Executive Summary / Key Takeaways

• Avis Budget Group is undergoing a profound strategic transformation, moving beyond traditional price-based competition to redefine the customer experience and expand into new mobility ecosystems, exemplified by its "Avis First" premium offering and a multi-year partnership with Waymo.
• The company's aggressive fleet rotation strategy, initiated in late 2024, is normalizing fleet costs, with per-unit fleet costs expected to decline significantly from approximately $400 in Q1 2025 to around $300 by Q4 2025, laying a foundation for sustainable profitability.
• Despite macroeconomic uncertainties and significant vehicle recalls impacting Q3 2025, Avis Budget Group demonstrated revenue growth for the first time in eight quarters, with Q3 2025 revenues reaching $3.51 billion, a 1% increase year-over-year.
• Management maintains its long-term target of generating "no less than $1 billion" in Adjusted EBITDA annually, with expectations for 2025 to be at the lower end of this range, supported by improving fleet costs, strong utilization, and robust leisure travel demand.
• Avis Budget Group's core competency in "mega fleet management" is proving to be a critical differentiator, not only for its traditional rental business but also as a transferable asset in the burgeoning autonomous vehicle market, positioning the company for substantial long-term growth in a "hundreds of billions of dollars" addressable market.

A New Era of Mobility: Redefining Value and Expanding Horizons

Avis Budget Group, Inc. (NASDAQ:CAR), a global leader in mobility solutions operating iconic brands like Avis, Budget, and Zipcar, is embarking on a strategic reimagination of its business model. Founded in 1946, the company has a rich history of adapting to market dynamics, including its 2006 spin-offs of Realogy and Wyndham to sharpen its focus on core mobility. Today, Avis Budget Group is actively challenging the industry's long-standing commodity trap by prioritizing customer experience, leveraging technological differentiation, and strategically expanding its addressable market. This transformation is not merely incremental; it represents a fundamental shift in how the company intends to create durable shareholder value.

The company's strategic pivot is set against a backdrop of evolving industry trends. The broader mobility ecosystem is experiencing shifts driven by technological advancements, changing consumer preferences, and the emergence of autonomous vehicles. While traditional car rental remains a significant market, the competitive landscape is intensifying, with both direct rivals like Hertz Global Holdings, Inc. (HTZ) and Amerco, Inc. (UHAL), and indirect threats from ride-sharing platforms such as Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT). Avis Budget Group's response is to differentiate through superior service and operational excellence, rather than engaging in a "zero-sum game" of price competition.

Technological Edge and Service Innovation

Central to Avis Budget Group's strategic transformation is its investment in technology and innovation designed to elevate the customer journey and enhance operational efficiency. The company's core technological differentiators include:

• Proprietary Demand Fleet Pricing System: This system, fully operational in Europe and being implemented in the Pacific region, enables improved price optimization, vehicle utilization, and margin contribution. It allows Avis Budget Group to dynamically adjust pricing and fleet allocation based on real-time supply and demand, a critical advantage in a volatile market.
• Advanced Digital Fleet Tools: Following successful pilot programs, these tools are being rolled out across key U.S. locations. They are designed to provide real-time visibility into vehicle dispositions, facilitate more timely repairs, and optimize vehicle movements, all contributing to increased fleet availability and higher utilization rates. These tools directly address the challenge of maximizing asset efficiency, a cornerstone of profitability in the rental car industry.
• Enhanced Mobile App Experience: The new customer mobile app, launched in Fall 2024 and further enhanced in Q1 2025, offers features like real-time on-demand assistance at 12 locations. This technology aims to provide faster, more personalized service, directly improving customer satisfaction and loyalty.

These technological advancements are not abstract; they yield tangible benefits. For instance, the digital fleet tools contribute to the company's ability to achieve strong vehicle utilization, which reached nearly 70% in the Americas in Q1 2025, a four-point increase year-over-year. The demand fleet pricing system has shown benefits in price optimization and margin contribution in the International segment.

