Hertz Global Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Hertz Global is the holding company for The Hertz Corporation, its principal operating subsidiary. The filing combines both companies’ reports; Hertz Global’s results include Hertz’s operations and also reflect Public Warrant accounting. Amounts below are in U.S. dollars unless stated otherwise.
Financial results and operating metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2.344 billion | $1.873 billion | $4.154 billion | $3.161 billion |
| Hertz Global net income | $940 million | $(168) million | $1.366 billion | $21 million |
| Hertz net income | $480 million | $(4) million | $856 million | $185 million |
| Hertz Global diluted EPS | $1.13 | $(1.05) | $1.93 | $0.13 |
| Adjusted Corporate EBITDA | $764 million | $639 million | $1.378 billion | $642 million |
Revenue increased 25% in Q2 and 31% in the first half, primarily from higher travel demand, rental volume and pricing. Adjusted Corporate EBITDA increased 19% in Q2; its approximate margin was 32.6% versus 34.1% a year earlier. First-half EBITDA margin was approximately 33.2% versus 20.3%. These margins are calculated from reported revenue and non-GAAP Adjusted Corporate EBITDA.
Hertz Global’s Q2 and first-half net income included non-cash gains of $461 million and $511 million, respectively, from lower fair value of Public Warrant liabilities. These gains are excluded from Adjusted Corporate EBITDA. Hertz, which does not record this parent-level warrant gain, reported Q2 net income of $480 million. Hertz Global basic/diluted EPS was $2.36/$1.13 for Q2 and $3.29/$1.93 for the first half.
- Segments: Q2 Americas RAC revenue was $1.973 billion and Adjusted EBITDA $770 million; International RAC revenue was $371 million and Adjusted EBITDA $92 million. International revenue grew 61%, including an unfavorable foreign-exchange impact.
- Demand and fleet: Q2 transaction days rose 17% in Americas and 28% internationally. Total revenue per transaction day increased 3% in Americas and 39% internationally. Utilization was 80% and 76%, respectively.
- Costs and depreciation: Q2 direct vehicle and operating expense rose 27%, faster than revenue, reflecting personnel and fleet-related costs. Vehicle depreciation and lease charges, net, were $106 million versus $116 million; strong used-vehicle residual values and disposition gains helped, particularly in Americas. First-half net vehicle depreciation and lease charges were only $47 million versus $359 million, also reflecting substantial disposal gains.
- Interest and tax: Q2 total net interest expense was $86 million versus $189 million. Hertz Global recorded a $179 million Q2 tax provision (16% effective rate) and a $309 million first-half provision (18%).
Cash flow, balance sheet and capital allocation
- For the first half, operating cash flow was $1.329 billion; investing cash outflow was $3.251 billion; financing cash inflow was $859 million. Cash and restricted cash totaled $1.563 billion at June 30, down from $2.651 billion at year-end.
- Vehicle purchases were $6.089 billion and vehicle disposal proceeds were $2.887 billion, producing $3.202 billion of net vehicle investment. The fleet expansion was linked to stronger demand and post-bankruptcy fleet replenishment.
- At June 30, total debt was $13.392 billion: $10.411 billion vehicle debt and $2.981 billion non-vehicle debt, up from $10.907 billion at year-end. Total assets were $22.066 billion and stockholders’ equity $2.729 billion.
- Corporate liquidity, excluding unused vehicle-financing commitments, was $2.490 billion: $1.041 billion cash and $1.449 billion available under the First Lien revolving credit facility. Total reported borrowing capacity was $3.184 billion, but vehicle-facility availability under borrowing-base limits was zero. Management said cash, vehicle-sale proceeds and financing access should be sufficient for obligations over the next 12 months.
- The First Lien RCF commitment was increased to $1.9 billion during the quarter. The company reported compliance with its financial and other covenants at June 30. $701 million of standby letters of credit were outstanding; none had been drawn.
- Hertz Global completed its $2.0 billion 2021 share-repurchase authorization, repurchasing 97.8 million shares since program inception. It authorized a further $2.0 billion program and repurchased $20 million under it during June. Through July 21, it had repurchased a further $138 million under the new program.
Changes, outlook, risks and contingencies
- Compared with 2021, results reflect recovering travel demand and pricing, but also higher operating costs and a larger fleet. Prior-year comparisons are affected by Chapter 11 reorganization charges and the 2021 Donlen sale and gain; Donlen is no longer part of continuing operations.
- Management gave no specific revenue or earnings guidance. It described travel demand as rebounding but noted uncertainty around COVID-19, the semiconductor shortage and other supply constraints. Fleet availability, vehicle acquisition costs, residual values, inflation, labor costs, interest rates, competition and travel demand could materially affect results.
- Substantially all revenue-earning vehicles and certain related assets are pledged or held in financing structures; those assets generally are not available to unsecured creditors until secured lenders are paid. A substantial portion of debt is vehicle-backed, and some borrowing capacity depends on eligible collateral.
- The filing identifies the Russia-Ukraine conflict as an added risk to supply chains, vehicle production, costs and demand, particularly in Europe. Other cited risks include residual-value declines when vehicle supply constraints ease, cyber and technology risks, and access to financing.
- Legal and tax matters: A bankruptcy-court dispute over redemption premiums on certain 2026 and 2028 notes remains; other claims in the trustee’s complaint were dismissed. The company is defending customer claims alleging erroneous arrests after rental cars were reported stolen; management currently does not expect a material adverse effect, and it has sought insurance coverage. Self-insured liabilities were $470 million. The IRS is reviewing the tax character of a European restructuring loss; a favorable decision could release some or all of a valuation allowance on a $141 million U.S. federal tax-effected carryforward.
- The filing reports effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- How much reported earnings and EPS depend on non-cash warrant remeasurement and unusually strong vehicle-disposal gains, versus recurring rental operations.
- Whether elevated pricing, transaction volumes and utilization can persist as vehicle supply recovers, and how inflation and fleet age affect operating costs.
- Vehicle-funding availability, collateral requirements, debt costs and covenant headroom; distinguish total stated capacity from capacity available under borrowing-base limits.
- Cash remaining after fleet investment and share repurchases, and the pace and terms of further buybacks under the new authorization.
- Developments in the noteholder litigation, customer claims and IRS review, and changes in the company’s related reserves or insurance recoveries.