the overall kind of macro trends in the used car market.

So it's tough to say exactly where that will shake out, but we think and in general range in normalized times, that kind of low 300 seems to be a place that's achievable.

Our next questions come from the line of John Healy with Northcoast Research.

I wanted to continue on the theme of car cost. Brian, kind of look at the last few years, I think there's been disruption on supply both on new and used. And it seems like on the used side, we're kind of right on the cusp of seeing that shift with probably going from $2.5 million lease returns a year to maybe $4 million or so lease returns a year.

Can you just talk to how you think those cars impact your ability to hit that kind of low [ 300 ] number because just at a high level, it would seem like you guys are going to have a lot more competition in the lane or moving your cars. So I'm just trying to think about how that goes into your [ calculus ]. And then also, you guys clearly are doing a lot on the revenue optimization side. But what are you guys doing on the fleet disposition side? Are you looking at any sort of kind of innovative partners. I know Hertz is doing this thing with Amazon? Are there things like that, that we might see you guys dip your toe into later this year or next year.

John, let me start with the first part of that question. So yes, obviously, we monitor the supply of used vehicles coming in very closely as well. I think kind of to Lizzie's question before, this is why we have to be a lot more nimble about what cars we sell when. So you're right. If a 35,000 mile car would compete squarely with a 3-year lease return vehicle, and that's not where we want to be.

Obviously, some of our vehicles will be in there, but we have to get comfortable kind of with certain vehicle classes selling well before that and in certain vehicles like selling after that. And like I said, that's the work that we've been investing into. And after testing these waters, we think that, that actually benefits everyone. It benefits us in terms of the overall depreciation cost. But it also skews generally to us recycling our fleet a little younger than we had historically, which means that it's a younger fleet for cars, which has downstream effects also like in terms of vehicle maintenance and obviously and most importantly, the customer experience.

So I think by picking and choosing where we sell cars, we're able to kind of stick to that low 300s number. In terms of the dispositions, you're right, like we are looking at more innovative ways to quickly exit our vehicles. We've been doing a lot of work with our partners over at Cox. And we're also doing more kind of internally in terms of our direct-to-consumer sales. So kind of on both fronts in terms of the mix of vehicle selling and the channels we're going through, like we're investing in all of it to make sure that we can offset the rising cost of new cars by being more efficient operators in terms of how and when we dispose of these vehicles.

Our next questions come from the line of Ryan Brinkman with JPMorgan.

With regard to your comment at the start of the call, it seems to me as if there was maybe a missed opportunity here for more of your shareholders to have benefited from the unusual capital markets activities, such as the issuance of very low-cost equity to retire higher cost debt? I know you're always kind of thinking about the relative cost of different parts of our capital structure even in normal times.

Have you contemplated such an action? And can you maybe share like what factors might have prevented you from doing so, whether due to MPI around earnings or maybe the equities distribution agreement with the seller agent banks. Or did you explore trying to overcome some of these obstacles such as by preannouncing earnings in order to, therefore, execute your at-the-market offering?

Ryan, simply put, like we were in a quiet period at the time. But I can tell you this much, we have no intention of issuing shares anywhere near these levels. And more broadly speaking, Listen, I bought my first shares in Avis in 2010. So I've been involved with this company for 16 years now. Back then, and you've covered us for a while, but the Avis said 129 million fully diluted shares outstanding. And since then, in my capacity as a large shareholder, a Board member, a CFO, I've been very consistent in my belief that our shares are undervalued and have advocated for buying back stock.

So our shares outstanding today are 35 million shares. So we've retired [ 94 million ] or 73% of those original shares outstanding. I've not seen public companies reduce their share count by anything close to that order of magnitude. So we are true believers of this business. And on a fundamental basis, we were repurchasing our shares as high as $300 post-pandemic. So the thought of doing the opposite and issuing shares never entered my mind until this situation arose.

Now you're right, we put an ATM in place because it'd be irresponsible not to. We've done this in the past as well, and we haven't issued any shares. So I'm not here to trade Avis for value extraction. We're going to put in the hard work and create value by building a better business. It might not be as flashy as making a quick buck, but that's the journey we're on, and we take pride in that.

You've done a great job. I'm curious, as an insider, would Pentwater has known about any deliberations of the Board or management part prior to your potential of engaging and sort of primary share issuance? And could they possibly front-run that information, thereby accruing value for themselves, which had Avis issue those shares into the market would have therefore accrued more to like all the shareholders that included, albeit to a lesser degree, kind of more pro rata with the other holders?

Ryan, I can't get into the details of that right now. But as I said in the prepared remarks, I strongly believe we have a fiduciary duty to aggressively pursue every dollar our shareholders are entitled to. And honestly, Pentwater only disclosed their sales yesterday after market closed. So there's a lot of transactions to sift through and it's not exactly straightforward.

So the timing of that disclosure wasn't exactly convenient for us. That's unfortunate. But we have our securities lawyers here. They're coming through this as we speak. There's $1.75 billion of gross proceeds that Pentwater laid out in their [ Form 4s ]. You have my commitment that we will go after every last dollar that our shareholders have owned.

Very interesting. Last question, I'll promise I'll ask 1 on revenue per day. Having gone through all the math extensively either. But it does look like this is an incredible trade. They may have made $1 billion of profit or something like that.

When I first learned of the short swing profit role, including its remedies, it did seem a little extreme. And -- but this circumstance does sort of illustrate maybe what the regulators motivation may have been for that role.

What is your understanding of the remedy relative to discouraging of profits or what amount of the profits might be subject [indiscernible]? And I understand maybe you need to go through it in detail. But the legal precedent here, I think it's been challenged in some cases, maybe that's more for employees than investor, large institutional investors. But you said to -- I heard that they acknowledged having violated the role to some degree. Does that maybe suggest conversations or the potential for some sort of amicable settlement of your claim?

Ryan, I think there are like 7 questions in that third follow-up question, generally speaking, I think here's what we can say like -- like what I feel comfortable saying is what we've already laid out thus far. We're going through it in painstaking detail right now. We are in conversations with our internal counsel, Pentwater, their counsel, just like we said in our prepared remarks. But you make a good point, listen, Section 16 rules exist for a reason. They are there to protect shareholders, and I view it as my fiduciary duty to pursue this to its fullest in the interest of my stakeholders. So we'll get to the bottom of it. I have no doubt.