Avis Budget Group's commitment to innovation is perhaps best exemplified by two recent strategic initiatives:

• Avis First: Launched in July 2025, Avis First is a new premium product offering designed to define "first-class" for car rental. This service includes curbside pickup, premium vehicles, a personal concierge, and preconditioned cars. With an average RPD of over $100 and a 4.9-star customer rating, Avis First demonstrates that customers are willing to pay a premium for certainty, quality, and an exceptional experience. This initiative aims to segment the customer base beyond traditional brand tiers, growing the overall market by offering a higher-value product and reclaiming market share lost to ride-hail services. By Q3 2025, Avis First had expanded to 36 locations, up from a dozen at launch.
• Waymo Strategic Partnership: Announced in July 2025, this multi-year partnership with Waymo aims to launch and scale a fully autonomous ride-hailing service in Dallas. Avis Budget Group's role as a "mega fleet manager" involves critical functions such as charging, maintenance, repositioning, purchasing, financing, and disposing of Waymo's electric Jaguar I-PACE autonomous vehicles. This partnership is a strategic entry into the "hundreds of billions of dollars" autonomous mobility ecosystem, leveraging Avis's decades-long expertise in asset management and operational scale. Initial testing is underway, with public rides expected to commence in 2026.

These initiatives underscore Avis Budget Group's intent to move beyond a "legacy category" and carve out a significant place in the future mobility landscape, creating durable shareholder value through innovation and market expansion.

Competitive Positioning and Market Dynamics

Avis Budget Group holds a strong position in the global car rental market, characterized by its extensive network across approximately 180 countries and a diverse brand portfolio catering to various customer segments. While direct competitors like Hertz also boast global reach and technological investments, Avis Budget Group differentiates itself through its integrated truck rental and car-sharing services (Zipcar), offering a more holistic mobility solution. In the truck rental segment, Avis Budget Group's Budget Truck brand competes directly with Amerco's U-Haul and Ryder System, Inc. (R). While U-Haul often leads in cost efficiency for one-way rentals, Avis Budget Group's broader service offerings and global network provide a competitive edge in customer retention and adaptability.

The company's strategic shift towards a differentiated customer experience, as seen with Avis First, is a direct response to the industry's historical tendency towards commoditization. By focusing on service and dependability, Avis Budget Group aims to earn pricing power and build brand equity, rather than solely competing on the lowest price. This approach contrasts with some competitors who may still primarily vie for market share on price. The Waymo partnership further solidifies Avis Budget Group's competitive standing by positioning it as a critical infrastructure provider in the high-growth autonomous vehicle market, a realm where its "mega fleet management" capabilities are a unique asset. This strategic move allows Avis Budget Group to apply its core competencies to a much larger market, potentially expanding its revenue and profit pools beyond traditional car rental.

Financial Performance and Operational Discipline

Avis Budget Group's recent financial performance reflects both the challenges of a dynamic macroeconomic environment and the early benefits of its strategic transformation. For the three months ended September 30, 2025, the company reported revenues of $3.51 billion, marking a 1% increase year-over-year and representing the first quarter of revenue growth in eight quarters. This modest but meaningful growth was driven by a 1% increase in volume and a $37 million positive impact from currency exchange rate movements, partially offset by a 1% decrease in revenue per day (RPD) excluding exchange rate effects. Adjusted EBITDA for Q3 2025 increased by 11% year-over-year to $559 million, despite a challenging RPD environment in the Americas and significant fleet recalls.

Year-to-date through September 30, 2025, revenues totaled $8.988 billion, a 1% decrease year-over-year, primarily due to a 1% decrease in RPD (excluding exchange rate effects) and sustained volume, partially offset by a $38 million positive impact from currency exchange rate movements. Adjusted EBITDA for this period increased by $14 million year-over-year to $743 million. Net income attributable to Avis Budget Group, Inc. for the nine months ended September 30, 2025, decreased by $279 million, primarily due to "other fleet charges related to the accelerated disposal of certain fleet in our Americas reportable segment." The company also received a $114 million settlement distribution from the In re Automotive Parts Antitrust Litigation, which positively impacted operating expenses.

