CAR Earnings Call

OperatorGreetings. 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.

David CalabriaGood 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.

David CalabriaWe 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.

Brian ChoiThanks, 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 had 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.

Brian ChoiThe result was a fleet position that looks different from what we would typically expect in a 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 2Q21.

Brian ChoiThat 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 a backdrop of broader consumer uncertainty, higher travel costs, and geopolitical volatility, year-over-year TSA check-ins decelerated from flat in April to -70 basis points in May to -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.

Brian ChoiVehicle utilization finished the quarter at 73.2% in the Americas, our highest second quarter utilization level in company history. This improvement was made possible by the technology deployments, operating discipline, and asset management mindset we have been building into the network over the past several quarters. It also reflects a different operating model for the business. We are treating fleet not simply as capacity to meet demand, but as capital at risk. When the data changes, the fleet plan has to change with it. In the second quarter, given the demand environment and the strength of the used vehicle market, we leaned deliberately into the asset manager side of the business and prioritized profitability and returns over rental days or market share. We believe this is 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.

Brian ChoiPut simply, we accepted fewer one-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 2Q25, 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.

Brian ChoiThat 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 in 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.

Brian ChoiSecond, 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 1st, 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.

Brian ChoiCustomer 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.

Daniel CunhaThanks, 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.

Daniel CunhaIn 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 right-size 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.

Daniel CunhaEven with continued no-fix recall constraints, America's utilization reached 73.2%, our highest second quarter utilization level in company history. That 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.

Daniel CunhaRPD, 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 shifts 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.

Daniel CunhaAt 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 a 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 continue 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.

Daniel CunhaWhile 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, the utilization improvement we delivered despite those constraints reinforces the strength of the operational execution in the quarter. Our decision to accelerate dispositions early in the quarter also proved important from a residual value perspective. Rental demand began to soften while we were still in the seasonally strongest period of the used car market.

Daniel CunhaWe 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 more normalized sales pattern, we estimate per-unit depreciation would have been approximately $320. Now let's turn to our International segment.

Daniel CunhaOur 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 cycle 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 +2.2% excluding the impact of Zipcar UK whose operations we suspended.

Daniel CunhaRPD 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 will turn to our leverage, liquidity, and outlook.

Daniel CunhaAs 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 7.4 times is down 100 basis points since year-end in 2025. We will 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 to strengthen our financial position and extend our debt maturity ladder. On May 29th, 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 29th, 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, strengthening our liquidity position.

Daniel CunhaBeyond this 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 $580 million Canadian dollars 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.

Daniel CunhaRather 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 sheets 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 enter Q3, our peak season demand, with strong operational fundamentals. As a result, we're reiterating our full-year guidance of $850 million to $1 billion in adjusted EBITDA. With that, I'll turn it back to Brian.

Brian ChoiThanks, Daniel. In summary, the business environment has changed, but our operating principles remain consistent. We are pleased with how our teams 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.

Brian ChoiAs 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.

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

OperatorThank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the star keys. And due to the interest of time, we ask that each analyst limit themselves to one question and one follow-up. Thank you.

OperatorAnd our first question comes from the line of Christopher Woronka with Deutsche Bank. Please proceed.

Chris WoronkaHey, good morning, guys. Thanks for taking the questions. 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.

Brian ChoiThanks. Hey, Christopher. 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, yeah, 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.

Brian ChoiSo we think we're taking a balanced approach to this while monitoring what's happening in the overall revenue environment.

Chris WoronkaOkay. Thanks, Brian. 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, you know, start to invest in AVs, does it ever reach a point where you guys have to kind of make a decision on,, you know, 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?

Brian ChoiHey, Christopher. 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 we 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 and 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.

Chris WoronkaOkay. Got it. Thanks, guys.

OperatorThe next question comes from the line of John Healy with Northcoast Research. Please proceed.