Okay, very interesting. And then just on RPD. Obviously, you leaned into this strategy of emphasizing economics and very efficiently running the fleet even more. It seemed like than discussed at the time of 4Q earnings. Obviously, you don't -- can't operate your business in isolation and you've got the competitors out there and their mindset has changed a lot over the years, too. But had such a good RPD results. I imagine that you're the first report here, but that the others are headed in a similar direction. What do you sense in terms of like the kind of industry discipline and whether the RPD gains that you've just reported here are sustainable within the context of like competitor activity.

Ryan, I can't really comment to what I think our competitors are going to report. But from our perspective, given the kind of actions that we've taken to better align our vehicle supply to demand. It seems like the industry is appropriately fleeted right now. This is like -- this is going to be a big summer ahead of us. We have World Cup [ America 250 ]. I think that travel is going to be robust. And I think from our perspective, like we can control what we control, but we're going to remain disciplined in terms of supply and make sure that we gain our share of days do utilization efficiencies.

Our next question has come from the line of Stephanie Moore with Jefferies.

I was hoping to maybe touch on the underlying demand environment. Maybe you to how demand trended as the quarter progressed, specifically as we started to see heightened maybe geopolitical uncertainty and if we saw any pullback on demand activity, same thing as those events started to unfold if you started to see any changes in forward bookings? Just trying to get a sense of your demand. And at the same time, Obviously, a very large sporting event in the U.S. this year with the World Cup in a lot of cities. So thinking about how that could be an impact to overall travel demand as well as pricing in those space.

Stephanie, I'll start and then Daniel, feel free to so far to add. But you're right. I think travel demand was kind of mixed in the first quarter. It feels like forever ago, but remember, in January, there were a lot of kind of weather disruptions to start off with.

And then yes, the TSA shutdown that impacted a lot of our commercial travel. So it was kind of choppy. I think we said in our prepared remarks that TSA kind of volumes for the first quarter were up 1.5%, something like that. That's on the lower side of what we've seen historically. I do think as we look later out, things are strengthening and normalizing. We mentioned that these World Cup cities are booking like very strong in terms of early bookings, and so we're managing that. We think overall, the demand is going to be just fine for the peak travel season. That's what we're seeing in kind of our booking trends. So it seems like a normal year in terms of that, potentially a little benefit to the upside given the World Cup and the -- that we have in certain cities in the Americas. Daniel, anything?

Yes. Just a couple of data points, right? I think we're pretty pleased by Easter, which this year was a little earlier, right? So we were going to be lapping that in Q2, put a little bit of fresh on year-over-year comparison on RPD. But as we get out of that season and especially as we get into June, July, August, we're pretty encouraged by how the days are building.

Great. And then just as a follow-up, I think in the past, Brian, you've talked about several initiatives on the cost and investment side that you're focused on to generally improve overall OpEx. So maybe you could talk a little bit about how we should think about just some of those cost initiatives coming through in 2026?

Yes, sure. I think in terms of cost discipline, like we laid that out made out -- laid out our plan on that in the fourth quarter. And it's something that's foundational to our business. Like just given the operating leverage that we have and given some of the uncertainties, there are around the macro side of our business, that which we can control, we absolutely have to control.

So we're doing a lot of work internally here to make sure that we are staying lean where we can so that we can take those proceeds and invest it into areas that we really do need. And for us, those areas are coming into operational efficiencies by utilizing technology by really -- like the big thing that I want to get into in a little more depth on a future call is how we're redoing our entire operating system for the company and relying on a brand-new platform for that.

So we can get that into that into a little bit more detail in the future. But what we're trying to do is instead of squeezing every last dollar to show on the OpEx or SG&A line, we're being lean where we can so that we can reinvest it into proceeds that are going to generate returns and revenue growth in the future.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Chief Executive Officer, Brian Choi, for closing remarks.

All right. Well, thank you to everyone joining us today. We believe the results this quarter reflect the progress we've made executing on the changes we outlined last quarter, and we're starting to see the business respond. Our focus now is to build on that momentum and deliver consistent results through disciplined execution. We look forward to updating you on that progress next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time, and enjoy the rest of your day.

Greetings. Welcome to the Avis Budget Group Q4 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to David Calabria, Senior Vice President, Corporate Finance and Treasurer. 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 Dan 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, 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 to everyone joining us today for our fourth quarter and full year 2025 earnings call. If you reviewed our earnings release and financial supplement, you'll have seen that this was a difficult quarter. I've said before that delivering on quarterly results is foundational. And when operational performance speaks for itself, we earn the right to focus on the bigger picture. This quarter, we didn't earn that right. We fell significantly short of guidance, that's unacceptable and have no excuses to offer. What I will say is that the decisions we made were grounded in the information we had at the time.

The outcomes were not what we expected but the process was disciplined, and I think that distinction matters as we look forward. What I owe you today is a clear fact-based explanation of what happened, how we're now responding and where this means we're headed as a company. I'm going to structure my remarks around 3 horizons. Horizon 1 is a backward-looking view focused on what drove our fourth quarter miss. Horizon 2 is the present, the actions we're taking now to position the business for 2026. Horizon 3 looks briefly at how this all fits into our longer-term strategy. I'll get into a fair bit of detail on Horizon 1 because that's what this quarter demands.

Let's start with what we're bridging. On our October earnings call, we guided to full year adjusted EBITDA of $900 million, implying roughly $157 million in the fourth quarter. Yesterday, we reported full year adjusted EBITDA of $748 million. That means we missed our fourth quarter forecast by approximately $150 million inside the span of 3 months. I'll walk you through the specific drivers of how that happened. But first, it's important to note that this miss was entirely in our Americas segment. Our international business executed a meaningful turnaround in 2025 and performed as expected in the fourth quarter. The issues we're discussing today are concentrated in the Americas.

In October, we expected Americas rental days to grow about 3% in the fourth quarter. That was consistent with third quarter trends and supported by TSA passenger growth of roughly 3% year-over-year in the month of October. So while government travel immediately declined sharply following the shutdown, overall commercial demand initially held up. That changed abruptly in November. FAA flight reductions, air traffic control disruptions and extended TSA wait times materially reduced discretionary travel as it increased both uncertainty and inconvenience. Commercial rental days went from mildly down in October to down 11% in November. December stabilized but by then, the damage to the quarter was done.

