Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hertz Global Holdings Inc (HTZ, Financial) has strengthened its balance sheet and improved liquidity, providing a stable financial foundation.
- The company is accelerating its fleet rotation, which is expected to lower depreciation and maintenance costs and improve customer experience.
- New leadership with a strong track record in commercial success and financial management has been brought in to drive transformation.
- Investments in technology and product innovation are enhancing operational capabilities and customer service.
- The company is focusing on high RPD (Revenue Per Day) channels and value-added services to improve profitability.
Negative Points
- The fleet rotation process is expected to take until the end of 2025, indicating a prolonged period of elevated depreciation costs.
- The company anticipates using some cash on the operating side through the first half of 2025, which could impact liquidity.
- Higher insurance and labor rates have partially offset the benefits of cost reduction initiatives.
- There is a likelihood of needing to make incremental lease payments to maintain a positive cushion in ABS facilities due to declining vehicle residual values.
- The company reported an adjusted corporate EBITDA loss of $460 million for Q2 2024, significantly impacted by increased depreciation expenses.
Q & A Highlights
Q: As you look back, you raised the capital about two months ago, was that the right amount to raise, more or less, and what are your thoughts on any future liquidity needs?
A: (Gil West, CEO) We secured additional capital to strengthen the balance sheet, ensure a stable liquidity position, and enhance flexibility in executing our transformation. This capital allows us to accelerate fleet rotation and manage the business with a longer view. (Scott Haralson, CFO) Flexibility is key. We expect slightly negative operating cash flow through the first half of 2025 and should generate about $1.5 billion from vehicle sales. While predicting exact needs is difficult, the capital raise provides the liquidity to evaluate all options.
Q: Do you expect the discounts on new car buys to hold, and how do you see hold periods for new purchases?
A: (Gil West, CEO) We are already seeing deals that meet our target unit economics. We will remain disciplined and selective in our purchases. (Darren Arrington, EVP Revenue Management and Fleet Operations) The industry has been pushed into higher hold periods, but as discounts return, we expect to shorten hold periods, benefiting depreciation, customer experience, and maintenance costs.
Q: Can you talk about moving away from certain contractual business to improve RPD and what segments are being deprioritized?
A: (Sandeep Dube, CCO) We are moving away from low RPD segments like certain insurance and opaque fares. We are focusing on high RPD channels like direct bookings and value-added services. These actions had an impact in the quarter and will continue to do so.
Q: What are your thoughts on having electric vehicles (EVs) in the fleet over the next few years?
A: (Gil West, CEO) EVs are less than 10% of our fleet. While the adoption curve has slowed, we believe EVs are key for the future. We will continue to offer EVs to meet customer demand and optimize our fleet across different channels like airports, off-airport operations, and ride-hail business.
Q: As you complete the fleet refresh, will there be any notable change in fleet mix?
A: (Gil West, CEO) Yes, we aim to rectify the mix skewed during the COVID period to align with core demand profiles. We will focus on customer booking patterns and supply side opportunities to optimize fleet acquisitions.
Q: What are you doing to improve getting the right vehicles into the right markets?
A: (Gil West, CEO) We are focusing on market-level economics, customer demand patterns, and minimizing fleet movements. We will use vehicle acquisitions and disposals to naturally align fleet allocations with market needs.
Q: Are you sticking to the same cost-cutting goals previously laid out?
A: (Scott Haralson, CFO) We are managing the entire P&L with an efficiency mindset. While specific initiatives are still being worked on, we aim for a DOE metric in the low 30s, which is attainable but will take time.
Q: What is your appetite for increasing the number of program cars in the US fleet?
A: (Gil West, CEO) Program cars help manage fleet rotation and mitigate residual risk. We will likely use more program cars internationally than domestically, leveraging supply availability to manage fleet rotation.
Q: Can you expand on the likelihood of making incremental lease payments to your ABS facility given declining residual values?
A: (Scott Haralson, CFO) We have a cushion today but expect to make a payment in the $50 million to $100 million range due to declining residuals. The recent capital raise provides the liquidity to handle this.
Q: How are you progressing with premiumization of the fleet and managing RPDs?
A: (Gil West, CEO) Rotating the fleet to newer vehicles improves customer experience and pricing power. We will manage fleet size to maintain RPDs, focusing on generating greater customer demand through direct bookings and value-added services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
