Hertz Global Holdings, Inc

Welcome to Hertz Global Holdings' first quarter 2025 earnings call. Currently, all lines are in listen-only mode. Following management's commentary, we will conduct a question and answer session. I would like to remind you that this morning's call is being recorded by the company. I would now like to turn the call over to our host, Johan Wallensen, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us. By now, you should have our earnings press release and associated financial information. We've also provided slides to accompany our conference call, and these can be accessed through the investor relations section of our website. I would like to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not a guarantee of performance and by their nature are subject to inherent risks and uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of today's date, and the company undertakes no obligation to update that information to reflect change circumstances. Additional information concerning these statements, including factors that could cause our actual results to differ, is contained in our earnings press release and in the risk factors and forward-looking statement sections in the filings we make with the Securities and Exchange Commission. Our filings are available on the SEC's website and the investor relations section of the Hertz website. Today, we'll use certain non-GAAP financial measures which are reconciled with GAAP numbers in our earnings press release and earnings presentation available on our website. We believe that these non-GAAP measures provide additional useful information about our operations, allowing better evaluation of our profitability and performance. Unless otherwise noted, Our discussion today focuses on our global business. On the call this morning, we have Gil West, our Chief Executive Officer, who will discuss operational highlights and our fleet. Our Chief Commercial Officer, Sandeep Dube, will then share insights on our commercial strategy, followed by Scott Harrelson, our Chief Financial Officer, who will discuss our financial performance and liquidity. We are also joined by Darren Arrington, our Executive Vice President for Revenue Management, who will be available to answer questions during the Q&A session. I'll now turn the call over to Gil.

Thank you, Johan. Good morning, everyone. The first quarter of 2025 was dynamic, not just for Hertz or the travel industry, but across the broader business landscape. as companies evaluated the near and long-term effects of macroeconomic events, including tariffs. While these shifts continue to influence the operating environment, our strategy was designed to navigate uncertainty. Our success does not rely on tariff-related benefits, but we are pulling the right levers to capitalize on them. We remain focused on what we can control. It's that discipline and a clear understanding of what drives this business that guides us forward. These past few months have only reinforced something I've known since day one. Hertz is, at its core, an asset management company. We buy, rent, and sell cars, and we've sharpened our focus on that flywheel, not just to drive performance, but to stay agile in any environment. The fleet is the economic engine of the company and our greatest lever. That's why transforming it from a headwind to a tailwind isn't just a goal, it's essential. Through the relentless execution of our back-to-basics roadmap, we're building momentum, reshaping Hertz, and delivering long-term value for our customers and shareholders. Our strategy is anchored around three financial pillars. disciplined fleet management, revenue optimization, and rigorous cost management. We set clear North Star metrics, DPU below $300, RPU above $1,500, and DOE per day in the low 30s. I'm proud of the progress our teams have made, and I'm grateful for their hard work and perseverance. It's because of their efforts that we're beginning to see foundational improvements take hold. With that, let's dive into the results. Let's start with our most dominant economic lever, the fleet. One year ago, we established a disciplined end-to-end fleet management strategy and recognized the urgent need for a refresh. At that time, we were managing an older, high-cost fleet with a suboptimal mix of vehicles within a declining residual value market. Guided by our buy right, hold right, and sell right strategy, we acted swiftly to reposition ourselves and rapidly execute our fleet rotation. Today, I'm pleased to share we've made progress in our strategy and our investment is beginning to pay off. With over 70% of our core US rack fleet now 12 months old or newer, we have a younger fleet that's well equipped to navigate today's uncertainty. Thanks to our early and deliberate effort to lock in vehicles at highly favorable economics ahead of tariff implementation, our model year 2025 fleet is shaping up to be transformative for Hertz, as those vehicles currently have a DPU of sub 300 prior to the benefits associated with tariffs. To make this happen, we work closely with OEMs to accept vehicle deliveries in Q1 ahead of schedule to avoid tariff exposure. While we continue to aggressively rotate out older, higher cost vehicles, the timing of new vehicle deliveries was suboptimal at the local market level, impacting utilization and pricing. However, we view this as a deliberate short-term trade-off that better positions us for the remainder of