As a result, instead of growing rental days by 3%, we delivered flat volume for the quarter. That whipsaw demand created our second challenge, fleet size. When demand weakens, the right response is to reduce fleet. The problem was timing. The fourth quarter is the most difficult period to sell used vehicles as dealers focus on clearing new model year inventory. Aggressive new car incentives, pressure used car pricing, which is why under normal circumstances, we defer meaningful defleeting until the first quarter of the following year. This year, we couldn't wait. Given the speed and magnitude of the demand decline, we chose to defleet in November despite unfavorable market conditions. Used vehicle prices reflected that reality. The Manheim rental index price per vehicle declined nearly $1,000 or 4.3% from October to November. That impacts us in 2 ways: lower gains on vehicles sold and a lower valuation mark on the fleet we retained.

As a result, monthly net depreciation per unit in the Americas came in at $338 in the fourth quarter. Our initial estimate in October was slightly lower than $300. The silver lining is that used vehicle prices stabilized in December, recovering most of the November decline. We believe selling fleet aggressively was still the correct decision from an asset management standpoint, even though it came at a cost, not acting and carrying excess fleet into a soft demand environment would have created greater operational and financial issues. This is the right call, even though the timing made it painful. But despite us taking decisive action, industry capacity remained elevated relative to demand in the fourth quarter, which leads us to our third unforeseen factor pricing.

Through the first 3 quarters of 2025, RPD on a 2-year stack had been sequentially improving. Based on early fourth quarter trends, we expected that improvement to continue. Instead, November reversed that progress. Weakened demand and excess industry supply pressured pricing across the market. Length of rent restrictions were largely absent industry-wide and RPD deteriorated more than expected. In the Americas, RPD finished the quarter down 3.7%. When we guided in October, we thought this would be closer to 2%. I don't believe this was an Avis-specific dynamic. Industry capacity remained elevated and pricing pressure was evident across competitors as well throughout November and early December. For how this all impacted our results, let me pass it over to Dave.

Thank you, Brian. Financial results of our business are really driven by just a few key variables. As this quarter demonstrated, these variables are often interconnected and can be difficult to predict. When rental days depreciation in RPD all move off plan at the same time, the financial impact compounds quickly. Here's the bridge. Lower rental days and weaker RPD drove approximately $40 million of the adjusted EBITDA miss on the revenue side. Higher gross depreciation and lower gains on sale accounted for an additional $60 million. The remaining approximately $50 million relates to our insurance reserves for personal liability and property damage or PLPD. .

As part of our actual review for year-end, we increased our PLPD reserve in December, while new incident trends are improving, we chose to reset our reserve base line conservatively as we enter 2026. This was a deliberate decision as we do not want to carry additional risk. Taking this action now puts us in a stronger position, more stable for 2026. When you step back and consider all these factors together, I find it useful to evaluate the puts and takes across 2 dimensions: macro versus micro and temporary versus structural. In my view, the majority of our underperformance this quarter falls into the macro and short-term category. Demand softness and pricing pressure were industry-wide and appear transitory based on recent trends and forward bookings.

Depreciation is clearly macro driven, but the health of the used car market won't be fully known until the tax refund season later this spring. December and January trends suggest the market has stabilized, and we'll keep you updated as the months progress. As far as the operations go, my key point is this. We call challenges aside, we do not believe the specific conditions that caused rental days, depreciation and RPD to move against us simultaneously are present today, and we're operating the business to reduce the likelihood of that alignment recurring. Demand has stabilized, fleet is better aligned with volume and pricing is slowly improving.

Let's close out Horizon 1 by addressing the approximately $500 million write-down we took on our EV fleets at year-end. Our write-down is never something we welcome. We view this action as a deliberate reset that strengthened our balance sheet and reduced future risk. Following the passage of the Big Beautiful Bill in July, which made 100% bonus depreciation permanent. The outlook for tax position became much clearer that prompted us to reassess how to best monetize the Federal EV tax credits that we had limited ability to utilize internally. As a result, we completed the transaction allowed us to monetize the majority of our EV tax credits and generate $180 million of cash to date.

Importantly, this also give us the opportunity to reassess the economic life of our EV vehicles. Based on market conditions and our operating experience, we concluded it was prudent to show their remaining useful life from 36 months to approximately 18 months. We've been depreciating these vehicles at roughly $600 per month. So exiting them earlier meaningfully reduces our exposure to residual value risk and technology obsolescence, while accelerating capital recycling. More broadly, the automotive industry is recalibrating how it thinks about EV economics, and we're doing the same. The decisive action strengthens our balance sheet, push cash forward and reduces future volatility and depreciation. I want to thank our tax and treasury teams for all the work they put in to allow us to take advantage of this opportunity. With that, let me turn it back to Brian for Horizon 2 to discuss what actions we're taking from the learnings of the fourth quarter and how we're planning for 2026.

Thanks, Daniel. 2026 will be the first year in which this management team has had the opportunity to build an annual plan from the ground up. As a result, you will see some clear philosophical differences in how we operate the business. The most important shift I want to highlight is how we define operational success when it comes to fleet availability. Coming out of the COVID recovery, the operational ambition in the Americas was to be the last provider with an available car on the lot. In a supply-constrained, high-demand environment, that strategy worked. Having the last car available meant you had pricing leverage on late rentals and that was largely the reality in 2021 and 2022.

That approach does not work in a normalized environment. Carrying excess fleet requires holding more vehicles during shoulder periods, which pressures RPD. It also requires larger fleet purchases, often at less favorable economics. We've seen firsthand that prioritizing absolute availability over discipline introduces volatility into pricing, depreciation and ultimately, into earnings and balance sheet health as well. In 2026, we are prioritizing utilization over fleet growth in search of rental days. That shift is already underway. As I mentioned earlier, we sold a substantial number of vehicles in the fourth quarter into a thin buying market. Since then, buyers have returned and in the first quarter of 2026, we are actively utilizing every disposition channel available to rightsize our fleet.

In January, we sold a record number of vehicles. That momentum continued into February, and we expect elevated disposition activity through the peak tax refund season in March and April. The lesson from the fourth quarter is straightforward. While we don't control macro events like government shutdowns, we can control how nimble we choose to be as a company. Running a tighter fleet reduces the risk of being caught off footed when demand unexpectedly softens. And in scenarios where demand is stronger than expected, we will deploy fleet to the most profitable segments of the business and rely on operational execution to capture those opportunities. We are asset managers and our focus is on sweating our assets. You should see this discipline reflected in lower fleet size and higher utilization as the year progresses.

