Executive Summary / Key Takeaways

• Hertz Global Holdings is undergoing a comprehensive "Back-to-Basics" transformation focused on disciplined fleet management, revenue optimization, and cost efficiency, aiming for North Star metrics of DPU below $300, RPU above $1,500, and DOE per day in the low $30s, which could yield over $1 billion in EBITDA by 2027.
• The accelerated fleet rotation, particularly securing model year 2025 vehicles at favorable economics and prioritizing retail sales channels, is significantly improving Depreciation Per Unit (DPU), now expected to reach below $300 by Q2 2025, earlier than previously targeted.
• While Q1 2025 saw revenue declines due to lower volume and pricing, impacted by fleet timing and macroeconomic uncertainty, the company is focused on culling low-yielding business and leveraging technology to enhance revenue management and customer experience, with expectations for RPD to stabilize and improve.
• Cost control initiatives are yielding results, with sequential improvement in Direct Operating Expense (DOE) per day, although headwinds like insurance costs persist; management is targeting DOE + SG&A unit costs to be flat to down in 2025 despite a smaller fleet.
• The company has bolstered its liquidity through recent financing activities, providing flexibility to fund the ongoing transformation, manage debt maturities, and navigate potential risks, including significant litigation, with expectations of generating free cash flow in the second half of 2025.

The Road Ahead: Transforming an Icon

Hertz Global Holdings, Inc. ($HTZ) traces its roots back to 1918, evolving into a global leader in vehicle rental through its well-known Hertz, Dollar, and Thrifty brands. Operating across a vast international network, the company's business is inherently asset-intensive and influenced by dynamic factors like travel demand, OEM supply, and used car market values. Following a period marked by significant challenges, including bankruptcy and a poorly timed bet on electric vehicles (EVs) that resulted in substantial losses, Hertz is now deeply engaged in a strategic transformation under its "Back-to-Basics Roadmap."

This comprehensive plan is anchored by three core financial pillars: disciplined fleet management, revenue optimization, and rigorous cost management. The overarching goal is to return the company to operational excellence and sustainable profitability, targeting ambitious North Star metrics: Depreciation Per Unit (DPU) below $300, Revenue Per Unit (RPU) above $1,500, and Direct Operating Expense (DOE) per transaction day in the low $30s. Achieving these targets is projected to unlock over $1 billion in core business EBITDA run rate, potentially by 2027.

Leveraging Technology for Operational Edge

Technology is a key enabler in Hertz's transformation, fueling improvements across fleet management, customer experience, and revenue optimization. The company is strategically partnering with leading tech firms to enhance its operational capabilities. Leveraging Palantir (PLTR)'s Foundry platform, Hertz aims to improve fleet management and workforce planning, enabling more data-driven decisions in asset deployment.

In vehicle operations, a partnership with UVI, a global leader in AI-powered vehicle inspection systems, is set to enhance the speed and accuracy of vehicle inspections and damage assessments. This initiative also seeks to create a more transparent, digital-first experience for customers. For revenue management, Hertz is working with Amadeus (AMADY), a travel tech solutions provider, to modernize its systems and significantly enhance pricing strategies and execution capabilities.

Customer interactions are being streamlined through expanded AI agent capabilities and a partnership with Decagon, a conversational AI platform. This collaboration is designed to deliver more reliable, personalized customer interactions at speed, greater scale, and lower cost. Furthermore, Hertz recently launched an AI pricing capability for its vehicle sales through a partnership with Cox Automotive, aiming to optimize disposition values. These technological investments are foundational to improving efficiency, reducing costs, enhancing the customer journey, and ultimately supporting the achievement of the company's North Star metrics.

Fleet as the Economic Engine

Recognizing the fleet as its most dominant economic lever, Hertz has established a disciplined end-to-end fleet management strategy centered on "buy right, hold right, and sell right." This approach involves acquiring vehicles at favorable economics, optimizing the timing for rotating vehicles out of the rental fleet, and maximizing net proceeds through strategic sales channels. The company has aggressively accelerated its fleet rotation, with over 70% of its core U.S. RAC fleet now 12 months old or newer as of the first quarter of 2025.

