Hertz Global Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Hertz Global is the holding company; The Hertz Corporation conducts substantially all operating activities, so operating results below generally refer to Hertz and apply to Hertz Global except where noted. Amounts are U.S. dollars.
Business context and reporting period
Hertz rents vehicles through the Hertz, Dollar and Thrifty brands, operating through approximately 11,400 corporate and franchise locations worldwide. It emerged from Chapter 11 on June 30, 2021, following a reorganization that raised approximately $7.5 billion in cash proceeds. Hertz sold its Donlen fleet-management business on March 30, 2021, and began trading on Nasdaq in November 2021.
Financial and operating highlights
| Metric | FY2021 | FY2020 | Change or context |
|---|---|---|---|
| Revenue | $7.336 billion | $5.258 billion | Up 40%; still below FY2019 revenue of $9.779 billion |
| Net income attributable to Hertz | $1.157 billion | Net loss of $1.846 billion | Hertz Global reported net income of $366 million, but a $450 million preferred-stock deemed dividend resulted in a $84 million loss available to common stockholders |
| Adjusted Corporate EBITDA | $2.130 billion | $(995) million | Non-GAAP measure; excludes specified items |
| Operating cash flow | $1.806 billion | $956 million | Improved year over year |
| Investing cash flow | $(3.544) billion | $4.591 billion | Vehicle purchases exceeded disposal proceeds in 2021 |
| Financing cash flow | $2.872 billion | $(5.403) billion | Includes reorganization-related equity and debt financing, and substantial shareholder distributions |
| Debt at year-end | $10.907 billion | $6.267 billion | $7.921 billion vehicle debt and $2.986 billion non-vehicle debt |
| Cash and liquidity | $2.258 billion unrestricted cash; $3.182 billion corporate liquidity | $1.096 billion unrestricted cash; $1.096 billion corporate liquidity | 2021 corporate liquidity includes $925 million available under the First Lien RCF; restricted cash was an additional $393 million |
The filing does not provide a single consolidated operating-margin figure in the supplied text. Segment direct vehicle and operating expense was 53% of Americas RAC revenue and 61% of International RAC revenue, versus 74% for each segment in 2020.
- Americas RAC: Revenue was $6.215 billion, up 65%; Adjusted EBITDA was $2.173 billion versus a loss of $810 million. Transaction Days rose 18%, Total Revenue Per Transaction Day (RPD) rose 40% to $62.07, and utilization increased to 77% from 53%.
- International RAC: Revenue was $985 million, up 13%; Adjusted EBITDA was $90 million versus a loss of $229 million. RPD rose 17% to $49.30, while Transaction Days fell 8% and utilization increased to 72% from 59%.
- Year-end net revenue-earning vehicles were $9.226 billion. Average fleet size declined in both reportable segments, while supply constraints extended average vehicle holding periods to about 25 months in Americas and 20 months internationally.
Material changes versus prior periods
- Revenue rebounded from pandemic-affected 2020, driven by higher pricing and recovering travel demand, particularly U.S. leisure travel. However, FY2021 revenue remained about 25% below FY2019.
- The semiconductor chip shortage constrained new-vehicle supply and supported higher rental pricing, but limited fleet expansion and contributed to longer vehicle holding periods and higher maintenance costs.
- Vehicle depreciation and lease charges fell to $497 million from $2.030 billion. Management attributed the reduction principally to stronger used-vehicle residual values, longer holding periods, fully depreciated vehicles and gains on vehicle disposals; this is a significant influence on reported earnings.
- The Donlen sale generated a $400 million pre-tax gain and $871 million of net cash proceeds. Donlen’s results were included for part of 2021, reducing comparability with prior years.
- Hertz Global’s results included a $627 million non-cash loss from changes in the fair value of Public Warrants. Hertz’s $1.157 billion net income therefore differs materially from Hertz Global’s $366 million net income.
- The company replaced much of its pre-bankruptcy debt with new facilities upon emergence. In November, Hertz issued $1.5 billion of unsecured notes, and Hertz Global repurchased and retired all Series A Preferred Stock for $1.9 billion, including fees.
Outlook, commentary, risks and unusual items
- Management said unrestricted cash, operating cash flow, vehicle-sale proceeds and available facilities or refinancing options should be sufficient for operating needs and contractual obligations. The filing provides no quantified revenue or earnings guidance.
- Hertz expected approximately $5.7 billion of vehicle purchases over the following 12 months, to be financed primarily through vehicle debt. The filing also reports approximately $15.181 billion of contractual cash obligations, including vehicle and non-vehicle debt, interest, operating leases and purchase obligations.
- Key strategic initiatives include expanding the North American electric-vehicle fleet, an Uber partnership to rent Teslas to drivers, investment in charging infrastructure, and a Carvana arrangement intended to modernize vehicle sales and reduce reliance on wholesale channels. Execution, vehicle supply, charging capacity, repair costs and EV residual values are identified risks.
- Principal operating risks include COVID-19 and its variants, travel demand, the chip shortage, vehicle availability and purchase costs, used-car residual values, intense price competition, seasonal demand, airport concessions and leases, labor availability, cybersecurity and access to vehicle financing.
- Debt and liquidity are material risks: substantially all consolidated assets, including vehicles, support secured financing; variable-rate debt exposes Hertz to higher interest costs; and vehicle financing depends on asset values and securitization-market access. A 1-percentage-point interest-rate increase was estimated to reduce pre-tax results by $36 million over 12 months. The company reported compliance with its First Lien Ratio covenant at year-end.
- Unusual expenses included $677 million of Hertz Global reorganization items ($513 million at Hertz), principally professional fees, debt-extinguishment losses, backstop and breakup fees, and contract settlements. Hertz Global’s warrant fair-value loss was $627 million. The $400 million Donlen gain and unusually low vehicle depreciation also affected comparability.
- Litigation remains over asserted make-whole premiums on certain former senior notes; the company disputes the claims, and the outcome and amount, if any, are uncertain. Other claims by creditors for additional interest or premiums may also arise.
- Management concluded substantial doubt about going concern had been alleviated following reorganization. Ernst & Young issued unqualified financial-statement opinions and reported effective internal control; a previously reported IT general-controls material weakness was stated to be remediated in 2021.
Most important facts for investors to verify
- Whether earnings and cash generation remain strong when vehicle residual values and used-car prices normalize; depreciation assumptions for non-program vehicles were a critical audit matter.
- How much of the FY2021 improvement reflects sustainable rental pricing and demand versus supply shortages, disposal gains and other unusual items.
- Vehicle-debt maturities and refinancing capacity, particularly the disclosed $3.637 billion of total debt maturities in 2023 and $2.041 billion in 2024, as well as borrowing-base and collateral requirements.
- The effect of common-stock repurchases, the retired preferred shares and the Public Warrants on cash, share count and future dilution; Public Warrants were recorded as a $1.324 billion liability at year-end.
- Developments in the disputed former-noteholder claims, vehicle-supply commitments, EV partnerships and the economics of fleet expansion.