Our fleet rightsizing strategy also prompted us to take a hard look at how we structure our OEM partnerships. Avis Budget Group is one of the largest vehicle purchasers in the world and replace a high value on the long-standing productive relationships we've built with our OEM partners. These relationships matter, especially in periods of stress. When our partners face challenges, we've worked through them constructively and in most cases, that approach has served both sides well. In 2025, however, recalls became a more meaningful operational and financial headwind than we anticipated. We exited Q4 with approximately 14,000 vehicles still grounded as parts availability remain constrained. The impact of recalls in the fourth quarter alone including only depreciation, interest parking and parking expenses even before factoring in lost profits and gains on sale was nearly $40 million.

We operate in an asset -- we operate in an asset-intensive business and returns depend on our ability to actively deploy and monetize those assets. When vehicles are sidelined for extended periods with no clear path to resolution, that directly undermines the economics of our business model. This experience has clarified something important for us going forward. Reliability and execution matter just as much as price and volume when we determine fleet purchasing decisions. As part of our 2026 planning process, we are rebalancing our OEM exposure to reflect that principle. OEMs that demonstrate consistent execution, transparency and responsiveness will continue to be core partners for us. Where those standards are not met, we will reduce exposure over time and reallocate volume accordingly.

This is not about short-term pressure or one-off issues. It is about aligning our fleet strategy with dependable partners who enable us to run a more predictable, capital-efficient business. Given the scale of our fleet purchases, even modest reallocations can have meaningful economic impact. As we look ahead, our OEM strategy will be guided by a simple objective, deploy capital with partners that allow us to reliably earn attractive returns across cycles. The final strategic change I want to address for 2026 is how we think about costs. At this new Avis Budget Group, cost is not something to be cut for its own sake or simply managed quarter-to-quarter. Cost is capital. And like any capital allocator, our responsibility is to deploy that capital where it earns the highest possible return for our customers, our employees and our shareholders. Our job isn't to spend less. It's to be deliberate. When we treat costs as scarce capital, we rationalize in areas where returns are low so that we can invest with conviction in the areas that matter most. One action funds the other.

We put this philosophy into practice at the start of the year. In January, we implemented a global reduction in force to reset our organizational structure to what we believe is appropriate for the business we plan to run in 2026 and beyond. This was a deliberate onetime action. Separately, we have strengthened our performance management processes, which led to exits this January. This will be an ongoing discipline going forward. The fourth quarter reinforced an important reality. This is a business with inherent volatility. Rental demand, used vehicle pricing and RPD are variables we don't fully control that makes it even more critical that we rigorously control what we can control. A lean, flexible cost base is essential to manage through uncertainty and improve earnings stability.

This approach extends well beyond headcount. We are conducting a thorough review of our business portfolio to ensure each segment meets our capital return thresholds and strategic objectives. In December, we made the difficult decision to exit Zipcar U.K. In January, we restructured Zipcar's U.S. operations to put that business on a more sustainable footing. Throughout 2026, we will continue to evaluate noncore and adjacent businesses, including package delivery, ride hail and certain franchise activities to ensure capital and management attention are allocated where they create the most value. Let me be clear. This discipline does not mean we are pulling back from investment. It's not an either/or proposition. Cost rationalization is what enables investment. That capital comes from making tough intentional choices elsewhere.

That's exactly how we started 2026 and how we expect to manage the years going forward. Taken together, these actions are designed to lower earnings volatility, improve margin durability and sustainably increase free cash flow generation, which brings me to Horizon 3. I'll keep this brief because our long-term strategic direction remains consistent with what we've previously communicated. We remain intensely focused on the execution of several key initiatives. Our top priority is customer experience. Over the past several years, the rental car industry has seen quality standards drift. It is not acceptable to Avis and it's something we are addressing head on. We are rearchitecting our customer experience organization from the ground up with clear ownership, defined metrics and tight accountability.

Our objective is straightforward, consistently deliver the best product in the industry. It begins with our fleet. The average age of our U.S. rental car fleet will be less than a year old by the end of the first quarter. We haven't been able to say that since before the pandemic. We are also continuing to build out Avis First. What began as a leisure-focused offering will expand meaningfully into commercial accounts in 2026. Feedback from our early strategic accounts has been strong, and we see significant opportunity to deepen relationships by delivering a more differentiated premium experience. Finally, our partnership with Waymo continues to progress as planned. Our Dallas launch remains on schedule with real estate development, hiring and training and compliance certification all tracking to plan.

Waymo is currently offering employees fully autonomous rides in Dallas, which is a final step ahead of welcoming public riders soon. As we announced last year, we do intend to explore additional cities with Waymo in the future and are in active conversations with them. We believe our core competencies are mission-critical to operating autonomous mobility at scale. We're working alongside Waymo to prove that in practice as additional markets come online. To close, the fourth quarter was a setback, and we treated it as a catalyst for change. We've clearly diagnosed our challenges. We've been decisive about the actions we've taken and disciplined in how we're repositioning the business. The focus now is execution, running a tighter fleet, allocating capital deliberately and raising the bar on customer experience. These actions better align the company with the operating environment and strengthen our ability to generate durable returns. With that, Daniel, David and I are happy to take your questions.

[Operator Instructions] Our first question has come from the line of Andrew Percoco with Morgan Stanley.

I want to start with your 2026 guidance. obviously, a fairly wide range for adjusted EBITDA. And I'm just hoping that you can kind of walk what some of your working assumptions are on some of the key inputs like RPD and DPU. I see that you guys are guiding for DPU to be up in the first quarter and then a moderation thereafter. So just hoping to get a better explanation for what's embedded in the guidance relative to kind of where you exited 2025. Thank you.

It's pretty important saying that we're assuming that fleet size is going to decrease into 2026, something that hasn't been the case for the past few years. We're going to focus instead on utilization and making sure that we get the right business in terms of a contribution margin perspective. Daniel, anything you want to add?

