Hertz Global Holdings, Inc

Welcome to Hertz Global Holdings' fourth quarter and full year 2021 earnings call. Currently, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. I would like to remind you that this afternoon's call is being recorded by the company. I would now like to turn the call over to our host, Johan Rawlinson, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us. By now you should have our press release and associated financial information. We've also provided slides to accompany our conference call that can be accessed on our website. I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance, and by their nature are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date, and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements is contained in our earnings press release and in the risk factors and forward looking statements section of our 2021 form 10K available from the SEC and on the Hertz website. Today we'll use certain non-GAAP financial measures which are reconciled with GAAP numbers in our press release. We believe that our profitability and performance is better demonstrated using these non-GAAP metrics. All comparisons discussed will be against 2019, unless data otherwise, because we believe it provides a more relevant benchmark given the unusual impact of COVID-19 on our business in 2020. For comparisons to our 2020 results, please refer to our press release and 2021 Form 10-K. Comparisons will also exclude the effects of the Donlan fleet leasing and management business we sold in March 2021. Our call today focuses on Hertz Global Holdings Inc., the publicly traded company. On the call this afternoon, we have Mark Fields, our Interim Chief Executive Officer, and Kenny Chung, our Chief Financial Officer. I'll now turn the call over to Mark.

Thanks, Johan. Good afternoon, everyone, and welcome to our fourth quarter 2021 earnings call. I'm very excited to speak with you today as we reflect on a very transformative year and contemplate an exciting road ahead for Hertz. On today's call, I'll be providing a high-level review of our business initiatives and an update on our strategic initiatives. Kenny will then provide a review of our financials before we open up the call for Q&A. Before I begin, I'd like to take a moment to recognize some exciting news around our search for a world-class permanent CEO. As we announced a few weeks ago, we're pleased to welcome Stephen Scheer to the Hertz family as CEO effective February 28th. We're thrilled to have someone of his caliber taking the reins. continue Hertz's commitment to being at the center of the modern mobility ecosystem. Stephen was Chief Financial Officer of Goldman Sachs, and in that role, he developed and led Goldman's all-digital consumer banking business, which was built to enable customers to save, borrow, and spend on a clean digital platform. I plan to work closely with Stephen to ensure a smooth transition, and I very much look forward to staying involved with Hertz in my capacity as a member of the Board of Directors. I would also like to start off by recognizing the very hard work and efforts of the entire Hertz team that enabled us to report these results to you today. Now turning to our results, sustained structural improvements on both the top and bottom line contributed to a strong performance. Monthly revenue per unit rose 31% from the fourth quarter of 2019, driven by a 35% increase in revenue per day. We maintained discipline in our fleet planning and our pricing. We aligned our fleet below demand, and we did not chase unprofitable business. Our fourth quarter adjusted corporate EBITDA exceeded guidance. We achieved a record fiscal year adjusted corporate EBITDA of $2.1 billion and a margin of 29%, which resulted in adjusted earnings per share of $4.39. Our leaner cost structure also contributed meaningfully to our results. We previously mentioned that we realized $300 million in annual cost savings, and our results this quarter reflect just that. We're becoming more efficient and agile, and as a result, we're a healthier, stronger business. During the quarter, we unveiled how Hertz is positioning itself at the center of the modern mobility ecosystem, announcing transformative initiatives with Tesla, Uber, and Carvana. We also completed a listing through a secondary offering of our common stock that now publicly trades on the NASDAQ Global Select Market, as do our warrants. We redeemed $1.5 billion of preferred shares for less than the 30% premium originally contracted and are currently executing on a board-approved $2 billion share repurchase program, which is incremental to the $300 million repurchased in conjunction with the NASDAQ listing. As you can see, it was a busy but exciting quarter for our business. Last fall, we did lay out five key priorities that would serve as the foundation behind everything we do to position Hertz for long-term success. And as noted on slide seven, these priorities include excellence in executing on the fundamentals, committing to a customer-first mentality, innovating relentlessly, leading in the adoption of electric vehicles, and investing in our future. Our teams around the world are guided by these priorities and they act as a driving force behind the execution of our key strategic initiatives, which are summarized on slide eight. Now, bottom line is we're positioning ourselves at the center of the modern mobility ecosystem and discuss this in the context of our recent partnership with Tesla, Uber, and Carvana. So let me take you through a few highlights on the progress that we're making with these partnerships. First, Hertz customers can now rent Teslas in multiple major markets across the United States, including, but not limited to, Atlanta, Fort Lauderdale, Los Angeles, Orlando, San Francisco, and Washington, D.C. Initial learnings from this rollout have been invaluable and we're already starting implementing them into our standard operating procedures. For instance, on-site customer training is proving to be very important. Our website and app have an expedited EV rental booking process and include digitized guidance to educate customers about the EV to get them on their way quickly. We're currently ahead of plan in building out our charging infrastructure. We have over 700 Level 2 chargers installed across 65 markets globally. Our purpose-built infrastructure consists of charging stations across airport, suburban locations, and shared mobility rental locations. And we are accelerating our plans to install level three DC fast chargers into our top markets in 2022. As we've explained, a significant number of our Tesla electric vehicles are dedicated to our strategic initiative with Uber. We're seeing strong driver interest and participating drivers are generating higher earnings. program has launched in over 30 