the year. With approximately 2 thirds of our model year 2025 fleet already delivered, the long-term benefits are taking shape. Our proactive buy-write strategy has also enabled us to diversify our supply chain, reduce reliance on any single OEM, and build a fleet mix that enhances our ability to quickly respond to market dynamics. While I mentioned the younger fleet is already driving measurable improvements in our North Star metric of DPU, it is also delivering on DOE. We're seeing lower maintenance costs, and we expect these efficiencies to continue improving our P&L throughout the year. As residual values rise, supported by early market indicators and analysts' forecast of significant residual value increases, we're well positioned to benefit in this environment. To put it simply, every 1% increase in residual value generates more than $100 million in economic benefits to our fleet. Because of our early actions, We're not just adapting to market dynamics, we're out in front of them. Through our disciplined fleet rotation, we're now managing a lower cost fleet with a more optimal mix in a rising residual value environment, putting us in nearly the inverse position of where we were when I joined the company. This is a clear sign that our strategy is working. While overall demand remains solid, we recognize that there may be potential macroeconomic headwinds and uncertainty. Still, we remain disciplined on capacity management. To that end, we plan to run a smaller fleet year over year and sweat the assets to drive higher utilization to offset some of the reduction in capacity. We remain disciplined in our capacity. We do, however, have flexibility to adjust our fleet up or down as we move through the year as we better gauge the macro environment. Model year 26 vehicle supply and pricing remain an unknown at this point. Historically, vehicle supply chain disruption has supported stronger pricing as well as increases in used vehicle residual values. If this is again the case, we're ready to respond quickly. We have a number of levers to pull to remain agile as we manage through the macro environment. Looking beyond 2025, I would expect fleet growth in line with demand growth, improved unit economics as we exit the year, earn us the right to grow again. As one of the world's largest used car dealers, we recognize the value of Hertz car sales, and last quarter we highlighted our sell-right strategy to prioritize retail as our primary car selling channel. We took proactive steps earlier in the year to raise awareness of this channel, timing that proved advantageous for our business. We began to see this play out in March, where our average selling price through retail channels strengthened, positively impacting depreciation per unit. In fact, this was a record quarter for retail car sales. As part of this strategy, we are focused on increasing our net margins by better managing reconditioning costs and capturing more finance and insurance commissions on the transaction. Leveraging the strong residual market, we continue to drive awareness through Hertz car sales and expand our retail partnerships. In addition, we just launched AI pricing capability for our vehicle sales through a partnership with Cox Automotive. These efforts through our buy right, hold right, and sell right strategy are turning our fleet from a headwind to a tailwind for our business. Another highlight this quarter was our ability to manage cost as our strategy contributed to nearly $100 million year-over-year improvement in total direct operating expense. We also achieved sequential improvement in DOE per day despite lower volumes, and we estimate that the newer fleet drove almost $1 of DOE benefit year-over-year. These results aren't one-off. We remain disciplined and committed to continuous improvement in cost management as we build a more sustainable business. As we transform Hertz, we're focused on leveraging technology to improve our results, and we're strategically partnering with the world's leading tech companies. As we shared last quarter, we're leveraging Palantir's Foundry platform to improve our fleet management and workforce planning. This quarter we announced our partnership with uvi a global leader in Ai powered vehicle inspection systems. This collaboration will enhance the speed and accuracy of our vehicle inspections and damage assessments, while also creating a more transparent digital first experience for customers. We're also working with Amadeus, a best in class global travel tech solutions provider on advanced capabilities designed to modernize our revenue management system and significantly enhance our pricing strategies and execution. We've expanded our customer service AI agent capabilities, and we are working with Decagon, the conversational AI platform, to deliver a more reliable, personalized customer interactions at speed, greater scale, and lower costs. Transformations like ours take time, but above all, it depends upon unwavering commitment to executing the strategy we established with our back-to-basics roadmap. Despite today's uncertain environment, we remain confident, steadfast, and fully committed to this plan. We are beginning to see the tangible results, and as we chart our path forward, we will maintain our disciplined focus on what we can control while remaining agile and responsive to changing conditions. I'll turn now to Sandeep to comment on capacity management and our commercial strategy.