I'll just highlight that if you look at the 2025 results where we landed and you make 2 adjustments only, right, and you ignore $100 million of recall impact and the one-off impact of PLPD, you're in the middle of the range, right, and how we perform better than the range or slightly below is going to be a function of how the marketing channel on the RPD and on the fleet side perform, believe we have a path for the top of the range, but coming out of Q4, we have some significant headwinds, we're being conservative.

Andrew, maybe just to add over there. I realize it's a wide range. We expect to narrow that range as the year progresses. But just given what we saw in the fourth quarter, which was a large miss in itself, we want to make sure that we retain flexibility. So listen, the fourth quarter, it wasn't driven by a gradual deterioration in trends. Things happened very quickly, short term. It was a shock and we can't eliminate volatility in the industry, but by materially tightening the fleet levels and adjusting our operating posture, I think we've reduced the probability of another compounding effect like that.

Got it. Okay. That's super helpful. And maybe just to follow up on I mean, there's continuing to be a pretty big dispersion in some of the metrics between the Americas and your international segment. So just curious, as you talk about fleet resizing and some of the actions you're taking, is that more of an Americas comment or is that global? Just trying to get a better understanding of what the differences you're seeing across geographies and maybe how you're tackling those challenges.

Sure, I'll start. Andy, the comments that we made around OEM repositioning and the actions we're taking around depreciation, that's entirely in the Americas segment. So the used car market in 2025 in the U.S., it was unusually volatile. So Manheim values, if you recall, they were roughly flat year-over-year in the first quarter. And then a mid tariff uncertainty really spiked into the second and third quarter. And then it exited the year essentially flat again. So by year-end, pricing normalized completely relative to where it began. Given that environment, we're proactively adjusting depreciation in the fourth quarter to reflect current residual expectations rather than carrying forward prior assumptions.

That's why you see that $400 number in the fourth quarter -- in the first quarter of this year. So we expect depreciation to be elevated in the near term as we normalize fleet economics, but we do see a path towards a low 300 monthly run rate as we move throughout the year. So the market today appears orderly in the U.S., seasonal strength is building into tax refund season. And we're -- our planning assumptions are not dependent on some sharp rebound in used car prices. So we're underwriting returns at levels that allow us to perform across a range of scenarios.

I'll add, Brian, a couple of things. In the Americas, we have made bigger strides in improving utilization, right? In spite of the point impact of the recall in the quarter, we managed to grow utilization by about half a point which is meaningful improvement. And that's why we also have the more flexibility in reducing the fleet and still serving customers in rental days, right? On the international, if you think about the per unit cost, there is less volatility, as Brian described, the Manheim situation is American situation, but we also have a much higher share of program cars in international, which insulates them a little bit from this impact in the short term. .

Our next questions come from the line of John Healy with Northcoast Research.

I wanted to spend a couple of minutes on fleet cost. I think in the slides, you guys talked about $400 million in Q1 and a full year, let's call it, $0.25 so at the midpoint. I'm just trying to understand the confidence in the full year because that to me that first quarter number is awfully high, which would imply that the rest of the year is probably sub 300. I don't know if I'm looking at that in an incorrect way, but just trying to understand the confidence of why it steps down just so much when we've been in a period over the last 2 years where we've probably maybe underappreciated more relative to the -- underappreciated relative to the market rather than more. So just trying to understand that [ $3.25 ] number for the year.

John, so like I said earlier, in terms of the volatility that we saw in the 2025 you'll see that our models, which we're forecasting when we sell these cars into the future. They're built off of future forecasts primarily in Black Book and Moody's. Those forward-looking economic models assume the impact of tariffs to continue throughout the life of these vehicles. As we've seen in the fourth quarter, that isn't the case anymore. So we've adjusted our internal models accordingly as well. So what you're seeing in the fourth quarter is kind of a catch-up to show up -- to show that reality and then normalizes over time. What we're seeing is for 6 months of that elevated period where we saw tariff impacts. .

Had we known it would evaporate. We probably wouldn't have been -- we probably would have been a little more conservative in our depreciation assumptions. What we're doing right now is we're just rectifying that in the first quarter to make sure that we reset to where we need to be.

Understood. And then just any commentary on just the pricing environment that you've seen kind of year-to-date and how you're seeing competitive pricing trends or your pricing trends into the spring season?

Sure. So January reflected many of the same pressures we saw exiting the fourth quarter. So industry pricing remained competitive. Commercial demand was slower to ramp given the calendar. But that said, the actions we've taken to reduce fleet are beginning to align supply more closely with demand, particularly as we move into February and March. So we're not providing month-to-month guidance, John. But pricing has stabilized relative to where we exited in January and the rate of erosion that we saw post COVID has clearly moderated. So importantly, our 2026 plan, it doesn't assume aggressive pricing recovery. It's built around disciplined fleet sizing, utilization improvement and cost control. So we're working towards achieving better RPD, but we're not dependent on it to hit our 2026 guidance. .

Our next questions come from the line of Chris Stathoulopoulos with SFG.

So David, Avis has effectively missed the full year guide for 3 years now. Now I under -- this is under a different leadership here you've only recently gotten into the practice of giving explicit guidance. So some of these to be fair, more on the soft guide side. But I guess how do we get comfortable with the full year guide here? And maybe if you could and I think this was the lead-off question, but the line dropped or something. If there's an EBITDA bridge you could walk us through anything on the KPIs and then perhaps if you could quantify what could be described as lost revenue or embedded demand for last year.

So the impact of tariff shutdowns, FAA cancellations, whether Zipcar, I don't think you gave any impact on what that looks like from a noncash or comparable issue. But I just want to understand here your base case assumptions for the EBITDA bridge for this year and how we should think about what, I guess, was out of your control for last year. There are a lot of items there. And maybe if you could put some numbers around that, that would help us with the modeling.

Let me start and I'll pass it over to David and Daniel. But in our prepared remarks, we gave a bit of guidance in terms of what happened at least in the fourth quarter relative to what we were expecting. So on the revenue side of things, roughly $100 million of impact. And from a balance sheet perspective, we took another $50 million increase to our PLPD reserves. Chris, let's be honest, like the market moves quickly over here. So anchoring on specific metrics to say this is how we're going to plan for the entire year, just really isn't feasible for us. So the metrics we gave you are the metrics we feel comfortable guiding to right now which is that depreciation will be in the range that we described. It's going to be elevated in the first quarter. It's going to come down after we have that catch-up in the low 300 level.

