Hertz Global Holdings, Inc. — Q1 2023 10-Q Summary
Reporting period: Three months ended March 31, 2023. The filing combines Hertz Global Holdings, Inc. and its operating subsidiary, The Hertz Corporation; Hertz comprises nearly all of the group’s operations. Figures below are in U.S. dollars unless noted.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $2.047 billion | $1.810 billion | Up 13%, mainly from higher travel demand and rental volume |
| Hertz Global net income | $196 million | $426 million | Diluted EPS was $0.61 versus $0.82 |
| Hertz Corporation net income | $314 million | $376 million | Different from parent result, principally because Hertz Global records Public Warrant fair-value changes |
| Adjusted Corporate EBITDA | $237 million | $614 million | Down 61%; non-GAAP measure |
| Operating cash flow | $562 million | $621 million | Down $59 million |
| Investing cash flow | $(1.488) billion | $(1.541) billion | Vehicle purchases were partly offset by vehicle disposals and asset-sale proceeds |
| Cash and restricted cash | $1.242 billion | $1.418 billion at Dec. 31, 2022 | Includes $728 million cash and $514 million restricted cash |
| Total debt | $14.764 billion | $13.863 billion at Dec. 31, 2022 | Vehicle debt $11.789 billion; non-vehicle debt $2.975 billion |
| Corporate liquidity | $2.240 billion | $2.457 billion at Dec. 31, 2022 | $728 million cash plus $1.512 billion available under First Lien RCF; excludes vehicle-debt capacity |
Business context and material changes
- Hertz operates the Hertz, Dollar and Thrifty rental brands globally and sells vehicles through Hertz Car Sales. Its reportable segments are Americas RAC and International RAC.
- Americas RAC revenue rose 11% to $1.730 billion; Adjusted EBITDA fell to $261 million from $641 million. Vehicle utilization increased to 79% from 76%, and Total RPD was $62.03 versus $60.81.
- International RAC revenue rose 25% to $317 million; Adjusted EBITDA increased to $53 million from $27 million. Utilization rose to 72% from 68%, and Total RPD increased to $53.18 from $47.00.
- Vehicle depreciation and lease charges swung to $381 million of expense from a $59 million credit. Management cited lower per-unit gains on vehicle disposals and higher acquisition costs, partly offset by extending estimated holding periods. Direct vehicle and operating costs rose 16% to $1.221 billion.
- Interest expense increased to $162 million from $44 million, reflecting higher vehicle debt and rates. The company issued $800 million of new HVF III vehicle-backed notes in March and increased the First Lien RCF commitment to $2.0 billion.
- Net income and cash flow included significant items: a $162 million gain on non-vehicle asset sales; a $134 million tax benefit, including recognition of an additional $163 million ordinary loss following an IRS agreement; and, for Hertz Global, a $118 million loss from the change in Public Warrant fair value.
Liquidity, outlook, risks and contingencies
- Management said cash from operations and vehicle disposals, available facilities and potential capital-markets refinancing should be sufficient to fund operating activities and obligations for the next 12 months. No numerical earnings or revenue guidance is provided in the filing.
- Management described rental demand as seasonal, typically building in spring and summer. It cited increased travel demand in Q1; future results remain exposed to travel volumes, pricing, fleet supply and vehicle residual values.
- Substantially all revenue-earning vehicles and certain related assets are pledged or held in financing structures. Secured creditors have priority in those assets, and some VIE assets are restricted to settling VIE obligations. The company reported compliance with First Lien Credit Agreement covenants at March 31.
- Outstanding letters of credit totaled $749 million and none had been drawn. Borrowing availability under vehicle facilities was constrained by borrowing-base limits: $1.649 billion remaining capacity but only $5 million available under those limits.
- A note trustee’s litigation seeks redemption premiums and post-petition interest asserted at approximately $272 million, or alternatively approximately $125 million plus interest. The company won summary judgment in bankruptcy court; the appeal was accepted by the Third Circuit, with oral argument scheduled for October 2023. Outcome and timing are uncertain.
- The company paid approximately $168 million in December 2022 to settle claims from 364 alleged false-arrest claimants; a small number of related claims remain. Hertz believes a meaningful portion of settlement payments may be recovered from insurers.
- Self-insured liabilities were $457 million at March 31 and are based on estimates subject to significant uncertainty. Other identified risks include interest rates, vehicle availability and residual values, competition, travel demand, litigation, cyber and technology risks, and financing access.
- Hertz Global repurchased 5.7 million shares for $100 million during Q1. It repurchased a further 2.7 million shares for $42 million through April 20, 2023.
Important facts for investors to verify
- Whether rental demand, pricing and utilization remain strong enough to offset higher operating costs and vehicle depreciation.
- How vehicle residual values, disposal gains, fleet holding periods and fleet acquisition costs develop; these materially affected the year-over-year earnings comparison.
- Whether the tax benefit and IRS-agreed European restructuring loss affect future tax expense or cash taxes, and how much of the false-arrest settlement is recovered from insurers.
- Debt servicing costs, refinancing access, vehicle-facility borrowing-base availability and continued covenant compliance.
- The appeal outcome and potential exposure in the make-whole and post-petition interest litigation, along with developments in remaining false-arrest claims.
- How share repurchases affect liquidity and outstanding shares, and whether the company’s stated 12-month liquidity assessment remains supportable.