John HealyThanks for taking the questions, guys. 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 know, you made a point of calling out the 3% kind of like-for-like pricing that would have been achieved. Now that the fleet's kind of, I would assume, right-sized, do we get back to kind of a normal RPD contribution of the company in Q3 relative to like the market? Um, and I guess my thought process is, is if the fleet's down and, and the market is still okay, like, should we expect the positive RPD development here in Q3? Um, or investors kind of getting ahead of themselves thinking about that, um, for the quarter?

Brian ChoiUh, John, from our perspective, uh, 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 enplanements. That's off from what we had expected, but like, I wouldn't, I wouldn't characterize that as like the foundational weakness over here. And you're seeing strength in different pockets of the travel ecosystem. But 2% decline in the TSA enplanements 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, in the third quarter as well.

Brian ChoiWe 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 Q2.

Brian ChoiToo. 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— in terms of like-for-like segmentation.

Brian ChoiSo 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.

John HealyUnderstood. That's helpful. And then just kind of one financing-related question. You guys have, you know, 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, you know, both corporate and fleet? Maybe hypothetically for next year? Thanks.

Daniel CunhaHi, John. This is Daniel. A lot of the refinances are going to come due in the medium term, you know, have been put in place now quite a while, and they are, you know, predominantly fixed rate. So the refinancing cost is likely going to be higher than what we have. You know, it would depend a bit on the tranche, but, you know, 100, 125 basis points, you know, is probably our expectation. 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, you know, just to 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, you know, to some extent an effect in the price environment and the 2 quarters of sequential RPD growth that we've had and that we had not seen in a long time as a result of higher interest rates, higher vehicle costs, and so on.

David CalabriaJohn, 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 years, and hence why we were putting the funds in the fleet for now, right, as Daniel was saying. 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 moments, at the right costs.

John HealyOkay. And just a clarification, you said that 125 BPS would maybe be an expectation, or I wasn't sure. Clear on that?

Daniel CunhaYeah, depend a bit on the tranche, but that's generally what we're seeing for the, the near term.

John HealyYep. Understood. Thank you, guys.

OperatorThe next question comes from the line of Dan Levy with Barclays. Please proceed.

Dan LevyUh, great. Good morning. Thank you for taking the question. Um, 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 you could just talk to the broader competitive environment that you're seeing, especially given one of your competitors, you know, is going through some of the same questions on liquidity.

Brian ChoiYeah, let me answer some of that. I'll answer what I can at a high level, and then Daniel, you jump in.

Brian ChoiListen, from our perspective, I think if you had told me that international inbound travelers was going to be down 8% in the second quarter—. With the World Cup—. Yeah, with the World Cup happening, like, I don't think anyone planned on that.

Brian ChoiThe—. 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, you know, TSA check-ins and this— 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.

Brian ChoiAgain, 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 similar approach as the months progressed. And, you know, after the Fourth 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, like what I would say is that given the, the, you know, stability we're seeing in the pricing environment, we think that the industry is rationalizing as well.

Daniel CunhaYeah, 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, you know, something in the order of 10%. We acknowledge that is not a full picture, right? We don't have visibility of the deletes, right, that may be offsetting some of that. But we do see the inflow rate of new vehicles that paired with significant decline from inbound travel, especially from the Middle East. I think it's creating a scenario, a market there that's a little bit more competitive than we have experienced in North America. We also expect that to continue in Q3.

Dan LevyOkay, great. Thank you. As a follow-up, you know, 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, you know, 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 out, 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, you know, are you taking a different look at your broader use of vendors and— and, you know, what that could do on the DOE line?

Daniel CunhaI'll take that one. After we submitted the termination notice, management of the vendor, you know, re-engaged, right? We had, you know, several conversations. We were able to find a path forward, as you saw in their announcements, right? Our position was generally pretty simple, right? We wanted to have control over the customer journey. We wanted to have, you know, 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, you know, in terms of preserve those vehicles, allowing, you know, the 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.

Dan LevyIs there something you can talk to as far as, you know, that and broader initiatives to streamline spend? Is, you know, or could this lead to material profit benefits?

