Hertz Global Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Hertz Global is the holding company; The Hertz Corporation is its primary operating company, and its results comprise nearly all of Hertz Global’s operations. Amounts below are in U.S. dollars unless noted.
Business context and key financial metrics
Hertz rents vehicles globally under the Hertz, Dollar and Thrifty brands and sells vehicles through Hertz Car Sales. Its business is seasonal, with demand generally higher in spring and summer. Results depend significantly on rental volume and pricing, fleet utilization, vehicle costs and disposal values.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $2.080 billion | $2.047 billion |
| Net income (loss), Hertz Global | $(186) million | $196 million |
| Net income (loss), Hertz Corporation | $(272) million | $314 million |
| Adjusted Corporate EBITDA | $(567) million | $237 million |
| Operating cash flow | $370 million | $562 million |
| Investing cash flow | $(703) million | $(1.488) billion |
| Cash and restricted cash at quarter-end | $945 million | $1.242 billion |
| Total debt at quarter-end | $15.744 billion | $15.691 billion at Dec. 31, 2023 |
Hertz Global reported a basic and diluted loss of $0.61 per share. The company recorded a $395 million income tax benefit; Hertz reported an effective tax rate of 59%, while Hertz Global reported 68%. Vehicle and non-vehicle interest expense totaled $216 million, up from $162 million. Revenue-earning vehicles, net, were $14.617 billion at quarter-end. Corporate liquidity, defined as cash plus availability under the First Lien revolving credit facility, was $1.331 billion, down from $2.030 billion at year-end.
Material changes versus the prior period
- Revenue rose 2%, but the company moved from profit to loss. Direct vehicle and operating expenses increased 12% to $1.366 billion, while vehicle depreciation and lease charges rose to $969 million from $381 million.
- Management attributed the depreciation increase to weaker residual values, losses on vehicle disposals versus gains a year earlier, EV write-downs and a larger average fleet. Q1 depreciation included $276 million of net losses on vehicle disposals, including write-downs.
- Americas RAC revenue increased 1%, but Adjusted EBITDA fell to $(488) million from $261 million. Transaction days increased 10%, while Total RPD fell 8% to $56.92 and utilization declined to 77% from 79%.
- International RAC revenue rose 8%, but Adjusted EBITDA declined to $(27) million from $53 million. Transaction days increased 7%; Total RPD was broadly stable at $55.52 and utilization remained 72%.
- Operating cash flow fell by $191 million. Net vehicle capital expenditures were $671 million, compared with $1.618 billion a year earlier. Cash and restricted cash decreased by $261 million during the quarter.
- Interest expense rose 33%, reflecting higher rates and debt levels. Debt increased modestly from year-end, with non-vehicle debt rising to $3.898 billion and vehicle debt declining to $11.846 billion.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management expects Americas RAC vehicle depreciation and lease charges to remain pressured during 2024 because of uncertain residual values, planned sales of older vehicles and a larger average fleet than in 2023. Management says operating cash flows, vehicle-sale proceeds, liquidity facilities and refinancing options are expected to fund operations and obligations for the next 12 months and beyond.
- EV fleet actions: Management cited EV supply exceeding demand, elevated damage and collision costs, and declining residual values. It classified two EV groups as held for sale. The first group had $81 million of Q1 charges; write-downs on the second group were $114 million. Approximately 50% of the first group had been sold by quarter-end.
- Credit agreement amendment after quarter-end: April 2024 Amendment No. 8 temporarily changed the First Lien Ratio limits to 5.0x for Q2–Q3 2024 and 4.75x for Q4 2024–Q1 2025, and introduced minimum monthly liquidity requirements of $400 million for Q2–Q3 2024 and $500 million for Q4 2024–Q1 2025. Restrictions on restricted payments and permitted investments were also added. These terms are scheduled to sunset April 1, 2025. As of March 31, Hertz said it was compliant with its then-existing covenants.
- Financing availability: At March 31, remaining capacity across listed facilities was $3.609 billion, but availability under borrowing-base limits for vehicle facilities was reported as zero; $866 million was available under the First Lien RCF. Outstanding letters of credit totaled $944 million and none had been drawn. Most vehicle assets are pledged to secured lenders and are not available to unsecured creditors unless secured claims are paid in full.
- Unusual items: Hertz Global recorded an $86 million non-cash gain from the change in fair value of Public Warrants; Hertz Corporation does not include this item. A $68 million non-cash stock-compensation benefit related to forfeited former CEO awards reduced reported expenses. Q1 2023 included a $162 million gain on non-vehicle asset sales, affecting comparisons.
- Risks and contingencies: A trustee’s litigation seeks redemption premiums and post-petition interest asserted at approximately $272 million, or alternatively approximately $125 million plus interest. The company awaits a Third Circuit decision and says an adverse outcome could materially affect results or cash flows. Self-insured liabilities were $473 million and are subject to estimation uncertainty. The company also identifies vehicle residual values, travel demand, pricing, fleet supply, interest rates, financing and covenant compliance as key risks.
- Liquidity and seasonality: Total cash includes $480 million of restricted cash, which is not freely available for general corporate purposes. The filing notes winter seasonality and typically higher spring and summer activity.
Most important facts for investors to verify
- Whether vehicle residual values, disposal losses and EV write-downs stabilize, and how much of the planned EV and older-vehicle sales remain.
- Whether rental pricing and utilization recover enough to offset fleet, operating and financing costs.
- Compliance with the amended First Lien Ratio and minimum liquidity covenants, and actual unrestricted liquidity after considering restricted cash, borrowing-base limits and letters of credit.
- The cash-flow and earnings impact of vehicle fleet investment, debt interest and vehicle sale proceeds over subsequent quarters.
- Developments in the approximately $272 million asserted noteholder claim and other legal or self-insurance exposures.