Hertz Global Holdings, Inc

Welcome to the Hertz Global Holdings fourth quarter and full year 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, Rohan Rawlinson, 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 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 changed 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 section 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 will use certain non-GAAP financial measures which are reconciled with GAAP numbers in our earnings press release 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 strategy, operational highlights, and our fleet. Our Chief Commercial Officer, Sandeep Dube, will share insights into our commercial strategy, followed by Scott Harrelson, our Chief Financial Officer, who will discuss our financial performance. I'll now turn the call over to Gil.

Thanks, Johan. Good morning, everyone, and thank you for joining us. I want to start by thanking the Hertz team. Their focus, discipline, and resilience, especially those serving our customers in the field, was evident throughout the year, but particularly during the fourth quarter holidays travel season, which is historically one of our most operationally intensive periods. Together, they executed consistently against our goals and made real progress, building momentum for the year ahead. 2025 marked the first full year operating under the back to basic strategy. Guided by our North Star metrics, we brought greater discipline to fleet management, revenue optimization, rigorous cost control, and improving the customer experience. The work is far from finished, but the progress we made this year materially strengthen the foundation of our business for the long term. In 2025, we achieved a full year adjusted EBITDA improvement of more than $1 billion year over year. We drove sequential improvements in revenue, RPU, and RPD. and improved utilization by sweating our assets and drove DPU down in line with our North Star target. We brought DOE per transaction day down despite lower volumes. We also completed our fleet rotation and successfully secured our model year 26 buys at our target prices and volumes. That allowed us to begin selling model year 25s through our enhanced retail channels, continue our short hold strategy, introduce a more optimized mix of par classes, and achieve our lowest average fleet age in almost a decade. And we delivered a nearly 50% improvement in customer satisfaction. As we turn to the fourth quarter, a typically challenging seasonal environment was amplified by a number of external headwinds that were primarily isolated to the quarter. From government shutdown coupled with FAA cancellations, multiple technology vendor outages, and unfavorable residual value environment to elevated recall volumes, taken together, these created outsized pressure of well over $100 million on our business and kept us from hitting some of our targets. But even within that environment, we made progress. In the fourth quarter, just at EBITDA, improved $150 million year over year. But our strongest result this quarter was revenue. In fact, it was our strongest revenue result in nearly two years. If you remember, we entered 2025 with the revenue down double digits year over year. And by the end of the fourth quarter, we were nearly flat revenue with a 3% smaller fleet. Significant accomplishment driven by our ability to sequentially improve RPU and RPD and sustain utilization and transaction days, all with a smaller fleet. We also saw a more stable industry pricing backdrop throughout the quarter, which is especially noteworthy given the very polarizing peak and off-peak dynamics that plays out during this period every year. This is evidence that both our commercial investments in pricing and demand generation are paying off and that the industry setup is more positive than in prior periods. While DPU, as I mentioned, was in line with our North Star target for the year, in the fourth quarter, it moved above our North Star target due to a revised Black Book residual value forecast and lower than expected wholesale prices from heavy OEM and rental car company deflating during the car market seasonal low period. While we monitor multiple market trend sources, we have historically indexed heavily on Black Book forecast, which tends to be more seasonally volatile. As of the end of the year, it was down nearly 5% year over year, resulting in a $60 million non-cash charge to depreciation. By contrast, Mannheim average rental vehicle prices in December were up 2.85% year over year. And as we look ahead, updated projections David Wiltshire- From our partners at cox automotive show that their manheim used vehicle value index is expected. David Wiltshire- expected to end the year roughly 2% higher than in December 2025 while our forecast is not predicated on such a positive outlook our internal analysis is encouraging. And we've seen early signs of recovery in Q1 in line with these Mannheim values, which in January were up 2.4% year over year. On the cost side, we brought adjusted DOE per transaction day down 6% year on year. This moved us closer to our North Star target in the low 30s. Recall volumes peaked in mid-November and December, taking over 20,000 cars out of service. which is almost three times higher than the normal rate. This resulted in us having to carry more fleet than we had planned and limited our performance, which had ripple effects across the business, impacting our fleet utilization, particularly for our rideshare business. We have strategically managed through this by redeploying available fleet where it