Hertz Global Holdings, Inc. Q2 FY2025 earnings call

• Fleet Management: Hertz is an asset management company that has aggressively rotated and realigned its fleet over the past year to match customer preferences. It is applying a disciplined approach to model year 2026 vehicles despite supply chain delays. 80% of the U.S. core rental fleet is less than a year old, driving better customer experience and lower maintenance costs.
• Revenue and Pricing Strategy: On the commercial side, focus is on foundational improvements to drive RPU towards the North Star metric. Revenue was down 7% in Q2 due to a smaller fleet. Hertz is transforming its revenue management platform with Amadeus, aiming for real-time optimization and better integration with adjacent systems. Local market initiatives are empowering field leaders to drive profitability.
• Customer Experience: Net Promoter Score improved 11 points year-over-year. Digital vehicle inspections are being implemented to remove friction, enhance transparency, and build trust with customers.
• Financial Performance: Adjusted corporate EBITDA was positive $1 million, the first positive since 2023. RPU was $1,400, down slightly year-over-year but flat when adjusted for fleet mix. Vehicle utilization was 83%, up 300 basis points year-over-year. Operating cost management initiatives led to positive results in direct operating expenses.

In the second quarter, Hertz achieved positive adjusted corporate EBITDA, a nearly $0.5 billion year-over-year improvement. Total revenues stood at $2.2 billion. Regarding the fleet, 80% of the U.S. core rental fleet is now less than a year old, contributing to better reliability, lower maintenance costs, and a stronger customer experience. Retail vehicle sales were the best in five years. Revenue saw a 7% decline year-over-year due to a smaller fleet. Utilization reached 83% in Q2, an improvement of 300 basis points year-over-year. Depreciation per unit (DPU) was $251, well below the sub-$300 North Star target. Direct operating expense per transaction day decreased year-over-year, indicating operational leverage.

• Q3: Expected adjusted corporate EBITDA margin in the mid- to high single-digit range, with the first positive EPS since 2023.
• Q4: Slightly positive EBITDA margin expected based on improved pricing due to macro vehicle supply constraints and revenue initiatives. Full year EBITDA levels revised to slightly below breakeven from previous estimates of slightly above.
• Long-term: Still on track to achieve adjusted corporate EBITDA of $1 billion by 2027. Anticipates maintaining fleet size at approximately 6% below 2024 through year-end with flexibility. Model year 2026 acquisition process delayed but cautiously optimistic about outcomes.

• Supply chain-related delays in model year 2026 vehicle negotiations pose challenges.
• Uncertainty in demand and potential oversupply of fleet remain risks.
• Recall impact on vehicle availability, with some OEMs facing issues with recall fixes or parts availability.
• Delay in the expected pricing improvement trajectory is a risk factor.

Q: How do you envision the future of AVs and robotaxis?

A: Hertz has a role in AVs and robotaxis. The technology works, and as costs decrease, the economics will be transformational. Hertz has an iconic brand, global operating footprint, advanced maintenance capabilities, large fleet management skills, experience with EVs, and vehicle financing capabilities, which are foundational for its role in AVs and mobility.

Q: How to break down RPD and its relation to fleet mix?

A: RPU is the focus, balancing RPD and utilization (UT). In Q2, RPD was down about 5% when normalizing for fleet mix change. The market was challenging in Q2, but Hertz overcame through foundational improvements in monetizing demand. Pricing presents a significant opportunity, and Hertz is in the process of transforming its antiquated revenue management system.

Q: Impact of recalls on utilization?

A: In Q2, utilization was high despite recalls. The tech ops team is proactive, but some OEMs lack recall fixes or parts. A younger fleet has less exposure to recalls overall.

Q: Relationship with Cox Automotive and retail sales?

A: Cox Automotive is a partner for digital transformation of the sell experience. It helps with retail sales by digitizing the process, improving the customer experience, and leveraging data for optimal pricing. This differs from the previous relationship with Carvana in terms of the digital focus on retail sales.

Q: Updated EBITDA outlook and drivers?

A: The delay in the expected pricing improvement trajectory led to a slight adjustment in the EBITDA outlook. However, there are signs of improvement in the demand environment, with segments showing positive trends. Pricing is starting to show cracks as of August, but data is limited so far.

Q: Update on Dollar and Thrifty brands?

A: The goal is to drive higher average revenue per unit (ARPU) for all brands. The mix has shifted more towards Hertz, which is more margin accretive. Dollar and Thrifty serve consumers seeking value and experience, but Hertz is focusing on growing its premium brand.

Q: Future fleet size and DOE target?

A: Fleet size needs to be shrunk to grow profitably, and it will remain at a similar level to Q2 through year-end with flexibility. The target for direct operating expense per transaction day (DOE) in the low 30s is still achievable through operational execution and leveraging operational leverage.