Hertz Global Holdings, Inc

Welcome to Hertz Global Holdings second quarter 2025 earnings call. Currently all lines are in a 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 Rawlinson, Vice President of Investor Relations. Please go ahead, sir.

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 want 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 statements sections and 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 Dubey will then share insights into 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, and good morning, everyone. First, I'd like to thank the team at Hertz for their hard work and dedication over the last quarter. Our people continue to lead this transformation, driving execution, proving operations and strengthening performance across the business. When we introduced our back to basics roadmap last year, we didn't just make a strategic pivot under new leadership. We began a multi-year journey to reset the foundation of the company and position Hertz for the future. This transformation isn't about broad strokes. It's about driving fundamental change, starting at the core of our business and rebuilding it from the ground up. At Hertz, we believe transformation is earned. We know that through disciplined execution and operational excellence, we will drive tangible results for our customers, our team members, and our shareholders. That's why we've been transparent about our goals, clear about our progress, grounded in the details that drive performance. And this quarter, we delivered our best set of results in nearly two years. For the first time in seven quarters, Hertz delivered positive adjusted corporate EBITDA, a nearly half billion dollar year over year improvement. We exceeded our North Star target for depreciation per unit, achieved the highest second quarter retail vehicle sales in five years, and had our highest fleet utilization in nearly two years. These gains supported $2.2 billion in revenue for the quarter and underscore our ability to sweat the assets and do more with less. Importantly, we also improved our direct operating expense per transaction day, despite lower year over year volume, a clear sign of growing operational leverage. What's behind that progress? The same three financial pillars we laid out at the start of our journey, disciplined fleet management, revenue optimization, and rigorous cost management, powered by our people, technology, and processes. These are the fundamentals for long-term, durable profitability. Let's dive deeper into these results and begin with the fleet. At its core, Hertz is an asset management company that buys rents and sells vehicles with a scale and brand recognition earned over more than a century of service. Our fleet is our most powerful economic lever. We knew that any meaningful transformation had to start there. Over the past year, we've moved aggressively to rotate the fleet and realign the mix to better reflect customer preferences. That progress has proven core to building our new foundation, resulting in tangible financial impact, measured best through the results delivered by our buy right, hold right, sell right strategy. We achieved depreciation per unit of $251, well below the sub $300 North Star target, thanks to our early action on favorable model year 2025 pricing and a timely acceleration of our fleet rotation. In the first quarter, we navigated a challenging environment marked by unpredictable travel demand and tariff developments. Confident in our strategy, but mindful of the risk to demand and potential oversupply of fleet, we continued our fleet rotation in earnest, selling off older, hired appreciating vehicles into a strengthening residual market while fleeting up for a peak season. While the fleet size decline year over year, the quality of our assets improved, setting the stage for better unit economics as we complete the rotation. This approach proved effective, yielding strong cash proceeds and positioning us for more efficient growth. As a result, 80% of our US core rental fleet is now less than a year old. This younger fleet is driving better reliability, lower maintenance costs and stronger customer experience, all while supporting lower depreciation. Looking ahead, we're applying the same disciplined approach to model year 2026 vehicles. Despite supply chain related delays, we're progressing in our negotiations, diversifying our OEM relationships and maintaining flexibility as the industry continues to navigate any economic headwinds. Our refreshed fleet gives us flexibility to navigate this uncertainty. We also had our best second quarter for retail vehicle sales in half a decade, building on the momentum achieved in Q1's record performance. As we continue to elevate and expand awareness of our Hertz car sales channel, we partnered with Cox Automotive to support a fully digital transaction, meeting customers where they are and enhancing how we engage across the car buying journey. Their deep consumer insights through platforms like AutoTrader will help inform and strengthen our marketing, pricing and retail strategy as we scale. We're also seeing strong momentum in our rent to buy program, which continues to deliver one of the highest conversion rates. A clear sign that try before you buy model is resonating. It combines the flexibility of a rental with the convenience of ownership and it's proving to be a meaningful driver of volume and customer satisfaction. Beyond that, we're expanding our technical partnerships and digital integrations to improve visibility, ease and reach, ensuring our vehicles are present on the platforms where consumers are already browsing and shopping. These efforts are designed to drive greater awareness, stronger engagement and a seamless path from interest to ownership. Shifting gears, our revenue results were down commensurate with our decision to reduce our fleet size for the reasons I outlined earlier. Our intent is to earn the right to grow again as we complete our fleet rotation and our unit economics fall into line. The headline on RPU is encouraging, essentially flat year over year when adjusting for car class mix shift, which was margin accretive. As you peel back the elements that make up RPU, we're making some great headway and demand generation and utilization, but have work to do in pricing. We're staying focused on what we can control in this area and our courage by the market setup going forward. With tighter supply resulting from OEM supply chain disruptions and recalls, along with growing macro demand. Our rigorous efforts to control costs also showed progress this quarter. Despite previously mentioned insurance and rent expense headwinds, direct operating expense per transaction day was down year over year driven by a younger fleet, better supply chain leverage, productivity improvements and tighter operating discipline. We expect these efficiencies to continue improving our P&L as we work towards North Star target of DOE per day in the low 30s. Given the pace of change in this transformation, we need to stay focused on how we make Hertz the most preferred rental car company in the world. As we improve our core economics of our business, we're focused on how we leverage the strength and foundation to deliver an improved customer experience, putting our customers in the forefront of everything we do. Net promoter score improved 11 points year over year. And we are seeing stronger enrollment in our loyalty programs but our job to continue earning our customers trust every day by delivering value, consistency and reliability. That's what we've set out to do with our digital vehicle inspections. For over a hundred years, manual damage inspections have caused confusion and frustration, creating unnecessary friction with customers. This technology is designed to bring much needed precision, objectivity and transparency to the process while improving our ability to proactively identify specific maintenance actions and drive further operational efficiency. We know change of this scale takes time and we're listening, learning and improving every day. Our goal is to enhance the customer experience by removing friction, ensuring transparency, building trust, not just for the 3% who experienced damage but also for the 97% who don't. Before I hand it over to Sandeep, I'll just say this, transformation doesn't happen overnight but by tackling the largest economic lever, the fleet, first, we created the foundation needed to move faster and smarter. We can now empower our customer team to act with greater speed and precision at a local market level to capitalize on pricing and revenue opportunities and meet customer demand. There's still a lot of work to be done but we're making measurable progress in our operations and doing it the right way for staying disciplined, controlling what we can and executing with precision to earn the right to grow. With that, I'll turn it over to Sandeep. Thank you, Gail. Good morning,