Executive Summary / Key Takeaways

• Hertz Global Holdings is undergoing a significant transformation, shifting from a traditional car rental company to a diversified mobility platform, driven by disciplined asset management, technological innovation, and strategic partnerships.
• The company achieved positive EPS for the first time in two years in Q3 2025, reporting $184 million in net income and $190 million in adjusted corporate EBITDA, marking a $350 million year-over-year improvement.
• A "Back-to-Basics Roadmap" has enabled a transformative fleet refresh, with the average fleet age now under 12 months and over 80% of model year 2026 vehicle purchases already secured, positioning the company for sustained Depreciation Per Unit (DPU) well below its North Star target of $300 per month.
• Hertz is leveraging advanced AI and digital platforms to enhance customer experience, optimize revenue management, and expand its Hertz Car Sales business, aiming to capture significant incremental margins by selling vehicles directly to consumers.
• Management targets a 3% to 6% EBITDA margin for 2026 and aims for $1 billion in adjusted corporate EBITDA by 2027, driven by strategic growth in off-airport and mobility segments, alongside continued operational efficiencies.

A Century of Motion: Hertz's Strategic Evolution

Hertz Global Holdings, Inc., a name synonymous with vehicle rentals since 1918, is in the midst of a profound transformation, moving beyond its traditional car rental roots to establish itself as a diversified mobility platform. This strategic pivot, encapsulated in its "Back-to-Basics Roadmap," is designed to reset the company's foundation, enhance operational excellence, and unlock new avenues for value creation in an evolving industry landscape. The company operates globally through its iconic Hertz, Dollar, and Thrifty brands, serving a broad customer base across the Americas, Europe, and other international markets.

The industry itself is dynamic, characterized by seasonal demand, evolving consumer preferences, and the disruptive potential of new mobility solutions like ride-sharing and autonomous vehicles. Hertz's journey has been marked by significant challenges, including a 2020 bankruptcy filing due to the pandemic's impact on travel, and an earlier strategic misstep involving an aggressive shift to Electric Vehicles (EVs) that resulted in substantial write-downs and losses. These experiences have underscored the critical importance of disciplined asset management and agile strategic responses.

Against this backdrop, Hertz's current strategy is anchored by three core financial pillars: disciplined fleet management, revenue optimization, and rigorous cost management. These pillars are supported by key enablers: its people, technology, and processes. The company has established clear "North Star metrics" to guide its progress: Depreciation Per Unit (DPU) below $300, Revenue Per Unit (RPU) above $1,500, and Direct Operating Expense (DOE) per day in the low $30s. Achieving these targets is expected to unlock over $1 billion of EBITDA from its core business run rate.

Technological Edge: Fueling Efficiency and Customer Experience

Hertz is strategically leveraging technology to build a competitive moat and drive its transformation. A core differentiator is its investment in AI-powered solutions across various operational and customer-facing functions. For instance, the company's AI-powered chat and call support now handles 72% of U.S. inbound chats, leading to faster resolutions, improved customer satisfaction, and increased cost efficiency. This directly translates into a nearly 50% year-over-year increase in its North American Net Promoter Score (NPS) in Q3 2025, a tangible benefit reflecting enhanced customer experience.

In fleet management, Hertz has partnered with UVeye for AI-powered vehicle inspection systems. This technology aims to enhance the speed and accuracy of vehicle inspections and damage assessments, bringing much-needed precision, objectivity, and transparency to a process historically prone to customer frustration. The AI scanning has reportedly increased Hertz’s damage claim rate from a traditional industry standard of approximately 0.6% to nearly 3% of rental transactions. If fully rolled out to all 1,600 locations with an average charge of $400 per claim, this system could potentially add $1.5 billion to Hertz’s revenue based on 2024 transaction days.

The company is also modernizing its revenue management system through a multi-year partnership with Amadeus, a global travel technology leader. This initiative aims to replace an outdated system from 2004 with one offering real-time optimization, dynamic forecasting, and integration with adjacent systems. This technological upgrade is expected to deliver significant gains by enhancing pricing strategies and execution, particularly in the pricing and demand selection of non-contractual demand, which constitutes the majority of bookings. Furthermore, Hertz utilizes Palantir (PLTR)'s Foundry platform for improved fleet management and workforce planning, and Decagon's conversational AI platform for more reliable, personalized customer interactions at speed, greater scale, and lower cost. These technological advancements are foundational to Hertz's strategy, contributing to its competitive moat by improving operational efficiency, enhancing customer loyalty, and ultimately driving better financial performance and market positioning.