Utilization is going to be higher and fleet is going to be lower. I understand that the past 2 years, they've been pretty volatile and consistency in delivering on guidance matters. This is the first outlook like built entirely under the current leadership framework. It reflects more conservative assumptions and a structurally tighter operating model. So our objective this year is to earn back confidence through consistent execution.

Okay. On Zipcar, if there are any numbers you can give us for the U.K. segment?

That has not impacted the results. Those actions were taken at the very end of the year, beginning of this year -- has had no material impact.

Okay. And then as a follow-up, Brian, I didn't hear any comments on your prepared on the -- your premium efforts. All the tech efforts. Is this on pause until you get the tactics around the fleet right? Or are you continuing to move forward with that initiative?

No, it's not taken on pause. And in fact, like a lot of the cost rationalization that's happening in the business is being used to fund those initiatives. So I think we said in our prepared remarks, Avis First is still a go. We're concentrated on making sure that the product is right and getting a lot more adoption in the airports it's in before we expand meaningfully, but it is going live now in Europe. I think Munich just came online. And we are going to start offering the product to our commercial customers. So we think that the Avis First aligns tightly with our core philosophical tenant, which is tying Avis to a premium customer experience.

Okay. If I could squeeze in 1 more. Does the base case EBITDA guide here for the full year assume Americas revenue up.

It does.

If the base case your EBITDA guide at the enterprise level, does that assume you're growing Americas revenue for the full year?

Let's assume that we're modestly growing revenue, Chris. You're right. We have been declining for the past few years, given the COVID boom. The question that's been on everyone's mind is what is normalized what does a normalized environment look like? I do think that we're entering into a normalized environment here. .

Our next questions come from the line of Dan Levy with Barclays.

Josh Young on for Dan Levy. So I have 1 question and then a follow-up. Could you walk us through the puts and takes on the EV impairment and then just in terms of how we should think about sizing the potential benefit to DPU. I know you mentioned that it was previously around 600. So how should we think about that into '26.

Yes. I'll maybe start from first principles and our strategic priorities. Then we've shared in the past how we feel about the capital structure and how deleveraging has been a key priority for us, right? And when the Big Beautiful Bill came along and made the 100% bonds depreciation permanent, it really reduced our expected tax liabilities going forward, right? And as a result of that, we had no clear path to using those tax credits, and we immediately started looking for ways of monetizing on those manual substantial amounts on our balance sheet. So when we found a path here that allowed us to monetize on $880 million of debt, we jumped on it, right? So with that, decisional to execute the deal and I'll ask David here to share a little bit on the structure which was a complex so. we essentially committed to that path.

And along the way, we evaluated EV strategy. I know there's a lot going on in this market, lots of OEMs rethinking how their own capital allocation, the home strategies are evolving in that space. And we thought it would be prudent, right, and reduce risk overall to shorten the economic life of those vehicles, right? So operating them for a period of time, I think will reduce the overall risk.

On the DPU front, it's essentially allowing us to also cut the depreciation in half, right? So you go from about $600 with slightly north of $300 a month. That should help IN improve no depreciation as the year develops. But David, do you want to share a bit on the structure, this was somewhat complex in the queue.

Sure, Daniel. I just want to stress this we really view this. This was not an issue. This was an opportunity and we took it. And so what we were able to do was take tax credits that had little to no value, as Daniel said, monetize that use that against the cap cost of our vehicles to reduce the depreciation funded by a new securitization that we created, is an incredibly complex transaction that I have to give my treasury team and the tax team a lot of credit for figuring that out and getting it done in such a short time.

And then as a follow-up, just to circle back to the collaboration with Waymo. What are the key financial considerations there? And how soon might you see a material benefit from the partnership?

Yes. Josh, we're not getting into the specifics of the economics here. Like I said, Dallas is gearing up to come online, and we think that we'll be taking riders from the public pretty soon. But other than that, we're not really getting into mention the financial details. I think from our perspective, right now, near term, Waymo is about building operational capability and not deploying outsized capital. So I do want to mention that the vehicles in Dallas are on Waymo's balance sheet today and that structure reflects the current phase of the partnership. So over time, if the economics justify it, we would consider owning vehicles ourselves, but only under the same return thresholds and balance sheet discipline that govern the rest of our fleet.

And we're focused on scaling this thoughtfully. We are looking at other cities. We're going to expand our capital involvement only where returns are clearly aligned.

Our next questions come from the line of Stephanie Moore with Jefferies.

I was hoping you could talk a bit about your expectations for the first quarter. Admittedly, there's a lot of moving pieces as it relates to the impairment charge, higher fleet costs, I'm assuming probably weather is still whether it will be an impact as well. So maybe if you could talk about the first quarter as well as some of the underlying trends you're seeing. I think you noted that underlying trends from a volume and pricing standpoint did improve as 4Q progressed. So curious, obviously, taking into account seasonality, how underlying trends have been January through February Thanks.

So what I would just say is from our standpoint, when you think about where we were last year from a Q1 standpoint, we're sitting here talking about having a higher depreciation. Brian talked about how things are looking a little more stable from a revenue standpoint in February and March, but January did have some weather-related incidents there, too, a lot of flight cancellations. So we are looking at a lower number, lower EBITDA in the first quarter, but then easing back towards something that's more normalized in the second, third and then fourth quarter. So I would expect us to be lower in queue.

Yes. Stephanie, that being lower is on an EBITDA basis. And the way that I would describe it is it's going to be kind of a tale of 2 cities situation. The actions that we're taking around the fleet rationalization, that is helping the revenue side of things. So I do think that you'll see in the first quarter that revenue is stabilizing. It's becoming much more healthy. And yes, the January storms, that was a setback. But even though we couldn't predict it because the fleet was already being reduced, we were able to absorb that demand disruption without creating the same economic imbalance we saw in November. So from our perspective, the work we're doing around the revenue side of things, I think you're going to see that materialize in the first quarter. But like we said earlier, there is a bit of a reset that we're trying to do on the fleet side of things. We're going to absorb it all in the first quarter with that $400 DPU.

So what you'll see is a healthier on the revenue side, a reset in the first quarter on the depreciation side, which will result into lower year-over-year EBITDA in the first quarter. But we think that puts things where it should be, and you'll see things improve materially going forward.