Daniel CunhaFor sure. The effort here on tolls I think is representative of all the efforts that we are undertaking across, you know, 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, you know, how we perform those services internally, externally with, you know, one vendor, multiple vendors. Those are all conversations we're having across the board. You know, in terms of expectations here, I will just point out that those are relatively complex parts of our operations. So we intend to chip at them, you know, very, very consistently over the course, but those are not, you know, simple fixes. Those are not changes that happen overnight.

Brian ChoiDan, I can just add also that, you know, given the new technology that's available to us, we are taking a broad-based look at, where we can improve 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.

Dan LevyUnderstood. Thank you.

OperatorAnd the next question comes from the line of Rajat Gupta with JPMorgan. Please proceed.

Rajat GuptaGreat. Thanks for taking the question. I just had a question on, you know, just a couple here, but the first one, you know, just on the Waymo partnership. You know, 2 months, you know, into the operation in Dallas, Wondering if you could double-click on what role you're playing as a fleet manager and maybe highlight some of, you know, 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?

Rajat GuptaThanks.

Brian ChoiYeah. So, Rajat, I think like what we're in terms of taking over as part of operations in Dallas is similar to what we described when we first announced the—. Partnership. So in terms of, 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 charging, 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 had committed to. You know, 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.

Brian ChoiAnd 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.

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

Daniel CunhaDefinitely. So maybe a quick comment, right? As I mentioned, we have today or have had in Q2 a bigger impact than we had, you know, exiting Q4. The availability of parts hasn't been plentiful, but what we have visibility is right now, I know it's that over the second half, we'll probably have slightly over half of the impact that we've had, you know, so far, you know, 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, you know, the vehicles that are on recall tend to have, you know, 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 before, we have had, you know, unusually low DPU because of the incremental sale activity that Brian described.

Rajat GuptaUnderstood. Great. Thanks for all the color and good luck.

OperatorThe next question comes from the line of Christopher Stathoulopoulos with Susquehanna International Group. Please proceed.

Christopher StathoulopoulosMorning, everyone. Brian or Daniel, where are you in your—. The fleet purchase program for '27 I think conversations typically start around mid-year, 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?

Brian ChoiHey, Christopher. You know, 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 foreign 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'd 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, yeah, environment from that perspective.

Brian ChoiBut listen, the topic on everyone's minds is recall and availability of cars. And so, you know, 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 us reliable product. And that's going to be reflected in what we can afford to pay for this product.

Christopher StathoulopoulosSo. Okay.

Christopher StathoulopoulosOkay. 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. Thank you.

Daniel CunhaYeah, 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, you know, LORs 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 UK that, you know, tended to push RPD up because of the nature of the business, right? Like short rentals, higher dollars per, you know, hour or day, and that business we discontinued. So if you compare the about 2 points of RPD growth that we had, you know, in the quarter to the about, you know, 3-ish that we had in the prior quarter, there was a small deceleration in the RPD environment. And as best we can tell, you know, this is driven a bit by the combination of having a bit more supply in the market, right, as measured by the increase in registrations, and at the same time a lower amount of inbound travelers that were coming into Europe, right?

Daniel CunhaSo that I think is what's pressing maybe a little bit the RPD side of the equation in international and making— capturing the base a little bit more competitive.

Christopher StathoulopoulosOkay. Thank you.

OperatorThe next question comes from the line of Lizzie Dove with Goldman Sachs. Please proceed.

Lizzie DoveHi. Good morning. Thanks for taking the question. A lot of helpful commentary here. I guess just to kind of tie it all together, you know, you maintained the guidance range of the $850 million to $1 billion. Thinking about your comments that we might see a continuation of Q2 into Q3 on the revenue side and guessing 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?

Brian ChoiYeah, I'll take a first crack and then Daniel, 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 we're still— 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.

Brian ChoiWe're going to make sure that we maintain as efficient a 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 flat-ish pricing in Q3.

Daniel CunhaYep. On the fleet side, Lizzie, I will just add that even though we exited the first half, you know, 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 here today 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, you know, can have a substantial impact in the quarter, right? So we think we're still in the range, but obviously the next month and month or two here will, will definitely tilt the scale one way or the other.

Brian ChoiFrom 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 sees it that way as well.