Financial Performance: A Turnaround in Motion

Hertz's financial performance in 2025 reflects a significant turnaround, demonstrating the initial success of its strategic initiatives. In the third quarter of 2025, the company reported total revenues of $2.5 billion, a 4% decrease year-over-year, primarily due to lower pricing in the Americas RAC segment. Despite this, Hertz achieved positive net income of $184 million and adjusted corporate EBITDA of $190 million, marking an impressive $350 million year-over-year improvement and an 8% margin. This represents the company's first positive EPS in two years, a critical psychological and financial milestone.

A key driver of this profitability was the substantial reduction in Depreciation of Revenue Earning Vehicles and Lease Charges, net, which decreased by $480 million in Q3 2025 compared to Q3 2024. This improvement is directly attributable to the fleet refresh, strengthening residual values, and optimized vehicle dispositions. The company's Depreciation Per Unit (DPU) was $273 per month in Q3 2025, in line with expectations and well below its North Star target of $300. Direct Operating Expenses (DOE) also saw a 1% year-over-year decline in Q3 2025, with DOE per day improving sequentially and annually despite inflationary pressures and a smaller fleet. Selling, General and Administrative (SGA) expenses, however, increased by $51 million in Q3 2025, driven by higher personnel costs and litigation expenses.

For the nine months ended September 30, 2025, revenues decreased by $533 million to $6.476 billion compared to the same period in 2024, largely due to lower volume and pricing in the Americas RAC segment. However, the nine-month period saw a net income of $553 million, a significant improvement from a $2.383 billion loss in the prior year, highlighting the impact of cost controls and fleet management. Cash flows from operating activities decreased by $378 million in the nine months ended September 30, 2025, primarily due to changes in net income and working capital. Investing activities saw a $1.50 billion decrease in cash used, mainly from reduced net revenue earning vehicle expenditures.

Segment Performance and Strategic Growth Vectors

Hertz's operational landscape is primarily divided into its Americas RAC and International RAC segments, complemented by emerging strategic growth vectors in Hertz Car Sales, Service, and Mobility. The Americas RAC segment experienced a 7.4% revenue decline in Q3 2025 to $1.91 billion, primarily due to lower pricing and volume, particularly in the business channel. Its Adjusted EBITDA also decreased by 10.1% to $152 million. Conversely, the International RAC segment demonstrated robust growth, with revenues increasing by 10.5% to $568 million in Q3 2025, driven by higher volume, pricing, and a favorable foreign exchange impact. This segment's Adjusted EBITDA surged by 58.7% to $100 million, reflecting a strong global pricing environment.

Beyond traditional rentals, Hertz is actively cultivating new growth engines. Hertz Car Sales is being transformed into a profit-accretive engine, leveraging the company's unique position as a "used car factory." The "rent-to-buy" program, offering a 3-day test drive, boasts a 70% conversion rate, significantly exceeding traditional dealership rates. Partnerships with Cox Automotive and the launch on Amazon (AMZN) Autos in August 2025 are expanding digital retail channels, aiming to capture over $2,000 in incremental margin benefit per vehicle compared to wholesale. This strategic shift is critical for maximizing fleet monetization and contributing to the sub-$300 DPU target.

The Mobility business, including rideshare partnerships with Uber (UBER), is expected to be a fast-growing segment, projected to expand by 10% to 20% in 2026. Hertz views itself as a natural player in the autonomous vehicle (AV) space, possessing the brand, global footprint, maintenance capabilities, and financing expertise to be a major player. The nascent Service segment also presents long-term potential, aiming to monetize Hertz's extensive vehicle servicing infrastructure for external B2B and B2C customers.

Competitive Positioning and Market Dynamics

Hertz operates in a highly competitive vehicle rental industry, facing direct rivals like Avis Budget Group (CAR) and Enterprise Holdings, as well as international players like Sixt AG. While Hertz boasts a strong global brand and an extensive distribution network, which are significant competitive advantages, it has historically faced challenges in operational efficiency and digital innovation compared to some peers. For instance, Deutsche Bank analyst Chris Woronka notes that Hertz's less than 10% auction sales rate for its fleet is lower than competitors, which can be 15% to 20%.

