Q1 2024 Earnings Summary
- New CEO Wayne West brings valuable experience and is committed to improving Hertz's operations and profitability. He emphasized focusing on unit economics, aiming to improve Revenue per Day (RPD) to the low 60s, reduce Depreciation per Unit (DPU) to the low 300s, and lower Direct Operating Expense (DOE) per day to the low 30s.
- Hertz is optimizing its fleet by rotating out high-cost vehicles and rationalizing the EV fleet, which is expected to reduce costs and improve profitability. The company plans to reduce the EV fleet by 30,000 units to better align supply with demand, lower operating costs, and mitigate residual value risk.
- Investing in enhancing customer experience and leveraging technology to drive revenue growth and pricing power. The company aims to create a frictionless digital experience for customers, improve Net Promoter Scores (NPS), and achieve RPD parity in the marketplace, particularly for its Dollar and Thrifty brands.
- Hertz is facing increased vehicle depreciation costs due to declining residual values, leading to an elevated Depreciation Per Unit (DPU). Excluding electric vehicle (EV) charges, DPU increased from $315 per unit in Q4 2023 to $423 per unit in Q1 2024, an increase of over $100 per unit. This rise negatively impacts profitability and may continue if residual values remain under pressure.
- The company has recorded substantial losses associated with its EV fleet, with EV residuals declining more severely than internal combustion engine (ICE) vehicles. Hertz recognized a $195 million charge for EVs held for sale and an $81 million loss on EVs sold during the quarter. The disposal of an additional 10,000 EVs, increasing the total EV reduction to 30,000 units, may continue to weigh on financial results.
- Operational costs remain elevated, including high repair and collision costs, and the company acknowledges that its cost structure is burdensome. While cost reduction initiatives are underway, the benefits are expected to be backend weighted, suggesting continued near-term pressure on margins.
-
Liquidity Concerns
Q: How will you manage liquidity amid cash burn?
A: We believe we have sufficient liquidity to complete our fleet refresh. By rotating out higher cap cost vehicles and replacing them with lower cap cost ones, we improve liquidity. We don't anticipate a required funding event in the foreseeable future. -
Fleet Costs and Depreciation
Q: How should we think about fleet costs amid used price declines?
A: Depreciation per unit increased due to declining residual values in both ICE and EV vehicles. However, we expect fleet expenditures to remain relatively stable through the year as we tightly manage fleet size and continue rotating into lower cap cost vehicles. -
Fleet Rotation Timeline
Q: How long will fleet rotation to ideal mix take?
A: The fleet rotation will take about 18 to 24 months, extending into 2025. We'll make consistent progress each month, replacing higher cap cost vehicles with lower cap cost ones, which will improve our cost structure over time. -
EV vs. ICE Performance
Q: How are EVs performing compared to ICE vehicles?
A: EVs have higher depreciation than ICE vehicles, with residual values declining more sharply. We recognized an $81 million loss related to EVs. By selling an additional 10,000 EVs (totaling 30,000), we aim to align supply with demand, improving utilization and RPD. -
CEO's Strategic Priorities
Q: What are your priorities as the new CEO?
A: We will focus on operational excellence and customer experience to drive premium revenues and cost efficiencies. Our goals include reducing depreciation per unit to the low $300s, increasing RPD to the low $60s, and reducing DOE per day to the low $30s to achieve attractive unit economics. -
Revenue Per Day Trends
Q: What's driving RPD improvement and outlook?
A: Exiting March, RPD was down 3%, a trend that's continuing into April. Tightening our fleet below demand improved RPD as it allowed us to focus on profitable segments. We expect easier year-over-year comparisons ahead and continue to prioritize rate over volume. -
Cost Reduction Initiatives
Q: How are you mitigating higher repair costs?
A: We've reduced out-of-service vehicles by nearly 250 basis points year-over-year. By consolidating maintenance spend and negotiating better supplier rates, we expect benefits in the second half. We're also targeting over $100 million in corporate cost reductions in 2024. -
Brand Value and Customer Experience
Q: How will you unlock brand value and improve customer experience?
A: We're enhancing the digital and personal service channels to create a frictionless experience that values customers' time. Improving customer satisfaction and net promoter scores will drive pricing power and strengthen our brands, boosting revenue. -
Fleet Growth and Utilization
Q: How will fleet size align with demand?
A: We exited Q1 with our core fleet up only 2%, intentionally keeping fleet growth below demand growth. By optimizing fleet mix—replacing lower-utilization EVs with higher-utilization ICE vehicles—we aim to improve utilization, RPD, and reduce costs.