Hertz Global Holdings, Inc. — Q1 2020 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2020; filed May 11, 2020. Hertz Global consolidates The Hertz Corporation, its principal operating subsidiary. The company rents vehicles globally through Hertz, Dollar and Thrifty, and provides fleet leasing and management through Donlen. COVID-19 sharply disrupted travel demand late in the quarter; the filing also reports significant subsequent liquidity and debt developments through May 11.
Key financial results
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $1.923 billion | $2.107 billion; down 9% |
| Net loss attributable to Hertz Global | $356 million; diluted loss per share $2.50 | $147 million; diluted loss per share $1.54 |
| Adjusted Corporate EBITDA | $(243) million | $(4) million |
| Operating cash flow | $449 million | $514 million |
| Investing cash flow | $(2.097) billion | $(1.855) billion |
| Financing cash flow | $1.701 billion | $939 million |
| Cash, cash equivalents and restricted cash | $1.409 billion at March 31 | $1.360 billion at December 31, 2019 |
| Total debt | $18.754 billion | $17.089 billion at December 31, 2019 |
| Total stockholders’ equity | $1.491 billion | $1.888 billion at December 31, 2019 |
Unrestricted cash was approximately $1.0 billion, including $172 million held outside the U.S.; restricted cash was $392 million. Reported corporate liquidity was $1.042 billion, comprising cash and $25 million available under the Senior RCF. Separately, facilities had $177 million available under borrowing-base limits. Approximately $2.5 billion of vehicle debt and $19 million of non-vehicle debt was due to mature from April 2020 through March 2021. Vehicle debt is largely secured by fleet assets, which generally are not available to general creditors.
Material changes and operating performance
- U.S. Rental Car revenue fell 9% to $1.381 billion; transaction days declined 11%, utilization fell to 67% from 79%, and depreciation per unit per month rose 16% to $298. Adjusted EBITDA shifted to a $199 million loss from $7 million income.
- International Rental Car revenue declined 15% to $368 million (13% excluding foreign exchange); transaction days fell 12%, utilization declined to 66% from 74%, and Adjusted EBITDA loss widened to $45 million from $13 million.
- All Other Operations revenue, primarily Donlen, grew 13% to $174 million; Adjusted EBITDA increased to $24 million from $22 million.
- Consolidated depreciation of revenue-earning vehicles and lease charges rose 14% to $677 million, driven mainly by U.S. fleet levels and weaker residual values. Total interest expense declined to $173 million from $181 million, while vehicle interest expense increased.
- Vehicle purchases and disposals produced net investing cash outflow of $2.134 billion, versus $1.820 billion a year earlier. Q1 financing inflows included $595 million borrowed under the Senior RCF.
Outlook, liquidity, risks and unusual items
- Going concern: Management concluded there was substantial doubt about the company’s ability to continue as a going concern within one year of the report’s issuance. It warned it may not generate sufficient operating cash or obtain financing to meet obligations, and may be unable to repay or refinance debt at maturity.
- COVID-19 outlook: Bookings and travel demand deteriorated, and the company expected material adverse effects through the remainder of 2020, including during its normally strong spring and summer peak season. It provided no specific revenue or earnings guidance.
- Fleet and cost actions: Hertz expected to reduce original U.S. rental-car vehicle purchase commitments by approximately $4.0 billion for the remainder of 2020. It furloughed about 20,000 employees worldwide, reduced capital spending and discretionary marketing, and negotiated over airport rent and concessions. In April, it initiated a restructuring affecting approximately 10,000 U.S. rental-car and corporate employees, mostly previously furloughed; it expected about $30 million of severance and healthcare-related charges over the following 12 months.
- Lease default and creditor relief: Hertz did not make certain Operating Lease payments on April 27. An amortization event applied to all HVF II note series and a liquidation event applied to Series 2013-A variable funding notes. Under May 4 agreements, relevant noteholders agreed to forbear from exercising liquidation remedies, and certain lenders waived specified defaults. Relief was scheduled to expire May 22, 2020, subject to earlier termination conditions; there was no assurance of an extension. A roughly $30 million payment for certain variable rent components was made under the agreements.
- Residual-value and collateral risk: The used-vehicle market was highly challenged; approximately 85% of the worldwide fleet was non-program. Further vehicle-value declines could increase depreciation, Operating Lease payments and required collateral support. The HVF II amortization event also directs proceeds from collateral vehicle sales to debt service rather than new vehicle financing.
- Other items: Q1 included a $20 million gain from additional proceeds on a prior-year sale of non-vehicle assets. Goodwill and indefinite-lived intangible asset testing found no material impairment at March 31, but International RAC fair value exceeded carrying value by only 7% for goodwill and 12% for a tradename; further deterioration could trigger impairment.
Important facts for investors to verify
- Whether Hertz obtained extensions or replacement arrangements beyond the May 22, 2020 creditor forbearance and waivers, and the status of Operating Lease payments.
- Available unrestricted liquidity, near-term maturities, refinancing access and any debt restructuring or additional capital raised.
- Travel bookings, rental volume and pricing recovery, alongside fleet utilization and the pace of cost reductions.
- Used-vehicle resale prices, residual-value assumptions, resulting depreciation and collateral requirements, and any impairment charges.
Adjusted Corporate EBITDA is a non-GAAP measure; it should be considered alongside GAAP results, not as a substitute for them.