Avis Budget Group, a publicly traded competitor, has shown consistent revenue growth and solid profitability, often leading in digital transformation. Enterprise Holdings, a privately held giant, excels in domestic market penetration and customer service. Sixt AG, a European player, is known for its focus on premium and electric vehicle segments and innovative technology. Hertz's strategic emphasis on its "rent-to-buy" program and digital car sales, including partnerships with Amazon Autos, aims to differentiate it by offering a seamless omnichannel experience. This move could disrupt traditional car dealerships by enabling Hertz to sell cars directly to consumers at competitive prices, leveraging its bulk purchasing power.

Hertz's technological investments, such as the Amadeus revenue management system and AI-powered inspections, are designed to close historical gaps in operational efficiency and pricing sophistication, areas where competitors may have held an edge. The company's focus on diversifying revenue streams through off-airport and mobility businesses also aims to build resilience against the cyclical nature of airport-centric demand and competitive pricing pressures.

Liquidity, Debt, and Future Outlook

Hertz's liquidity position is robust, with $1.10 billion in cash and cash equivalents and total corporate liquidity of $2.214 billion as of September 30, 2025. The company generated approximately $250 million in positive adjusted free cash flow in Q3 2025. This strong liquidity is critical for managing its substantial debt load, which stood at $17.408 billion as of September 30, 2025. Hertz has been proactive in managing its debt, including raising $500 million through senior secured notes in Q4 2024 and amending its revolving credit facility in May 2025 to extend maturities. In September 2025, Hertz issued $425 million in exchangeable senior notes, with approximately $300 million earmarked for partial redemption of the Senior Notes Due 2026, its only significant corporate maturity in 2026. The company's ABS programs remain healthy, with vehicle fair values comfortably above net book values, providing an equity cushion of about $1 billion.

For Q4 2025, Hertz anticipates transaction days to be flat year-over-year, with fleet size down just under 5%. Net DPU is expected to rise slightly to $280-$285 per month, and DOE per day is projected to decrease by approximately 5% (or 1%-2% excluding a 2024 insurance reserve true-up). However, Q4 guidance was updated to a slightly negative EBITDA margin due to seasonal leisure troughs, potential government shutdown impacts, and $10-$20 million in lost revenue from external system outages.

Looking to 2026, Hertz is cautiously optimistic, targeting a 3% to 6% EBITDA margin. The company plans to grow its fleet, with the mature airport business expanding at GDP-like levels, off-airport at mid-to-high single digits, and mobility at 10% to 20%. This diversified growth is expected to drive mid-single-digit growth in transaction days. Management expects run rate net DPU to remain well below $300 per month. The ultimate goal is to achieve $1 billion in adjusted corporate EBITDA by 2027, a target that hinges on the successful execution of its strategic roadmap and technological advancements.

Risks and Challenges

Despite the positive momentum, Hertz faces several risks. The ongoing legal proceedings, particularly the make-whole and post-petition interest claims, where Hertz has accrued $334 million as of September 30, 2025, present a material financial risk if the Delaware Bankruptcy Court rules unfavorably. Market volatility, including fluctuations in used car prices and interest rates, can impact DPU and overall profitability. While tariffs enacted in July 2025 are expected to decrease federal cash taxes and potentially boost residual values, their long-term impact on vehicle acquisition costs and demand for EVs remains a factor. OEM recalls, affecting approximately 2% of the U.S. fleet in Q3 2025, can temporarily reduce rentable fleet capacity and utilization. Competition remains intense, with rivals employing aggressive pricing and service offerings. The company also faces risks related to data breaches and the successful integration and scaling of its new technologies.

Conclusion

Hertz Global Holdings is undergoing a determined and multifaceted transformation, moving beyond the operational challenges of its recent past to forge a more resilient and diversified future. The company's "Back-to-Basics Roadmap," centered on disciplined fleet management, revenue optimization, and rigorous cost control, is demonstrably yielding results, as evidenced by its return to positive EPS and significant EBITDA improvement in Q3 2025. This operational rigor, coupled with strategic investments in cutting-edge AI and digital platforms, is not merely enhancing its core rental business but is actively building a broader mobility platform encompassing Hertz Car Sales, Service, and Mobility.

The path ahead is clearly defined by ambitious North Star metrics and growth targets for its diversified segments, culminating in a projected $1 billion adjusted corporate EBITDA by 2027. While risks from litigation, market volatility, and competitive pressures persist, Hertz's strengthened liquidity, proactive debt management, and technological leadership provide a robust foundation. The company's ability to execute its strategic vision, particularly in scaling its digital car sales and emerging mobility offerings, will be paramount in realizing its full potential and securing its position as a leading, value-creating player in the evolving landscape of global mobility.