would have the most impact and As a vast majority of these recalls lack available fixes and restrict us from renting and selling vehicles, we are actively working with our OEM partners to find solutions to minimize fleet downtime. Recall volumes have moderated slightly throughout the first quarter, but remain elevated. With this in mind, we're staying disciplined in our capacity planning to ensure our rentable fleet stays well utilized and inside of demand. It's clear Q4 presented real challenges, but the decisions we made throughout 2025 held up under pressure and reinforced that our strategy is the right one. Today, Hertz stands on a meaningfully stronger foundation than it did a year ago. A healthier fleet, improved unit economics, a more disciplined operating model, a better customer experience. And What I want to be clear about is this. The improvements we're seeing in the business are structural. They're permanent. The headwinds we faced and continue to navigate are transitory. That difference matters, and it's what gives me confidence in the trajectory ahead. That confidence is already being validated as 2026 is off to a good start. Q1 trends in both revenue and RPD are positive year over year, a particularly encouraging sign given that this is typically a seasonal trough period for the industry. This means we're entering the upcoming peak period from a position of strength. Looking ahead to the rest of the year, we remain focused on accelerating revenue, RPD, and RPU growth while staying disciplined on cost putting core rental business firmly on the path to profitability. While Rent-A-Car remains our core business today, this transformation is about becoming more than a single line of business. We're executing with discipline in the business that powers us now, but we're intentionally building the capabilities that will power what's next. We're laying the groundwork for a diversified, value-creating platform that will unlock value beyond the core. The Hertz platform spans rent-a-car, service, fleet, and mobility. It's still early days, and while the areas of our platform sit at different maturity levels, each presents meaningful upside, both near and long term. And rent-a-car will maintain steady momentum in our mature airport locations by driving pricing, utilization, demand generation, and asset management. We see real near-term upside from growth in our off-airport locations in areas like insurance replacement, local commercial agreements, and small business. We're also sharpening our focus to unlock additional value in our franchise footprint while piloting new offerings and service. We see a particularly strong runway in fleet through Hertz car sales and in mobility where the long-term opportunity has the potential to become as, if not more, meaningful than our core rent-a-car business. We're transforming Hertz car sales into a truly omni-channel experience, meeting customers where they are online, in person, through rent-to-buy, and delivery right to their door. The opportunity here is significant. We are a used car factory with a building customer base. We're building the shopping experience to match. One that can ultimately rival the largest used car dealers in the country. We have a constant supply of pre-owned vehicles and sales volume that already puts us in the top five used car dealerships in the country. Our improved website has a wide variety of vehicles for sale, an intuitive interface, enhanced imagery, and more detailed descriptions that help customers shop more confidently. We already have scale, and shifting our primary sales channel to retail is a major unlock. We also have established key partnerships with Cox Automotive, Amazon, and Palantir. That gives us the capability to scale this business profitably Hertz car sales value proposition has never been more compelling as new cars are increasingly out of reach for many buyers with prices topping $50,000 on average. With our short hold strategy, we deliver the best bang for the buck as consumers can get a nearly new car for around half the cost. This is an important differentiator as we head into spring, typically a peak buying season, which will be bolstered this year by record high tax returns. Now to mobility. Hertz owns and manages fleets at scale with core strengths in fleet ownership, large-scale operations, world-class maintenance, and vehicle fleet financing. Along our physical infrastructure, operating capacity, and leadership experience, this business is evolving to meet the mobility needs of tomorrow, whether driver-led or autonomous. Our journey in mobility began in rideshare by renting cars to Uber and Lyft drivers. Today, we operate the largest rideshare rental fleet in the world, and it has become one of our highest growth potential businesses with double-digit revenue opportunities, And in the background, we're developing and testing new approaches in this space with strategic partners. While it's difficult to quantify the full growth potential of our mobility business at this stage, the opportunity undoubtedly is significant. For context, Uber's CEO has described autonomous vehicles as potentially a multi-trillion dollar market. We're building the capabilities now to ensure Hertz's position to play a significant role in that ecosystem. Today, our rental car business remains the largest consumer of our time and operational focus. But as we scale the broader platform across rent-a-car, service, fleet, and mobility, the mix will evolve. Rental will become one part of a more diversified value-creating enterprise. With that, I'll turn it over to Sandeep.