Understood, very clear. So maybe once we get past the first quarter, maybe talk a little bit about your level of confidence in achieving the guide for the full year, specifically as it relates to actions that are within your control. I think we all understand that this can be a very complex and dynamic industry. So maybe just speak to the actions specifically related to Avis and some of your operational improvements, productivity initiatives and the like that you think can help potentially provide an offset if what we keep seeing is general volatility in the overall industry?

Stephanie, I'll keep the bridge relatively simple, but I think if we anchor ourselves on the 2025 results, right -- the impact of the recall of $100 million conservatively. And the one-off nature of the PLPD, the insurance reserve adjustment we had in Q4, you're already at the middle of the range, right? One, I am the -- for 2026. One of the pillars of our plan is a continued improvement in utilizations in the Americas, right? An improvement that the team has already been delivering on during 2025. And that's worth about $100 million for us next year. So that -- with those to one-off and usual, you're in the middle of the range. And just with 1 of the initiatives, we could potentially make it all the way to the top of the range. And that's already assuming like Brian mentioned some conservatism on the rate side of the house in the Americas. So that's how we feel about it. We feel it's achievable. It's obviously a new high for the company on a non COVID...

Stephanie, I think we operate in a business with inherent volatility. So that's why it's very important to control those things that we can control, and that's reflected in how we're planning for this year. So the structural actions that we're implementing, which is tighter fleet discipline, cost rigor capital allocation focus, that's all designed to reduce volatility and strengthen the earnings base over time. So as we move through the year, our objective is to demonstrate that the business can sustainably generate EBITDA north of $1 billion annually and then grow from that base through disciplined execution. As I said earlier, this is the first time that we're coming up with the plan that this leadership team is under this new operating philosophy. We have every intention of getting it.

Thank you so much. Ladies and gentlemen, this does conclude today's question-and-answer session. And with that, the call will come to a close. We appreciate your participation. You may disconnect your lines at this time, and enjoy the rest of your day.

Greetings, and welcome to the Avis Budget Group Third Quarter 2025 Earnings Call.

[Operator Instructions] Reminder 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.

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 or 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.

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 4 months in, who will walk you through some of the numbers and trends.

But 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 8 quarters where we get to say that our revenue was higher than last year's.

The question you're all asking is, what's normalized EBITDA? Well, that's tough to answer until you have some stabilization on the top line and we haven't hand 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. But 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 the employee experience, which eventually drives greater revenue and results in operating leverage if you remain disciplined on cost and on and on expense.

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. It will be bumped along the way. But 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. And in the quarters ahead, I'll share more about how we're putting these words into action.

But 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, percentage 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 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. And 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 day and experience. And 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-thru sometimes took 3 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. And yet 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, and 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. But it's not limited to the travel industry. Think about streaming, the Netflix and Spotifys 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 combine 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 3 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.

But 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, 0 to 5 stars. Launch 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.

So let me level set expectations. Avis First 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 interest of the customers and shareholders align. 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.

Thanks, Brian, and good morning, everyone. Having 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 Ryan mentioned last quarter, we were impacted by a large safety recall affecting vans and mini vans, 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 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 2/3 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 buy. Our 2026 model year buy 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 approach the table with a shared understanding 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. Our 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 '26.

Now let's move on to liquidity and capital allocation. As of September 30, we had available liquidity of nearly $1 billion and 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.

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 space 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. But 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.

So 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.

[Operator Instructions] Our first question comes from the line of John Healy with Northcoast Research.

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. So would just love to understand kind of where we're at in the kind of continuum of pricing? And what do you describe as kind of the main factor of why we saw RPD down this year, at least through the summer months?

John, so in terms of the RPD decline for the summer, so 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. And you know as well as I do, that's normal market dynamics. But 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 4 quarters on a 2-year stack, you can see clear stabilization in the trend. And when we look forward to the fourth quarter, it's always harder to predict because demand is concentrated around Thanksgiving and Christmas. But that said, we're pleased with how the book of business is shaping up so far, even though it's still early. So Americas RPD down 3% in Q3. But from where we stand right now, we currently expect a modest improvement in Q4.

Got it. And then just 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 refinancings 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.

Sure, John. So from a vehicle interest standpoint, we have $3 billion of maturities, term maturities next year. Half of those were issued at lower interest rates. Half of them were at these higher interest rates. So you got to take a look at that as we're going through and as you're modeling out what size you think we are, that will have that impact. But 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.

So if you remove that, it will be a little bit lower, and we'll go from there. But with the rates as they continue to drop, most of our debt is fixed. So you're going to have a little bit that's going to come down just based off the lower rates going forward.

Our next question comes from the line of Chris Woronka with Deutsche Bank.

I guess 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 '25 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 recalls. So if there's a way to kind of bucket that out in terms of overall impact, I think it would be super helpful.

Yes, Chris, thanks for the question. You can see we were able to navigate the summer a little better. And as you saw, we had a modest decline in utilization in spite of almost 5% of the Americas fleet being grounded. And we have seen a sizable impact just in cost alone, right, between depreciation, interest, shuttling, parking expenses. something closer to $60 million. In Q3, we anticipated another $40 million. We're probably going to be in the $90 million 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 2 reasons.

One, there's a seasonal decline, typically demand go down in Q4 and with less demand, it's a little harder to optimize the fleet. And we still have a significant amount of vehicles that are waiting parts, right? So we 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. And then as a follow-up, Brian, I'm encouraged by kind of 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? And do you think they will? And 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.

Yes. 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, and we're happy to compete on 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. And I think that we, as an industry, can hold ourselves to higher standards in terms of what's possible. So we're going to lead the charge. If others follow, we're welcome to see them do the same.

Our next question comes from the line of Lizzie Dove with Goldman Sachs.

Just to expand on Chris' 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? And how do you balance that? And 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.

Yes. 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. In terms of -- 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. So we're very focused on making sure that we meet those thresholds.

And the last thing that I'd 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. But if you do look at what the 2-year stack has been doing with pricing, there is some stabilization there. So we're encouraged by that.

Got it. That's helpful. And then 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?

Yes. I mean 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. And 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.

And 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 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.

Our next question comes from the line of Chris Stathoulopoulos with Susquehanna International Group.

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. So curious if actually did corporate show up or sort of "take the baton" from leisure there because it is a dynamic that we did see in airlines. But 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? And then 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?