Lizzie DoveMakes sense. Makes sense. And then I guess just considering, you know, balance sheet, cash flow, you know, hopefully you're going to have this, you know, 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? What—. Where, you know, kind of capital allocation priorities would be with that settlement or just, you know, other cash flow otherwise and how to kind of think about that long term?

Daniel CunhaListen, we exited '25 at 7.5. We're now at 7.4. I think there's full acknowledgment from us that this is on the high end of the spectrum. This is not where we want to leave. We're saying we're definitely prioritizing deleveraging, right? We expect, you know, during this year, a combination of debt repayment and EBITDA growth, you know, to reduce it by more than a turn.. And we will not be satisfied with that. We will continue to prioritize it as we, as we go forward. Right? So that, that I think is, is the direction in terms of the, the levers, right? We, we are expecting, as you mentioned, the funds from the settlement. We will allocate this in order 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, you know, being very tight on CapEx and being very disciplined on where, you know, we allocate that capital.

Daniel CunhaWe're working on some working capital levers to improve, you know, 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.

Lizzie DoveThank you.

OperatorThe next question comes from the line of Stephanie Moore with Jefferies. Please proceed.

Stephanie MooreHi, good morning. Thank you. Congrats on the good quarter and certainly the utilization performance. I do have a 3-part question, but bear with me because I promise they all work together here. 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 of 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?

Stephanie MooreSo, a lot there, but I think kind of goes together. Thank you.

Brian ChoiI'll take a first crack at it, and Daniel, chime in. In terms of the tech investments, Stephanie, this is, this is a journey that we've been on for, several years now, actually. It's had 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, 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.

Brian ChoiCan 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 so, and we're going to continue to, to invest in this. The good news is, is that it's on a, it's on a SaaS platform. There's a dedicated team here that's focused to optimizing it. And we're version 1.0 over here. You know, as we develop this, this is something that I'd like to do a deeper dive on in a future earnings call. But let me leave it there for now.

Daniel CunhaAnd Brian, maybe just jumping in, the impact of that is massive, right? Though we spoke about the 2.5 improvement in utilization, if we adjust here for the recalls that are, you know, unrelated and frankly, you know, if there are no parts, there'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 any quarter, any period in the Americas here. So the impact here is pretty substantial.

Brian ChoiIn 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 we— 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 on 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, it's— the used car market seems okay.

Brian ChoiLike, it's what we expected at the beginning of the year. And month to month, we, 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?

Stephanie MooreDemand prices moderate. Yes, sorry, I kind of hit you with a lot there. I guess the third one was, 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 which help maybe manage that environment? So let's just say used vehicle prices moderate and demand also remains subdued.

Brian ChoiYeah, 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— 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—.

Brian ChoiInto the fleet. So from our perspective, we're trying to be conservative. In terms of how we dep 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 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 AESOP are rock solid. And, you know, that's what we've been doing all year. That's what we'll continue to do regardless of the demand environment.

Stephanie MooreThank you, guys. Appreciate it.

OperatorAnd the next question comes from the line of Andrew Percoco with Morgan Stanley. Please proceed.

Andrew PercocoGreat. Thanks so much for taking the question. Just one on my end. Thanks for squeezing me in. I think you mentioned that, you know, RPD was impacted by, you know, 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 all, 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. Thank you.

Daniel CunhaSure.

Brian ChoiAndrew, 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. Okay. 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, you know, 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, different, um, by different magnitude on different cohorts, but they're all universally up.

Brian ChoiOne-day rentals carry a significant premium. Two-day rentals carry a significant premium versus a week-long rental versus a monthly rental. And so we, 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 kind of 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're selecting what business we take and we're choosing to shape the curve this way for the third quarter in terms of, in terms of our business mix. This isn't something that we expect to be consistent over the long term. That's right.

Daniel CunhaAnd 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.

Brian ChoiYeah, I think the takeaway from our perspective is that overall the underlying pricing environment is 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.

Andrew PercocoOkay. That's very helpful. Thank you, guys.

OperatorThank you. 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.