Hertz Global Holdings, Inc. (HTZ) is a storied company with a rich history that has weathered numerous challenges to emerge as a key player in the global car rental industry. Founded in 1918 with just a dozen Model T Fords, Hertz has grown to become one of the world's largest vehicle rental providers, operating in approximately 160 countries and jurisdictions through its iconic Hertz, Dollar, and Thrifty brands.

Company Overview

Hertz Global Holdings, Inc. was incorporated in Delaware in 2015 and serves as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns The Hertz Corporation. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918. The company operates its vehicle rental business globally primarily through the Hertz, Dollar and Thrifty brands from company-operated and franchisee locations in the U.S., Europe, Africa, Asia, Australia, Canada, the Caribbean, Latin America, the Middle East and New Zealand. The company also sells vehicles through Hertz Car Sales.

Recent History and Challenges

In 2020, Hertz faced a significant challenge when it filed for Chapter 11 bankruptcy reorganization due to the impact of the COVID-19 pandemic on its business. However, the company demonstrated its resilience by emerging from bankruptcy in June 2021 with a strengthened balance sheet and new ownership group, the Plan Sponsors, which include Apollo Capital Management, Knighthead Capital Management and Certares Opportunities.

Following its emergence from bankruptcy, Hertz focused on rebuilding its operations and implementing strategic initiatives under new management during 2021 and 2022. This included refreshing its leadership team, reorganizing its business units, and investing in technology and process improvements. The company also repurchased a significant amount of its common stock during this period as part of a $2 billion share repurchase program authorized in 2022.

Despite these efforts, Hertz continued to face challenges in 2023 and 2024 related to macroeconomic conditions, supply chain disruptions, and certain operational and financial headwinds. The company took actions to address these issues, including accelerating its fleet rotation, optimizing its capacity and cost structure, and enhancing its commercial strategy and customer experience. These efforts were aimed at positioning Hertz for long-term success as it worked to transform the business and restore its position as an industry leader.

In 2024, the company faced a particularly tumultuous period, with revenue declining 7% year-over-year to $9.05 billion and a net loss of $2.86 billion. However, Hertz's new leadership team, led by CEO Gil West, has taken decisive steps to stabilize the business and implement a comprehensive transformation strategy.

Financial Snapshot

Hertz's Financial Snapshot:

• Annual Revenue (2024): $9.05 billion
• Annual Net Income (2024): -$2.86 billion
• Annual Operating Cash Flow (2024): Not available
• Annual Free Cash Flow (2024): Not available

The company's fourth-quarter 2024 results provide a glimpse into the progress made under the new strategic direction. Revenue declined 6.6% year-over-year to $2.04 billion, with a net loss of $479 million. Hertz reported an adjusted EBITDA loss of $357 million, which was wider than the consensus estimate. The primary driver of this performance was the continued fleet rotation and associated costs, as the company worked to optimize its vehicle mix and improve operational efficiency.

Transformation Initiatives

Hertz's Transformation Initiatives: 1. Fleet Optimization: Hertz has been aggressively rotating its fleet, with over 60% of vehicles now less than one year old as of the end of 2024. This strategic move has enabled the company to reduce its average depreciation per unit (DPU) and better align its fleet with evolving customer demand.

2. Revenue Per Unit (RPU) Improvement: The company has implemented a multi-pronged approach to drive RPU growth, including enhanced capacity management, improved demand generation, and a focus on higher-yielding customer segments. This has resulted in a sequential improvement in RPU, with the decline narrowing from 7% in the first quarter of 2024 to just 1% in the fourth quarter.

3. Cost Control and Operational Efficiency: Hertz has made significant strides in managing its core operating costs, such as labor, maintenance, and collision expenses. The company expects these trends to continue into 2025, with a goal of maintaining flat to slightly lower DOE plus SG&A unit costs year-over-year, even with a smaller fleet.

4. Customer Experience Transformation: Recognizing the importance of customer loyalty, Hertz has made substantial investments to improve the customer experience, including addressing key pain points, reducing wait times, and enhancing digital capabilities. These efforts have resulted in significant gains in Net Promoter Scores for both core customer experience and service recovery.

Financials and Liquidity

Hertz's Liquidity and Debt Management: As of the end of 2024, Hertz had $1.8 billion in liquidity, including $592 million in cash and cash equivalents and $1.25 billion in available capacity under its First Lien Revolving Credit Facility. The company has been proactive in managing its debt obligations, recently completing a $500 million capital raise through the issuance of additional first lien senior secured notes due in 2029. Hertz has also amended the indentures governing its first lien senior secured notes and exchangeable senior second lien PIK notes, providing additional financial flexibility.