Okay. Sure, Chris. A lot to unpack here. So just jump in with a follow-up if I get one of those things. But let's start with a high-level just macro overview in terms of what we're seeing. So we're seeing a mixed environment. So demand has held up better than many expected but it's uneven across segments and geographies. So like you said, leisure remains healthy. Although it's -- that's causing peaks during the weekends. And I mentioned our government segment being affected by the shutdown. But even more than that, before that even on the commercial side of things, and I think this is something more unique to Avis is we have a large government adjacent business, like think of the defense segment. And 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. So our cost base 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 in next year as well.

We think that the World Cup, and we're planning for that site by site 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 trips. So we think both of those will be net positive for 2026.

Okay. And my follow-up here. So I appreciate all the commentary and the color around the customer experience. So we -- there are 2 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 1, 3 and 5 years because this is going to take some time. And ultimately, of course, this has to translate into margin improvement, earnings, free cash flow, ROIC. What are some of the guardrails here?

And maybe, Dan, you can speak to us at a high level. I know you're not giving guidance for the out year. But as we put all this together here, conceptually, ultimately, this has to be one about confidence and sustainability of EBITDA but at a high level here, anything we should think about with respect to equity earnings or ROIC?

Yes. 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. And -- but you can see clearly today how that's benefiting both the business and the consumer. So we take that as a framework to model after ourselves. And 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.

Our Head of Americas always says you only manage what you measure, and we're doing just that and building customer service around 2 pillars, one being the customer journey and the other being customer care. So the customer journey, it comes down to 3 things. One is predictability. We're improving vehicle readiness and accuracy, and 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, and we want to be deploying technology that lets customers no matter how they book across channels to precheck before pickup for a smoother, faster experience. And 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. So that's one side on the customer journey.

On the customer care side, we're reengineering our contact center model with an AI lens. The goal is to resolve the most common post-rental issues. So billing, rental extensions, roadside assistance. We want to solve all of that faster and with less friction. And there's a lot of exciting things happening there. So I'll share progress on that in the quarters ahead.

But like you said, 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. On top of that, so we want to maintain that base level of EBITDA. And that $1 billion isn't a target. It's a floor, which we intend to build from. And while maintaining that floor and growing that base, we want to continue to invest in the customer experience.

So in our -- from our perspective, Chris, we have to do both. We're going to continue to deliver on a level of EBITDA that we think that the company is capable of and requires. And 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.

Our next question comes from the line of Ryan Brinkman with JPMorgan.

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. So firstly, just how did you manage that better underlying result? And then 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?

I'll take this one. And as you pointed out, the operations team did a fantastic job over the summer. I think one of the key levers here, repositioning the fleet, 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 been made that has facilitated getting those results. As we pointed out, the fleet being 5% of the Americas fleet being out of service had about a 2.8 point utilization impact in Q3. So that was significant, and that was mostly offset by this great execution.

Anything you want to add, Brian?

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. So we'll share more detail on that platform and results in a future call once the implementation is further along.

Okay. That's helpful. 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? And then 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, it might settle down to something more normal for the industry overall or even specifically for the vehicles that are most impacting you right now?

Yes, you did hear that right. So we're estimating $90 million to $100 million of impact for the full year. This is just cost, right? There's no here on lost profits or anything else. So this is all very tangible. And as I mentioned, we still have over 2/3 of our vehicles awaiting parts. The parts are starting to come in. They are not coming in, in very large numbers. And then the repair itself is somewhat of a lengthy process, 2 to 4 hours per vehicle. So 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. So that's what we know right now.

[Operator Instructions] Our next question comes from the line of Dan Levy with Barclays.

International is a segment that doesn't generally get a ton of airtime. I know it's the smaller of the 2 segments. But maybe you can just talk about the underlying trends in international because it has driven some of the upside versus Street 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.

Dan, thanks for the question. So a few things are happening in International. First, I want to acknowledge that the leadership team there is really hitting its stride. So Anna, our President of International; and James, our Chief Commercial Officer in the International segment. They're about a year in, and the organizational and strategic changes they've implemented are really coming together. So 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. And you're seeing that reflected in the higher RPD and lower volume numbers that we're reporting, and that's by design.

And so like you pointed out, this top line mix shift, combined with disciplined cost management, that's 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 catering at those levels. But the overall strategy and trend will remain where we're going to be more deliberate about the leisure business that we take and pruning those -- 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. And historically, given the relative size and where HQ sits, ABG has been Americas focused but we're really changing that mindset today. So 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. My second question is on DPU trends and overall depreciation. And I know you'll give us an outlook early next year. But maybe you could just talk within the quarter, to what extent the recalls were weighing on the total DPU. And into next year, a, I know you said that you'll give us commentary on the cap costs, but if there are any early reads. But b, given you just did a big fleet refresh for the model year '25, 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 work and you'll have proportionately lower refresh next year?

So I'll start and then maybe, Daniel, you can chime in. So broadly speaking, I agree with your assessment, Dan. So if you take what's happened this year, so the impact of tariffs certainly provided some uplift to the used car market this year. And what we're seeing is pretty consistent with what the Manheim Value Index -- Used Vehicle Value Index is showing. So there was a bump during the April tax refund season and values have remained relatively stable since. But in the first half of October, we're seeing a bit of giveback, which follows normal seasonal trends. You know as well as I do that by the fourth quarter, when next year's models like 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. So like you said, we've already disposed of a substantial portion of our model year '23 and '24 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. But our fleet mix is shifting towards the newer model year '25 cohort as planned. And like you said, we do think that, that should be the primary driver next year of where depreciation shakes out.

So I can't really give you too much commentary around the model year '26 buy. We're still in negotiations with a few of our larger OEM partners. But generally speaking, we think that the model year '26 is going to look pretty similar to the model year '25. That's what we've seen in the deals that we've closed. So we do think that model -- next year, it will be more specifically model year '25, model year '26 driven, and we don't think that we need to rely on kind of the macro shifts we see in the overall industry.

Maybe the only color I would add that those macro changes in fleet mix were mostly like Brian shared. But to recall, because those vehicles tend to be larger because they tend to carry higher DPU in the $400 to $500 range per unit in 4% to 5% depending on what fleet you're looking at and what quarter was around that had close to $20 impact on our per unit in the quarter, and we expect it to continue in Q4.

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