This rapid refresh, particularly the proactive securing of model year 2025 vehicles ahead of anticipated tariffs at favorable economics, is already driving significant improvements in DPU. Depreciation of revenue earning vehicles and lease charges, net, decreased substantially in Q1 2025 compared to Q1 2024, benefiting from write-downs on EVs held for sale in the prior year, lower average vehicles, and increased vehicle dispositions with per unit gains in Q1 2025. The company now expects DPU to be below $300 in the second quarter of 2025, an acceleration from its previous year-end 2025 target, supported by the accelerated rotation and strengthening residual values. While the timing of new deliveries in Q1 2025 was temporarily suboptimal at the local level, impacting utilization and pricing, management views this as a short-term trade-off for better positioning throughout the year.

Hertz has substantially completed the planned reduction of its EV fleet, with remaining EVs now less than 10% of the total fleet and strategically placed in markets with established product-market fit, such as the rideshare business. The asset impairment charge recorded in Q3 2024, primarily affecting U.S. and European fleets, reflected the decline in residual values and the accelerated rotation, but this non-cash charge does not fully correct the book-to-market dislocation, leaving some, albeit smaller, excess depreciation to flow through the P&L. As one of the world's largest used car dealers, Hertz is prioritizing its retail sales channels, achieving a record quarter for retail vehicle sales in Q1 2025, aiming to increase net margins and capitalize on rising residual values.

Revenue Optimization and Cost Discipline

The revenue optimization pillar focuses on maximizing RPU by managing fleet capacity relative to demand and improving the mix of business. Hertz is intentionally running a tighter fleet year-over-year in 2025 and focusing on "sweating the assets" to drive higher utilization, which was up 240 basis points year-over-year in Q1 2025. This strategy allows the company to cull lower-yielding, brand-agnostic demand from competitive platforms and prioritize more durable, higher-RPD segments like direct bookings through its websites and loyalty programs, where trends are encouraging.

While Q1 2025 revenues declined due to lower volume and pricing, influenced by factors like the timing of Easter and fleet mix shifts, management sees demand moderating in corporate and government segments but leisure forward bookings are up. The company is enhancing its revenue management tools, including leveraging dynamic pricing for value-added services, to improve its ability to generate, convert, and monetize demand.

On the cost front, the company is committed to rigorous cost management, targeting DOE per day in the low $30s. Cost control efforts contributed to a nearly $100 million year-over-year improvement in total direct operating expense in Q1 2025. DOE per day showed sequential improvement in Q1 2025 despite lower volumes, and the newer fleet is estimated to have driven almost $1 of DOE benefit year-over-year. While headwinds from insurance and rent expense persist, management expects DOE + SG&A unit costs to be flat to down year-over-year in 2025, even with a smaller fleet, as structural cost efficiencies are realized. Hitting budgeted cost targets in Q1 2025 is seen as an important internal indication of improved predictability and execution.

Financial Performance and Liquidity

Hertz Global reported total revenues of $1.81 billion for the first quarter of 2025, a decrease from $2.08 billion in the prior-year period, resulting in a net loss of $443 million compared to a net loss of $186 million in Q1 2024. The Adjusted Corporate EBITDA loss for Q1 2025 was $325 million, an improvement from the $567 million loss in Q1 2024, reflecting progress in cost management and depreciation despite revenue challenges. The increase in Selling, General and Administrative expenses in Q1 2025 was primarily due to a non-cash stock-based compensation gain in the prior year related to forfeited awards. Non-vehicle interest expense increased due to higher debt levels and interest rates.

The company maintains a focus on strengthening its financial foundation and liquidity. As of March 31, 2025, Hertz Global had $626 million in cash and cash equivalents and $395 million in restricted cash and cash equivalents. Corporate liquidity, excluding unused vehicle debt commitments, stood at $1,175 million.

Recent financing activities, including the May 2025 amendment extending the maturity of $1.7 billion of commitments under the First Lien Revolving Credit Facility to March 2028 and amendments to vehicle debt facilities, enhance the capital structure and strategic flexibility.

Hertz expects to end Q2 2025 with over $1 billion of liquidity, even accounting for potential litigation payments, excluding potential proceeds from the recently authorized $250 million At The Money (ATM) equity offering intended for deleveraging. The company anticipates using cash for fleet rotation in the first half of 2025, with the low point of liquidity expected around the end of Q2 2025, followed by expected free cash flow generation in the second half of the year. As of March 31, 2025, the company was in compliance with all covenants under its Corporate Indebtedness.