Segment Performance

Americas RAC Segment: The Americas RAC segment encompasses the rental of vehicles and sales of value-added services in the U.S., Canada, Latin America, and the Caribbean. As of December 31, 2024, the company had approximately 5,000 company-operated and franchisee locations in this segment, with 2,000 airport and 3,000 off-airport locations. The segment generated $7.40 billion in total revenues for the year ended December 31, 2024, a 4% decrease compared to the prior year. This decline was primarily due to lower pricing in most customer channels, leading to a 4% decrease in Total RPD (Total Revenue Per Transaction Day) to $59.38. Transaction Days remained relatively flat year-over-year at 124.77 million.

The Americas RAC segment incurred $3.20 billion in depreciation of revenue earning vehicles and lease charges, net, an 80% increase from 2023. This was driven by deterioration in residual values at the expected time of disposal, decreased holding periods resulting from the acceleration of the rental fleet rotation, and per unit losses recognized on vehicle dispositions in 2024 compared to per unit gains in 2023. Direct vehicle and operating expenses increased 3% to $4.73 billion, primarily due to increased self-insurance liabilities, a loss recovery in 2023 with no comparable in 2024, and higher vehicle in-fleeting costs related to the accelerated fleet rotation. Selling, general and administrative expenses decreased 4% to $482 million, mainly from reduced advertising spend, partially offset by increased restructuring costs and higher personnel expenses.

International RAC Segment: The International RAC segment covers the rental of vehicles and sales of value-added services in locations outside of the U.S., Canada, Latin America, and the Caribbean. As of December 31, 2024, the company had approximately 6,200 company-operated and franchisee locations in this segment, with 1,500 airport and 4,700 off-airport locations across approximately 110 countries and jurisdictions. Total revenues for the International RAC segment were $1.65 billion, largely unchanged from the prior year.

Depreciation of revenue earning vehicles and lease charges, net, increased 57% to $413 million in the International RAC segment, also driven by per unit losses on vehicle dispositions, deterioration in residual values, and decreased holding periods. Direct vehicle and operating expenses rose 10% to $971 million, primarily due to higher personnel costs, increased self-insurance liabilities, more collision and damage expenses, and greater vehicle in-fleeting costs. Selling, general and administrative expenses increased 7% to $244 million, mainly from higher restructuring costs and personnel expenses, partially offset by lower intercompany royalty assessment fees.

Challenges and Risks

Despite the progress made in 2024, Hertz continues to face several challenges and risks. The ongoing global supply chain disruptions and inflationary pressures have impacted the company's ability to acquire vehicles and manage costs. Additionally, the potential for further economic volatility and changes in travel demand patterns could pose challenges to Hertz's recovery efforts.

Outlook and Guidance

For 2025, Hertz expects to see a continued improvement in its financial performance. The company anticipates a smaller seasonal EBITDA loss in the first quarter, followed by a roughly breakeven second quarter, a sizable EBITDA profit in the third quarter, and a small profit in the fourth quarter. This is expected to result in a low single-digit EBITDA margin for the full year.

Regarding depreciation per unit (DPU), Hertz expects net DPU to be slightly below the Q4 2024 level in Q1 2025, but this should decline after Q1 due to: 1. Continuing decline in gross depreciation from newer model year car purchases 2. Less of the higher cap cost cars to sell 3. Further optimization of retail sales channels 4. Selling into a seasonally stronger sales period

Hertz still expects to exit 2025 at a net DPU of below $300 per month. The company is also aiming for an ARPU (average revenue per unit) above $1,500 as a "North Star" metric.

On operating expenses, Hertz expects their DOE (direct operating expenses) plus SG&A unit cost to be flat to down year-over-year in 2025, even with a smaller fleet size.

Conclusion

Hertz's journey in 2024 was marked by significant challenges, but the company's new leadership team has demonstrated a clear commitment to transforming the business and positioning it for long-term success. The strategic initiatives undertaken, including fleet optimization, revenue enhancement, and operational efficiency improvements, have laid the groundwork for Hertz to emerge as a stronger, more resilient player in the dynamic car rental industry. As the company continues to execute on its transformation plan, investors will closely monitor Hertz's ability to deliver sustainable financial performance and enhanced customer experiences.