markets, including but not limited to Los Angeles, San Francisco, Chicago, and Atlanta. As we grow the EV fleet and continue to build out our infrastructure, we're committed to being an agile and always learning team. These learnings will improve our operations and, in my view, will give us a huge competitive advantage in the industry. We've seen several of our OEM partners announce EV launches in the coming year. and we're having active, ongoing discussions with our OEM partners and evaluating all available models for inclusion into our fleet. Our partnership with Carvana is exceeding initial expectations as we work to revolutionize fleet management. Leveraging Carvana's customer dedication, technology, and nationwide first-party network allows for a more efficient direct-to-consumer sales channel, providing Hertz the opportunity channels. We are ramping up the program with several thousand vehicles listed on the Carvana platform, which are converting very well into sales. As we mentioned in conjunction with our listing, all of these initiatives that I just went through remain margin accretive relative to our view of a normalized earnings power. Our ability to execute effectively on each of these initiatives is, of course, highly dependent on a skilled and motivated workforce. Given the current challenges in the U.S. labor market, this has never been more important. And recognizing this, we recently began implementing a series of further enhancements to our workforce hiring and retention practices to ensure we have the right people in the right place at the right time. These include the use of analytics for local pay and competitive benchmarking, leveraging technology to improve the candidate experience during the interview and communication process, and more closely aligning workforce planning to fleet fluctuations. In addition to supporting employees, Hertz is prioritizing being environmentally conscious on our path to lead the future of mobility. We're actively working towards establishing short- and long-term science-based greenhouse gas emission reduction targets. Ongoing investments in growing our global EV fleet and robust charging infrastructure will be critical to achieving future targets and improving customers' access to zero-emissions transportation options. Last quarter, we emphasized our focus on modernizing our technological offerings, delivering innovation and growth, and connecting our entire fleet. We originally anticipated having a substantial portion of our fleet connected by the end of 2022. However, we're now partnering with a leading telematics supplier and continue to work with various OEM partners or select vehicle models or telematics enabled from the factory. These developments have accelerated our telematics rollout timing, and we now expect to have a majority of our U.S. fleet connected before the end of the summer. To make that data then work for us, we've also developed and implemented a technology platform that ingests data from these connected cars to promote fleet and operational efficiencies. Amongst others, this data can tell us where our the charge level of the vehicle's battery, or triggering of the engine service indicator. We expect this data to further improve fleet efficiency and reduce our operating costs. On the international side of the business, we recently invested in an early stage company with a customer-centric platform built around a fully digital EV rental experience. The technology is supported by a fleet management system to assist in the deployment and management of our EV fleet, which combined with Hertz in-house initiatives, could ultimately be scaled globally. These efforts will further our capabilities to leverage the best of transportation and logistics management alongside a strong digital backbone. We're also busy with several initiatives that we believe will enhance the customer experience and streamline the car rental process. These include a touchless experience for renting vehicles, and enhancements to the Hertz mobile app. Hertz customers will start to see improvement with the app by next month, and an iterative series of enhancements will follow through the rest of the year. This will allow us to deliver more personalized customer experience, which will help us attract and retain new customers and drive loyalty. We've expanded our customer experience team to better coordinate and oversee these activities. And as I mentioned earlier, taking a customer-first approach is central to how we run the business. Finally, before turning things over to Kenny, I want to update you on what we're seeing thus far in 2022. The Omicron variant brought a new wave of cases and had a near-term impact on the travel industry. Throughout this period, the industry has remained fairly disciplined. The weakness we saw was localized to January and the first half of February. Industry pricing for the remainder of the quarter is significantly stronger than the first half of the quarter. As a result of this relative industry discipline, the recovery has been swift and Kenny will provide more specifics on this in a few minutes. As a reminder, our 2021 results were heavily driven by leisure travel demand in the U.S. The rebound for international leisure inbound and business travel has yet to take shape, but we stand ready. Business travel tends to be more concentrated towards the beginning and middle of the week, which is where our utilization rates are currently at their lowest. The return of business travel is expected to improve revenue per unit as midweek utilization rates improve. On the fleet side, we're still experiencing a constrained supply of new vehicles, and the Mannheim data for December showed that units of inventory were still down over 20% compared with 2019. We believe we're getting our fair share of new vehicles, and we continue to supplement the fleet with good quality pre-owned vehicles. In light of these conditions, we maintain strict discipline on fleet size management and pricing. Historically, there was a tendency at Hertz to chase utilization and fleet size, which led to excess fleet and lower monthly revenue per vehicle. Today, we're managing this business differently, and I believe we're healthier and a more sustainable business as a result. Looking ahead, in addition to focusing on our key priorities, we will continue to build on our brand strength and global fleet management expertise, combining it with new investments in technology, electrification, shared mobility, and a digital-first customer experience. Our key fleet management capabilities will allow us to diversify and profitably grow in new areas of the mobility sector. Bottom line, we have a view of where mobility is headed, and we're very excited on executing on a strategy to put us firmly in the middle of that. So with that, I'll turn it over to Kenny.