Hertz Global Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Hertz Global and its principal operating subsidiary, The Hertz Corporation, were debtors-in-possession in Chapter 11. Hertz Global common stock traded over the counter as HTZGQ.
Business and operating context
Hertz rents vehicles under the Hertz, Dollar and Thrifty brands. Donlen, its vehicle-leasing and fleet-management business, was sold on March 30, 2021. COVID-19 continued to depress travel demand, although U.S. travel and rental pricing improved beginning in March. The business is seasonal, with typically higher activity in spring and summer.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $1.289 billion | $1.923 billion |
| Net income (loss) attributable to Hertz Global | $190 million | $(356) million |
| Adjusted Corporate EBITDA | $2 million | $(243) million |
| Cash from operating activities | $200 million | $449 million |
| Cash used in investing activities | $18 million | $2.097 billion |
| Cash from financing activities | $692 million | $1.701 billion |
- Revenue fell 33%, principally due to lower rental volume amid the pandemic. Vehicle-rental revenue was $1.153 billion, down from $1.749 billion; other operations revenue was $136 million, down from $174 million.
- Reported net income included a $392 million pre-tax gain on the Donlen sale. It also included $42 million of net reorganization charges and a $79 million income-tax provision. The result should not be viewed as evidence of comparable recurring profitability: Adjusted Corporate EBITDA was $2 million.
- Depreciation of rental vehicles and lease charges declined to $243 million from $677 million, reflecting a smaller fleet, stronger residual values and suspended Donlen depreciation while it was held for sale. Net interest expense was $148 million, versus $173 million; certain pre-petition interest was suspended.
- U.S. Rental Car revenue fell 32% to $946 million; Transaction Days declined 37%, while Total Revenue per Transaction Day rose 11% to $47.63. International Rental Car revenue fell 44% to $207 million; Transaction Days fell 45% and Total Revenue per Transaction Day fell 7% to $42.49.
Balance sheet, debt and liquidity
- At March 31, total assets were $16.610 billion, total liabilities were $16.320 billion, and stockholders’ equity was $290 million. Liabilities subject to compromise were $4.978 billion.
- Reported debt not subject to compromise was $7.026 billion, comprising $6.286 billion of vehicle debt and $740 million of non-vehicle debt. The filing separately reports $4.511 billion of non-vehicle debt subject to compromise; these categories should not be conflated.
- Cash and cash equivalents were $1.087 billion; restricted cash and equivalents were $1.353 billion. Management cited approximately $1.7 billion of liquidity, including $900 million of remaining committed DIP availability and $812 million of unrestricted cash net of the $275 million minimum liquidity requirement. The company said this was expected to fund operations through approximately March 31, 2022, assuming no unforeseen liquidity needs.
- Operating cash flow was positive, but lower year over year. Vehicle purchases were $1.517 billion and vehicle-disposal proceeds were $686 million. Total cash, cash equivalents and restricted cash increased to $2.440 billion, partly reflecting Donlen-sale proceeds and financing.
Changes, outlook and significant developments
- Restructuring: The proposed Chapter 11 plan contemplated approximately $3.9 billion of cash proceeds, about $2.2 billion of post-emergence global liquidity, and $1.3 billion of non-vehicle debt, excluding ABS and revolving facilities. It also proposed cancellation of existing equity and six-year warrants for existing shareholders, subject to conditions. These were proposals, not completed outcomes.
- Plan competition: After quarter-end, an alternative sponsor group submitted a proposal that Hertz deemed a “Superior Proposal” on May 4, 2021. The filing described potential counterbidding and an auction; the plan and emergence terms therefore remained uncertain as of the filing date.
- Management outlook: Management expected increased rental demand and improved pricing to continue into Q2 2021, based on rising U.S. travel throughput and Q2 booking indicators. No quantified earnings or revenue guidance was provided.
- Fleet and costs: A court order required disposition of 121,510 lease vehicles, at least 113,381 non-program vehicles, and at least $2.0 billion of cumulative vehicle-disposition proceeds by September 30, 2021; approximately 14,000 vehicles had been disposed of by March 31. The order also required $756 million of base-rent payments through September. Hertz reported approximately $100 million of rent abatements during Q1 and rejection of leases at 278 off-airport and 26 airport locations.
- Risks and contingencies: The filing states that substantial doubt exists about the company’s ability to continue as a going concern for one year from issuance, contingent on a successful reorganization. Approximately 15,000 proofs of claim totaling about $104.9 billion had been filed, including duplicate claims; reconciliation was incomplete. A semiconductor shortage could constrain fleet purchases and raise costs. Future goodwill or intangible-asset impairment remained possible, though none was recorded in Q1.
- Controls: Disclosure controls were deemed ineffective because of an unremediated material weakness in information-technology general controls. Remediation was ongoing.
Most important facts for investors to verify
- The final Chapter 11 plan, any auction outcome, court confirmation, emergence timing, and actual recoveries or treatment of existing equity and creditor claims.
- Availability and restrictions on cash, DIP financing, and vehicle-sale proceeds, plus compliance with court-ordered fleet-disposition and rent requirements.
- Whether travel demand, pricing, fleet availability and residual values support sustained operating profitability after the Donlen-sale gain.
- The eventual resolution of filed bankruptcy claims and any material changes to liabilities subject to compromise.
- Progress remediating the internal-control material weakness and any subsequent impairment, litigation or liquidity developments.