Hertz Global Holdings, Inc. (NASDAQ:HTZ) is a multinational company primarily engaged in the car rental industry, operating in over 150 countries and offering a wide range of vehicle rental services for both leisure and business travelers. With a history spanning over a century, Hertz has established itself as one of the world's largest car rental providers, boasting a global network of rental locations and a vast fleet of vehicles.

Financials

In the fiscal year 2023, Hertz reported annual revenue of $9,371 million and net income of $616 million. The company's annual operating cash flow stood at $2,474 million, while its annual free cash flow was -$7,228 million. These financial metrics demonstrate Hertz's scale and the challenges it faces in managing its capital-intensive business.

During the first quarter of 2024, Hertz reported revenue of $2,080 million, a slight increase of 1.6% year-over-year. However, the company recorded a negative adjusted corporate EBITDA of $567 million, heavily impacted by higher-than-usual depreciation expense and charges related to its electric vehicle (EV) fleet. The key driver of the loss was the increased vehicle depreciation, which rose by $588 million year-over-year.

Recent Developments

Hertz's newly appointed Chief Executive Officer, Gil West, has outlined several key priorities to navigate the company through this transition period. Firstly, he is focused on optimizing the company's fleet, aiming to move vehicle depreciation from a headwind to a tailwind by rotating the fleet, lowering vehicle capital costs, and increasing retail sales to mitigate residual value risk.

Secondly, West is committed to delivering operational excellence, which he believes is fundamental to achieving best-in-class unit costs and providing a superior customer experience. This, in turn, is expected to drive higher unit revenues. The company is implementing various productivity and cost-saving initiatives, targeting $250 million in savings for 2024, with the goal of reaching a direct operating expense (DOE) per day of the low 30s.

Thirdly, Hertz is focused on growing its premium revenue, aiming to push its revenue per day (RPD) into the low 60s. This will involve enhancing the customer experience, optimizing its revenue management tools and talent, and elevating the performance of its value brands, such as Dollar and Thrifty, to achieve RPD parity with the marketplace.

International Operations

Hertz's international operations, particularly in Europe, present another area of opportunity. Under the leadership of Elias Aboujaoude, the company is focused on driving growth in its international segment, which contributed $341 million in revenue during the first quarter of 2024, an 8% increase year-over-year.

Ride-Hailing Business

The company's ride-hailing business also offers a promising avenue for growth, as Hertz has renewed its partnerships with both Uber and Lyft. This segment presents an attractive demand for both EVs and internal combustion engine (ICE) vehicles, providing an adjacent growth opportunity and helping to mitigate the seasonality in the core rental car business.

Liquidity

Hertz's liquidity position remains a key focus, with the company maintaining $1.3 billion in available liquidity as of March 31, 2024, comprising $465 million in unrestricted cash and the balance available under its first-lien revolving credit facility. The company has also extended the maturity of its $3.8 billion U.S. ABS variable funding note facility from June 2025 to April 2026, providing additional flexibility.

Risks and Challenges

To address its elevated vehicle depreciation costs, Hertz has announced plans to reduce its EV fleet by an additional 10,000 vehicles, bringing the total EV fleet reduction to 30,000 vehicles. This move is expected to better align the company's EV supply with customer demand, improve utilization, and reduce operating costs associated with the EV fleet.

Hertz's financial performance has been impacted by several industry-wide challenges, including elevated maintenance costs, higher collision and damage expenses, and most recently, increased vehicle depreciation due to declining used car prices. The company's management team is actively addressing these issues through its fleet optimization strategies and cost-saving initiatives.

Outlook

Looking ahead, Hertz is positioning itself for long-term success by focusing on operational excellence, customer experience, and strategic initiatives to drive revenue growth and improve profitability. While the company navigates a transition year in 2024, the management team's commitment to execution and its focus on the fundamentals of the business suggest a promising path forward.