Hertz Global Holdings, Inc. Q2 FY2025 earnings call

• Hertz introduced the Back-to-Basics Roadmap, focusing on disciplined fleet management, revenue optimization, and cost management as the foundation for long-term profitability.
• The fleet was rotated and realigned, with 80% of the U.S. core rental fleet now less than a year old, leading to better reliability, lower maintenance costs, and stronger customer experience.
• Retail vehicle sales in Q2 were the best in 5 years, with partnerships like Cox Automotive supporting a fully digital transaction process to enhance the car buying journey.
• A multiyear partnership with Amadeus is underway to transform the revenue management platform, aiming for real-time optimization, dynamic forecasting, and better integration with adjacent systems.
• Net Promoter Score improved 11 points year-over-year, and digital vehicle inspections are being implemented to enhance customer experience by reducing friction and increasing transparency.

Hertz's financial performance in the second quarter was driven by its fleet and rental segments. The U.S. core rental fleet has 80% of vehicles less than a year old, which has improved reliability, reduced maintenance costs, and supported lower depreciation. Retail vehicle sales in Q2 were the best in 5 years, building on the momentum from Q1's record performance. Adjusted corporate EBITDA was positive for the first time in nearly 2 years, with a nearly $0.5 billion year-over-year improvement. Revenue for the quarter totaled $2.2 billion, and depreciation per unit was $251, well below the target, benefiting from fleet rotation and a younger fleet.

• Anticipate maintaining fleet size at approximately 6% below 2024 levels through year-end with flexibility based on demand.
• Q3 adjusted corporate EBITDA margin is expected to be in the mid- to high single-digit range, with the first positive EPS since 2023.
• Q4 expected to have a slightly positive EBITDA margin due to improved pricing from macro vehicle supply constraints and revenue initiatives, though full-year EBITDA is now slightly below breakeven vs previous estimates.
• Still on track to achieve adjusted corporate EBITDA of $1 billion by 2027.

• Supply chain-related delays impacting model year 2026 vehicle negotiations and diversification of OEM relationships.
• Uncertainty in demand and potential oversupply of fleet, which could affect revenue and profitability.
• Legacy revenue management system limitations, including outdated forecasting and lack of real-time data, hindering pricing optimization.
• Recall impacts on vehicle availability, though the tech ops team is proactive in identifying and mitigating recalls, though challenges remain with part availability and OEM variability.

Q: Chris Woronka asks about AVs and robotaxis.

A: Gil West discusses Hertz's role in AVs and robotaxis, highlighting the company's iconic brand, global footprint, advanced maintenance capabilities, and vehicle financing as foundational for future mobility.

Q: Ryan Brinkman inquires about recalls and retail sales.

A: Wayne Gilbert West explains that the tech ops team is proactive in mitigating recalls, and the younger fleet has less exposure to recalls. He also discusses the vertically integrated retail channel and partnerships like Cox Automotive to drive retail sales through digital transformation.

Q: John Healy asks about the Cox Automotive partnership.

A: Wayne Gilbert West explains that the partnership focuses on digital transformation of the retail sell experience, leveraging Cox's data and platforms to optimize pricing and enhance the customer journey, differing from previous relationships with Carvana.

Q: Stephanie Moore asks about updated EBITDA outlook and demand.

A: Scott Haralson notes a delay in pricing improvement but sees progression in narrowing the year-over-year gap. Sandeep Dube discusses improving demand in segments like corporate, government, and inbound, with forward bookings ahead of planned fleet capacity.

Q: Federico Merendi asks about liquidity and debt.

A: Wayne Gilbert West discusses liquidity strength, earmarking funds for Wells Fargo liabilities, and flexibility in addressing 2026 debt maturities through cash production and capital markets activities.

Q: Isaac Sellhausen asks about Dollar, Thrifty, and 2026 fleet buys.

A: Sandeep Dube states the goal is to drive higher ARPU for all brands, with Hertz brand growing as more margin accretive. Wayne Gilbert West discusses delayed model year 2026 vehicle negotiations but progress in fleet planning.

Q: Dan Levy asks about fleet size and balance sheet.

A: Wayne Gilbert West explains fleet size will remain reduced through year-end to grow profitably, and deleveraging plans involve using free cash flow, equity, and capital markets activities to reduce non-fleet debt.