Competitive Landscape and Market Dynamics

Hertz operates in a competitive landscape dominated by major players like Avis Budget Group (CAR) and Enterprise Holdings (privately held), as well as niche players like Ryder System (R) in fleet management and Amerco (UHAL) in truck rentals. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Hertz maintains a significant global presence and brand recognition. Compared to Avis Budget Group, Hertz is accelerating its fleet transformation to address past challenges with higher-cost vehicles, aiming to improve DPU and operational efficiency. Avis has shown strong revenue growth and profitability, leveraging digital platforms and pursuing EV expansion. Hertz's technological initiatives, such as AI-powered inspections and modernized revenue management, are aimed at closing efficiency gaps and enhancing the customer experience to compete effectively.

In fleet management and commercial rentals, Ryder System's B2B focus provides operational efficiency advantages. Hertz competes in these areas but is also strategically diversifying its revenue streams by focusing on off-airport and mobility business units, which offer more consistent utilization and longer rental lengths, aiming for greater resilience and improved margins over time. Against Amerco, which excels in cost efficiency in its niche, Hertz's broader service range and global scale provide diverse revenue streams, but the focus on cost control is critical to improve profitability metrics. The company is also contending with indirect competitors like ride-sharing and car-sharing services, which offer alternative mobility solutions, by enhancing its own service offerings and focusing on durable, high-value customer segments.

The operating environment remains dynamic, influenced by macroeconomic events and potential tariff impacts. While demand for corporate and government segments has moderated, leisure demand shows strength. Rising residual values are seen as a potential tailwind for Hertz's fleet economics. The company's strategy of disciplined capacity management, running a tighter fleet in 2025, is intended to be supportive of better pricing across geographies. Historically, periods of vehicle supply constraints have driven significant RPD gains in the industry, presenting a potential macroeconomic opportunity.

Outlook and Risks

Hertz's outlook for 2025 reflects the ongoing transformation and the expected benefits of its strategic initiatives. The company anticipates a seasonal EBITDA loss in Q1 2025, followed by approximately breakeven EBITDA in Q2 2025. A sizable EBITDA profit is expected in Q3 2025, potentially yielding positive net income and EPS for the first time since 2023, with a positive EBITDA result also projected for Q4 2025. This cadence is expected to result in a low single-digit EBITDA margin for the full year 2025. The acceleration of DPU improvement, now targeted to be below $300 by Q2 2025, is a key driver of this expected financial progression.

The path to achieving the North Star targets of RPU above $1,500 and DOE per day in the low $30s is expected to be a more gradual progression, with the full run rate targeted around 2027. Management plans to run a smaller fleet year-over-year in 2025 but expects transaction days to be down less than the fleet reduction due to improved utilization.

However, the outlook is subject to various risks and uncertainties. Macroeconomic headwinds, including consumer sentiment and potential tariff impacts, could affect travel demand and vehicle market conditions. The company faces significant litigation risks, particularly the Make-Whole and Post-Petition Interest Claims from its bankruptcy, for which it has accrued a substantial liability and is seeking review by the U.S. Supreme Court. Adverse outcomes in this or other legal proceedings, including claims related to alleged false arrests and recent data breaches, could have a material adverse effect on financial condition. The company's self-insured liabilities are based on estimates and subject to uncertainty. The ability to successfully execute the complex operational transformation, including realizing targeted cost efficiencies and fully leveraging technological investments, is critical. OEM supply and pricing for model year '26 vehicles remain unknown, potentially impacting fleet acquisition costs and residual values.

Conclusion

Hertz Global is in the midst of a critical transformation, shifting its focus back to fundamental operational excellence and disciplined asset management. The "Back-to-Basics Roadmap," centered on fleet, revenue, and cost, is beginning to yield tangible results, most notably the accelerated improvement in Depreciation Per Unit driven by a proactive fleet rotation strategy. While the first quarter of 2025 highlighted lingering impacts of past fleet decisions and macroeconomic pressures on revenue, the strategic focus on optimizing the business mix, enhancing customer experience through technology, and driving structural cost efficiencies provides a clear path towards improved unit economics.

The company's bolstered liquidity position offers the necessary flexibility to navigate the remainder of the transformation and manage upcoming financial obligations, including significant litigation risks. Achieving the ambitious North Star targets for DPU, RPU, and DOE, supported by technological advancements and a revitalized operational focus, is key to unlocking sustainable profitability and long-term value. The competitive landscape remains dynamic, requiring continued execution and strategic adaptability to capitalize on market opportunities and mitigate risks, positioning Hertz for a stronger financial profile in the years ahead.