The company's aggressive fleet rotation strategy, initiated in Q4 2024, has been a central operational focus. This involved a $2.5 billion non-cash asset impairment in Q4 2024 and an additional $390 million non-cash charge in Q1 2025, as the company aggressively disposed of higher-cost Model Year '23 and '24 vehicles to replace them with more affordably priced Model Year '25 vehicles. This strategy is already yielding benefits, with Q1 2025 per-unit fleet costs coming in at $351, better than the $400 guidance, and a significant improvement expected to approximately $325 in Q2 2025 and around $300 by Q4 2025. This normalization of fleet costs is crucial for long-term profitability.

Liquidity remains robust, with approximately $993 million in total liquidity as of September 30, 2025, including $564 million in cash and cash equivalents and $429 million in available borrowing capacity. Total indebtedness stood at approximately $25.30 billion. The company's capital allocation strategy prioritizes maintaining a strong balance sheet, investing in fleet and technology modernization, and opportunistically returning capital to shareholders. Year-to-date adjusted free cash flow was negative $517 million, driven by voluntary fleet contributions, but the company expects free cash flow to be "no less than $500 million" by year-end 2025, or in the "mid-3s to 4s" (hundreds of millions) if the $1 billion Adjusted EBITDA target is met.

Outlook and Risks

Avis Budget Group maintains its long-term target of generating "no less than $1 billion" in Adjusted EBITDA annually, although the 2025 outlook is now "toward the low end" of this range. This adjustment is primarily due to the "single largest headwind" of vehicle recall impacts, which are expected to linger through Q4 2025 and potentially into early 2026, grounding approximately 5% of the Americas fleet and incurring an estimated $90 million to $100 million in full-year cost impact. Despite this, management anticipates a modest improvement in Americas RPD in Q4 2025 and expects Q2 2025 Adjusted EBITDA to exceed $200 million. The company is also monitoring softer commercial and government demand, but forward bookings remain strong, particularly for leisure travel.

The company's outlook is underpinned by the expectation of continued improvements in per-unit fleet costs, strong vehicle utilization, and the benefits from its strategic initiatives. The Model Year '26 fleet is expected to be "pretty similar to the Model Year '25" in terms of cost. Avis Budget Group anticipates positive impacts from global events like the World Cup and America 250 in 2026.

However, several risks could impact these projections. The high level of competition in the mobility industry, including from new technologies, could affect pricing and rental volume. Volatility in travel demand, economic downturns, and geopolitical conflicts (Middle East, Eastern Europe) remain significant factors. Changes in fleet costs due to new vehicle prices, supply disruptions (exacerbated by tariff uncertainty causing OEM production delays), and used vehicle disposal prices are ongoing concerns. The company's substantial indebtedness and exposure to interest rate fluctuations also present financial risks. While the company is "extremely flexible" and can "respond very quickly to changes in macroeconomics," these external factors introduce an element of uncertainty into the forward-looking trajectory.

Conclusion

Avis Budget Group is at a pivotal juncture, actively transforming its business from a traditional car rental provider into a differentiated mobility solutions leader. The company's strategic focus on enhancing customer experience through innovations like Avis First, coupled with its expansion into the autonomous vehicle ecosystem via the Waymo partnership, positions it for structural growth beyond the confines of a commoditized industry. Operationally, the aggressive fleet rotation strategy is yielding tangible benefits in normalizing fleet costs and improving utilization, forming a solid foundation for future profitability.

While macroeconomic uncertainties, particularly vehicle recalls and tariff-related disruptions, present near-term headwinds, Avis Budget Group's commitment to operational discipline and technological leadership remains unwavering. The company's ability to leverage its "mega fleet management" expertise in new, high-growth markets, combined with a disciplined approach to capital allocation and a clear path to reduced fleet costs, underscores a compelling investment thesis. Investors should monitor the continued execution of its strategic initiatives, particularly the scaling of Avis First and the progress of the Waymo partnership, as well as the ongoing stabilization of fleet costs and RPD trends, as these factors will be critical indicators of the company's success in driving sustainable value creation.