Hertz Global Holdings, Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing, dated February 26, 2021, combines Hertz Global Holdings and its primary operating subsidiary, The Hertz Corporation; figures below are generally for consolidated Hertz Global unless noted.
Business context and reporting period
Hertz operates vehicle rental businesses under the Hertz, Dollar and Thrifty brands and provides fleet leasing and management services through Donlen. COVID-19 sharply reduced travel demand. On May 22, 2020, Hertz Global, Hertz and certain U.S. and Canadian subsidiaries filed for Chapter 11 protection and continued operating as debtors-in-possession. The common stock was delisted from the NYSE and traded over the counter as HTZGQ beginning October 30, 2020.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $5.258 billion | $9.779 billion |
| Net loss attributable to Hertz Global | $1.714 billion | $58 million |
| Adjusted Corporate EBITDA (non-GAAP) | $(995) million | $649 million |
| Cash provided by operating activities | $953 million | $2.900 billion |
| Cash and cash equivalents at year-end | $1.096 billion | $865 million |
| Restricted cash and cash equivalents | $411 million | $495 million |
| Reported debt not subject to compromise | $6.267 billion | $17.089 billion |
| Liabilities subject to compromise | $4.965 billion | None reported |
| Total stockholders’ equity | $93 million | $1.888 billion |
Revenue fell 46%, mainly from lower rental volume. The filing reports no consolidated margin percentage; segment Adjusted EBITDA was negative $791 million for U.S. RAC and negative $248 million for International RAC, while All Other Operations, primarily Donlen, generated $93 million.
- U.S. RAC: Revenue declined 47% to $3.656 billion; transaction days fell 47%, utilization was 53% versus 80%, and total revenue per transaction day fell 2% to $42.88.
- International RAC: Revenue declined 55% to $972 million; transaction days fell 51%, utilization was 58% versus 76%, and total revenue per transaction day fell 10% to $39.32.
- Donlen and other operations: Revenue was $630 million, down 6%; Adjusted EBITDA was $93 million. Donlen assets were classified as held for sale at year-end.
- Vehicle depreciation and lease charges were $2.032 billion, down 21%. Net interest expense was $608 million. The company recorded $213 million of intangible and other asset impairments, $175 million of reorganization charges and a $133 million write-off of an intercompany loan.
- Investing activities provided $4.591 billion, largely reflecting vehicle disposals and reduced vehicle purchases; financing activities used $5.372 billion. Revenue-earning vehicle expenditures fell 60% year over year.
Material changes versus 2019
- Revenue dropped $4.521 billion, and Hertz Global’s attributable net loss widened from $58 million to $1.714 billion. Adjusted Corporate EBITDA moved from $649 million positive to $995 million negative.
- Operating cash flow declined by $1.947 billion. The rental fleet was substantially reduced; year-end net revenue-earning vehicles were $6.062 billion versus $13.789 billion a year earlier.
- Debt balances declined substantially as vehicle debt amortized and vehicle purchases fell; however, $4.443 billion of non-vehicle debt was classified as subject to compromise following the bankruptcy filing. Debt maturities, payment terms and claims remained subject to the Chapter 11 process.
- Donlen’s sale was agreed in November 2020 for approximately $825 million cash, subject to adjustments and court approval. The filing expected closing in 2021.
Liquidity, outlook, risks and unusual items
- Management reported approximately $2.2 billion of liquidity at December 31, 2020, including $1.1 billion of unrestricted cash and approximately $1.1 billion of DIP availability net of a required minimum liquidity amount. Management believed this could fund operations through approximately December 31, 2021, assuming no unforeseen liquidity needs. This is an estimate, not a guarantee.
- The $1.65 billion DIP facility carries interest at LIBOR plus 7.25% (subject to a 1% floor), with up to $800 million for working capital and general corporate purposes and up to $1 billion for fleet financing. Hertz had drawn $250 million by year-end and drew another $250 million on February 16, 2021.
- The company stated that substantial doubt existed about its ability to continue as a going concern. The audited statements assume continued operations and do not reflect adjustments that could result from the bankruptcy outcome. The auditor issued an unqualified opinion on the financial statements with a going-concern explanatory paragraph.
- The January 2021 lease order extended the interim arrangement through September 30, 2021, with $756 million of scheduled base rent payments and requirements to dispose of 121,510 leased vehicles and meet specified proceeds and fleet limits. Future lease-payment obligations remained uncertain.
- Management expected COVID-19 to continue adversely affecting 2021 revenue and profitability; recovery depends on travel demand and broader economic improvement. The filing gives no quantified earnings or revenue guidance.
- Principal risks include Chapter 11 plan and financing outcomes, cash and fleet funding, travel recovery, rental pricing and competition, used-vehicle residual values, lease obligations, covenant and financing access, and execution of the Donlen sale. Substantially all consolidated assets secure certain debt. Common shareholders may receive no recovery; the filing says common stock could become worthless.
- The company disclosed a material weakness in IT general controls, including user access provisioning and review. Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2020; remediation was ongoing. The auditor nevertheless gave an unqualified opinion on the financial statements.
- Approximately 14,600 bankruptcy proofs of claim asserted about $104.5 billion in aggregate, including duplicates across debtor entities; the claims had not been fully reconciled and the amount is not equivalent to recorded liabilities.
Important facts for investors to verify
- Progress and court approval of a Chapter 11 plan, creditor recoveries and the resulting treatment of existing common stock and debt.
- Actual unrestricted liquidity, DIP borrowing availability, cash burn, compliance with DIP liquidity tests, and any new financing needs.
- Terms and performance of the Operating Lease settlement, required vehicle dispositions, associated proceeds and lease payments after September 2021.
- Donlen sale completion, final proceeds after adjustments, and the effect of divestiture on continuing operations and financing.
- Travel volumes, transaction-day and utilization trends, rental pricing, fleet availability and used-vehicle residual values.
- Reconciliation of bankruptcy claims and liabilities subject to compromise, and progress in remediating the disclosed IT control weakness.