Hertz Global Holdings, Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed February 7, 2023. Hertz Global is the holding company and The Hertz Corporation is its primary operating business. Unless noted, operating results below refer to Hertz, which represents nearly all of Hertz Global’s operations.
Business context
Hertz rents vehicles globally under the Hertz, Dollar and Thrifty brands. At year-end, it operated through approximately 11,600 company-operated and franchise locations in about 160 countries and jurisdictions. Its reportable segments are Americas RAC and International RAC. The Donlen fleet-management business was sold in March 2021, affecting year-over-year comparability.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change / context | |
|---|---|---|---|---|
| Revenue | $8.685 billion | $7.336 billion | Up 18%; higher rental volume and pricing, with travel recovery and constrained vehicle supply supporting pricing | |
| Net income attributable to Hertz | $1.355 billion | $1.157 billion | Up 17%; net margin approximately 15.6% versus 15.8% | |
| Hertz Global net income | $2.059 billion | $366 million | Includes a $704 million noncash gain from the change in fair value of Public Warrants in 2022; FY2021 included a $627 million warrant fair-value loss | |
| Adjusted Corporate EBITDA | $2.305 billion | $2.130 billion | Up 8%; approximately 26.5% of revenue versus 29.0% | |
| Operating cash flow | $2.538 billion | $1.806 billion | Up $732 million | |
| Vehicle debt / non-vehicle debt | $10.886 billion / $2.977 billion | $7.921 billion / $2.986 billion | Total debt rose to $13.863 billion from $10.907 billion | |
| Cash and cash equivalents | $943 million | $2.257 billion | Restricted cash was an additional $475 million |
Americas RAC revenue increased 17% to $7.280 billion; segment Adjusted EBITDA was $2.292 billion. International RAC revenue rose 43% to $1.405 billion; segment Adjusted EBITDA increased to $350 million from $90 million. Transaction days increased 12% in Americas and 23% internationally. Total revenue per transaction day rose 5% to $65.18 in Americas and 30% to $60.23 internationally. Utilization was 79% and 73%, respectively.
Vehicle-related investing remained substantial: purchases of revenue-earning vehicles were $10.596 billion and disposal proceeds were $6.498 billion, a net cash outflow of $4.098 billion. Non-vehicle capital expenditures were $150 million, net of $12 million in disposal proceeds. Cash from operations therefore should not be read as free cash flow without accounting for fleet investment and financing.
Material changes versus FY2021
- Revenue grew with recovering travel, more rental days and higher pricing amid industry vehicle-supply constraints. Operating expenses also increased: direct vehicle and operating expense rose 23%, vehicle depreciation and lease charges rose 41%, and SG&A rose 39%.
- Hertz’s net income increased to $1.355 billion, while reported Hertz Global net income was substantially affected by the noncash warrant valuation swing. The 2021 comparison also included $677 million of Hertz Global reorganization charges and a $400 million gain on the Donlen sale.
- Fleet expansion increased vehicle debt and vehicle assets. Net vehicle investment cash outflow narrowed to $4.098 billion from $4.336 billion, as higher purchases were largely offset by higher disposal proceeds.
- Hertz Global repurchased $2.0 billion of shares under its 2021 program and a further $835 million under its 2022 program during 2022. Financing cash flow was $488 million, while cash and cash equivalents declined by approximately $1.3 billion.
Liquidity, debt and commitments
Year-end corporate liquidity, excluding unused vehicle-debt commitments, was $2.457 billion: $943 million cash plus $1.514 billion available under the First Lien revolving credit facility. The company also reported $475 million restricted cash, which is not generally available for ordinary operations. It was in compliance with its First Lien financial and other covenants at year-end.
Debt totaled $13.863 billion, including $10.886 billion vehicle debt and $2.977 billion non-vehicle debt. Much of the vehicle debt is asset-backed; substantially all revenue-earning vehicles and certain related assets are pledged or encumbered. A 100-basis-point increase in interest rates was estimated to reduce pretax results by about $50 million over 12 months. Contractual obligations totaled $25.708 billion, including debt principal and interest, $2.943 billion of minimum fixed operating lease obligations, and $6.625 billion of vehicle purchase commitments.
Outlook, risks and unusual items
- Outlook: The filing provides no specific financial earnings or revenue guidance. Management says cash from operations and vehicle disposals, together with available facilities and refinancing options, are expected to fund operations and obligations. This is a forward-looking assessment, not a guarantee.
- Strategy: Priorities include rental execution, electrification, shared mobility, connected vehicles and direct-to-consumer vehicle sales. Hertz targets 25% of its fleet to be electric by the end of 2024. In January 2023, it announced plans with Uber to make up to 25,000 EVs available to drivers in Europe by 2025.
- Fleet and residual-value exposure: Only 9% of vehicles purchased in 2022 were program vehicles covered by manufacturer repurchase or guaranteed-depreciation arrangements. Non-program depreciation depends on management estimates of resale values and holding periods. The auditor identified this estimate as a critical audit matter.
- Litigation: Hertz paid approximately $168 million in December 2022 to settle claims involving alleged false arrests; the company believes a meaningful portion may be recovered from insurers. A separate bankruptcy-related trustee appeal concerns asserted make-whole and post-petition interest claims; the filing describes potential claims of approximately $272 million, or alternatively $125 million, plus interest. The outcome is uncertain.
- Other risks: Key exposures include travel-demand and seasonal swings, vehicle supply and purchase costs, used-car residual values, competition and pricing, labor availability and negotiations, cybersecurity, interest rates, foreign exchange, and financing access. The company also has self-insured liabilities of $472 million and accrued multiemployer pension liabilities of $20 million.
- Reporting: Ernst & Young issued unqualified opinions on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective at year-end.
Most important facts for investors to verify
- Reconcile Hertz’s $1.355 billion net income with Hertz Global’s $2.059 billion: the latter includes a $704 million noncash warrant fair-value gain, and the warrants remained a $617 million liability at year-end.
- Assess fleet residual-value assumptions and realized gains: 2022 vehicle disposal gains were $1.125 billion, and non-program vehicle depreciation estimates were a critical audit matter.
- Review liquidity quality and cash uses: unrestricted cash was $943 million, restricted cash was $475 million, and 2022 share repurchases were $2.461 billion.
- Evaluate debt and refinancing needs, including $13.863 billion total debt, secured fleet financing, variable-rate exposure and scheduled vehicle-debt maturities.
- Track the remaining false-arrest claims and insurance recoveries, the appeal over bankruptcy-related noteholder claims, and any associated cash or reserve effects.
- Monitor execution and economics of the EV target and Uber expansion, including vehicle availability, charging infrastructure, maintenance costs and resale values.