Hertz Global Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Hertz Global is the parent company; The Hertz Corporation is its primary operating company. Unless noted, operating results below refer to Hertz and are substantially the same for Hertz Global.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.703B | $2.496B | $7.187B | $6.650B |
| Hertz net income | $299M | $503M | $853M | $1.359B |
| Hertz Global net income | $629M | $577M | $964M | $1.943B |
| Adjusted Corporate EBITDA | $359M | $618M | $943M | $1.996B |
| Net interest expense | $225M | $70M | $575M | $200M |
Revenue rose 8% in both comparison periods, primarily on higher rental volume. Hertz’s net income fell 41% in Q3 and 37% year to date; Adjusted Corporate EBITDA declined 42% and 53%, respectively. Hertz Global’s reported net income includes gains from changes in the fair value of Public Warrants: $328M in Q3 2023 and $110M year to date. These non-cash gains materially distinguish its reported earnings from Hertz’s.
Q3 rental volume increased, but pricing moderated: Americas transaction days rose 16% while total revenue per transaction day fell 8%; International transaction days rose 18% while the rate fell 6%. Fleet utilization improved to 84% in Americas and 80% in International. Vehicle depreciation and lease charges rose to $501M in Q3 from $294M, reflecting lower gains on vehicle sales and a larger average fleet, among other factors.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $1.91B, down from $2.26B. Investing cash outflow was $4.11B, including $4.13B of net revenue-earning vehicle expenditures. Financing provided $1.83B; cash and restricted cash decreased $362M to $1.056B.
- Total debt was $16.013B at September 30, up from $13.863B at year-end 2022; this comprised $12.894B of vehicle debt and $3.119B of non-vehicle debt. Vehicle interest expense rose substantially alongside higher rates and debt levels.
- Cash and cash equivalents were $594M; restricted cash was $462M. Corporate liquidity, including $1.103B available under the First Lien revolving credit facility, was $1.697B, down from $2.457B at year-end. The company said operating cash, vehicle-sale proceeds and financing sources should cover obligations for at least 12 months.
- Vehicle financing is largely secured by fleet assets. Although vehicle facilities showed $2.1B of remaining capacity, reported availability under borrowing-base limits was zero; the First Lien RCF had $1.103B available. The company was in compliance with its First Lien financial covenant and other covenants.
Changes, outlook and notable items
- Growth in rental volume and fleet size was offset by lower pricing versus unusually strong 2022 rates, higher operating costs, lower per-unit vehicle disposition gains and sharply higher interest expense. Management cited cost-saving initiatives but said elevated collision and damage costs in Americas RAC were expected to continue into Q4 2023.
- Q3 Adjusted EBITDA was $302M in Americas RAC, down from $564M, and $109M in International RAC, down from $150M. For the nine months, Americas RAC EBITDA was $894M versus $1.975B; International RAC was $258M versus $269M.
- The company recorded $162M of year-to-date gains on non-vehicle asset sales, including a $133M gain on the March sale-leaseback of its Los Angeles airport location. It also recognized a $29M gain from final resolution of an earlier eminent-domain sale. The Los Angeles leaseback has a 36-month operating-lease term.
- In February 2023, Hertz and the IRS agreed on the character and amount of a European tax-restructuring loss, resulting in an additional $163M ordinary loss recognized for tax purposes. Electric-vehicle tax credits also contributed to tax benefits. No specific earnings or revenue guidance was provided in the supplied filing text.
- Hertz Global repurchased $250M of shares during the first nine months under its ongoing $2B repurchase authorization; $915M remained authorized at quarter-end. It repurchased a further $11M through October 19 at an average $11.14 per share.
- Material litigation includes an appeal concerning unsecured noteholders’ claims for redemption premiums and post-petition interest, asserted at approximately $272M or, alternatively, approximately $125M plus potential prejudgment interest. The company is defending the claims; the outcome and timing are uncertain. Most previously asserted false-arrest claims were settled for approximately $168M in 2022, with a small number remaining.
Investor verification priorities
- Assess how much of future earnings depends on vehicle resale values, depreciation assumptions and disposition gains, given the substantial year-over-year increase in vehicle depreciation and lease charges.
- Track rental pricing, transaction volume, utilization and collision and damage costs, particularly the Q4 cost pressure identified by management.
- Review debt maturities, borrowing-base availability, interest-rate exposure and the use of fleet assets as collateral; distinguish reported remaining capacity from actually available borrowing.
- Separate recurring operating performance from warrant fair-value gains, asset-sale gains, tax benefits and other adjustments when evaluating earnings and EBITDA.
- Monitor cash needs for fleet investment, share repurchases and legal matters, including the unresolved noteholder litigation and remaining false-arrest claims.